Determinants of credit access by smallholder farmers in North-East Benin

Abstract

Financing agriculture is a key issue in rural development. Despite the efforts of the government to make credit services available and affordable in most of the rural areas, access to credit among smallholder farmers remains low. This paper analyzes the determinants of credit access by farmers in the North East, Benin. Primary data were collected from one hundred and twenty respondents randomly selected and interviewed through structured questionnaire. A Logit model was specified to identify the relationships between access to credit and selected farmers’ socio-economic characteristics. Following this, the marginal effects of the selected farmers’ socio-economic characteristics on the probability to access credit were estimated. The analysis revealed that access to credit among smallholder farmers is determined by the number of years of schooling, literacy, membership, guarantor, collateral and interest rate. For each additional year of schooling, the likelihood of access to credit was found to increase by 3.9% while literacy in the local language was found to increase the likelihood by 10.9%. Membership of farmers’ cooperatives was found to increase the likelihood of access to credit by 31% while having a guarantor increases this likelihood by 18.9%. However, the availability of collateral decreases the likelihood of credit access by 12.4% while credit with high interest rates decreases it by 11.7%. Thus, to improve rural farmers’ access to credit, governments and non-governmental organizations should promote education, literacy and cooperative membership among farmers. Moreover, financial institutions should also play a key role by keeping interest rates for loans at a low level.   Key words: Smallholder farmers, credit, determinants, logit, Benin.