Why do small farmers have less access to credit? a microdata analysis of the Peruvian case

Abstract

Small farmers face many challenges regarding financial inclusion, which adversely affect farm productivity and reduce their income and welfare, especially in developing countries. An optimal comprehension of financial services in specific contexts is a significant challenge, especially for smallholders. So, the question is obvious: Why do small farmers have less access to credit? The main purpose of the present study is to estimate the impact of the determinants of credit access in the Peruvian agricultural sector from 2015 to 2019, considering farm size in different geographic areas, using an econometric methodology for cross-sectional data. The study used data extracted from the Peruvian National Agricultural Survey. The results reveal the probability of farmers accessing credit. However, it varies according to farm size, and was, on average, around 30% at the national level, whereas the size of the farms was identified as a crucial factor. Being a smallholder reduces farmers’ probability of access to credit, while being a large-scale farmer nearly doubles this probability. Furthermore, the study estimated the trend in the odds ratios, which are associated with certain characteristics of the farming population in Peru.