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The greatest challenge to food security is low productivity emanating from slow growth in the
agricultural sector and one of the reasons for this is little or no access to financial resources by
producers. Credit is one of the empowerment tools that have the potential to boost the productivity,
increase food security and change the life of farmers from a situation of abject poverty to a more
dignified life in the long run. Using a household survey data from United State Agency for International
Developments feed the future initiative; this study employed the logistic regression model to
investigate the factors influencing households demand for agricultural credit placing much emphasis
on membership to organization. A total sample size of 2,330 farm households selected from Northern
Ghana was used. The results of the logistic regression model revealed significant and positive
variables such as age, education, group membership and source of credit. We therefore call on
stakeholders to encourage formation of cooperative groups to enable farmers pull resources together
or streamline loan application procedures, intensify education of farmers on loan procedures and
promote flexibility in types of collateral demanded by financial institutions in order to enhance access.
Key words: Credit access, farmers, food security, Ghana, logit model.
INTRODUCTION
Declarations from the various international conferences,
since 1992, identified food security as one of the
underlying and cross-cutting issues that require
concerted action in order to ensure the sustainable
reduction of absolute poverty and thus achieve the
Millennium Development Goals (MDGs) in Africa (MoFA,
2007). Undoubtedly, the food and agriculture has been
recognised as the simple and most influential sector with
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LITERATURE REVIEW
Agricultural credit has been defined as the present and
pro tem transfers of purchasing power from a person who
owns it to a person who wants it, allowing the latter the
opportunity to command another persons capital for
agricultural purposes but with confidence in his
willingness and ability to repay at a specified future date
(Kuwornu et al., 2013). In other words, a transaction
between two parties in which one, acting as creditor or
lender, supplies the other, the debtor or borrower, with
money, goods, services, or securities in return for the
promise of future payment is known as credit (Kosgey,
2013). A household is therefore said to have access to a
type of credit if at least one of its members has a strictly
positive credit limit for that type of credit. Credit can be in
cash or in kind. However, this study dwelled on both cash
and formal source of credit.
Several studies in developing countries on credit
access by farmers have considered a broad range of
factors and concluded that factors that determine farmer
credit access vary from one geographical area to
another. For instance, using a stepwise linear regression
analysis to determine the relationship between socioeconomic characteristics of farmers and their rate of
accessibility to agricultural credit, Etonihu (2013)
concluded that education, distance to source of credit
and types of credit source were significant factors
affecting farmers accessibility to agricultural credit in
Nigeria.
Schmidt and Kropp (1987) revealed that the type of
financial institution and its policy will often determine
access. They further revealed that where credit duration,
terms of payment, required security and the provisions of
supplementary services do not fit the needs of the target
group, potential borrowers will not apply for credit even
where it exists and when they do, they will be denied
access. Bigsten et al. (2003) and Fleisig (1995) stated
that in developing countries asymmetric information, high
risks, lack of collateral, lender-borrower distance, small
and frequent credit transactions of rural households make
real costs of borrowing vary among different sources of
credit.
In addition, Okurut et al. (2005) employed a logit model
to investigate factors that influence both credit demand
and supply in Uganda by using observed household and
individual characteristics. The household characteristics
that influenced demand included age, education, and
household expenditure per adult equivalent. They further
argued that, household composition, migration status and
credit demand is higher for males than females and for
households with a higher dependency ratio. Demand for
credit is less in households with sick members and more
land assets per adult equivalent, while gender does not
play a significant role in the demand for credit.
Atieno (2001) did an empirical assessment on the
formal and informal institutions lending policies and
Hananu et al.
