Determinants of credit demand by smallholder farmers in Morogoro, Tanzania

Abstract

Agriculture plays a great role in the economy of many countries including Tanzania where the majority depends on agriculture-based activities for their livelihoods. Access to agricultural credit is vital for growth and development of agricultural sector in Tanzania, hence financing agriculture is a key issue in rural development. Despite effort of the Government to make agricultural credit services available and affordable to its majority, access to credit among smallholder farmers is still very low. The aim of this study was to assess the determinants of credit demand by smallholder farmers. A multistage sampling technique was employed in this study. Ten (10) wards were selected with 30 respondents   from each ward making a sample of 300 smallholder farmers. A binary logistic regression model was used to analyze the influence of smallholder farmer’s socio-economic characteristics on credit demand. The maximum likelihood estimates of the logistic regression revealed that access to agricultural credit among smallholder farmers was determined by age of the respondents, gender, number of years of schooling, household size, distance, awareness, collateral, type of crops, farm size, contact with extension services, membership to economic farm groups, location of the farm and interest rate. However, gender of the respondent, distance, collateral and interest rate though statistically significant, had negative influences on smallholder farmer’s decision to demand and access agricultural credit. The study recommends that Microfinance Institutions (MFIs) should be strengthened and smallholder farmers be ensured to access agricultural credit with minimum and bearable formalities for agricultural development in Tanzania. Key words: Credit, demand, smallholder farmers, agriculture, microfinance institutions.