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Afr. J. Agric. Re
(1)
Where Yi is equal to one (1) when a choice is made to adopt and
zero (0) otherwise; this means:
Yi = 1 if Xi is greater than or equal to a critical value, X* and Yi = 0 if
Xi is less than a critical value, X*. Note that X* represents the
combined effects of the independent variables (Xi) at the threshold
level. Equation (1) represents a binary choice model involving the
estimation of the probability of adoption of a given technology (Y)
as a function of independent variables (X). Mathematically, this is
represented as:
(2)
(3)
Where Yi is the observed response for the ith observation of the
response variable, Y. This means that Yi = 1 for an adopter (that is,
farmers decision to demand for farm credit) and Yi = 0 for a nonadopter (that is, farmers decision not to demand for credit). Xi is a
set of independent variables associated with the ith individual, which
determine the probability of adoption (that is, farmers decision to
demand for credit), (P). The function, F may take the form of a
normal, logistic or probability function. The logit model uses a
logistic cumulative distributive function to estimate, P as follows
(Pindyck and Rubinfeld, 1998):
(4)
(5)
The implication for applying the logit model in this paper is that, the
farmer would decide to demand credit at a given point in time when
the combined effects of the factors assumed to influence farmers
decision to demand for credit exceed the reaction threshold. Based
on the conceptual framework, the empirical model is estimated
using the farmers characteristics plausibly assumed to influence
their credit decisions. The covariates include farm and farmer
characteristics such as sex, age, age squared, education, farm
size, household size, income, group membership and source of
credit. The empirical model for access to agricultural credit is
specified below:
= constant
DATA
The data use for this study is from the United States Governments
Feed the Future (FTF) initiative that aims to support growth of the
agricultural sector and promote good nutrition to attain its key goal
of sustainably reducing global hunger and poverty. The survey was
implemented in the three northernmost regions of Ghana namely:
Upper West, Upper East, and Northern Region, as well as some
selected areas in Brong Ahafo Region, to provide baseline data on
the prevalence of poverty, per capita expenditures, nutritional
status, womens empowerment, household hunger, dietary diversity
and infant and young child feeding behaviours. The survey was
funded by USAID and implemented by USAID-Ghana Monitoring
Evaluation and Technical Support Services (METSS), Kansas State
University (KSU), University of Cape Coast (UCC), the Institute of
Statistical, Social and Economic Research (ISSER) at the
University of Ghana, and the Ghana Statistical Service (GSS) with
US Department of Agriculture (USDA) and USAID providing
technical support.
Multistage sampling procedures were applied and carried out in
the three northern regions of Ghana as well as areas above the 8th
Parallel in the Brong Ahafo Region of Ghana. In the first stage, a
probability sampling methodology was employed to select two
hundred and thirty EAs from all the EAs within the ZOI based on the
Ghana 2010 Census data. The areas in the ZOI were then divided
into two strata (that is, agriculture-nutrition intervention area as
Strata I and agriculture only intervention area as Strata II) in the
second stage to ensure an adequate number of respondents for the
two strata. This resulted into an effective sample size of 4580 and
was rounded up to 4600 to give further cushion for the likelihood of
non-response. Maize farmers were then excised from the total
sample for the purpose of this study. On the basis of predominance
of maize farmers, the Northern region was selected for the study.
The data set (which was used for the analysis in this study) is
therefore made up of 2330 maize farmers from Northern Region.
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Table 1. Definition/measurements and the expected signs of the variables used in the logit.
Model variable
Demand for Credit
Sex of the farmer
Age of the farmer
Level of education
Farm size
Household size
Income
Group membership
Source of credit
Definition/measurements
Dummy (1 = if household has access to credit and 0 if otherwise)
Dummy (1 = male; 0 otherwise)
Number of years
Dummy (1 = formal education; 0 otherwise)
In acres
Number of people
Amount in Ghana Cedis
Dummy (1 if the farmer is a member of a group and 0 otherwise)
Dummy (1 if the farmer access credit from informal source and 0 otherwise)
Expected sign
+
+
+
+
+
+
+
-
Variable
Demand for Credit
Gender of the farmer
Age of the farmer
Level of education
Farm size
Household size
Income
Group membership
Source of credit
Mean
0.4925
0.3104
42.9768
0.5006
3.9659
6.0125
459.0382
0.4981
0.4963
Standard deviation
0.5001
0.4628
15.9056
0.5001
4.9603
3.5232
1396.1240
0.5001
0.4388
Table 3. Logit regression results of the factors influencing access to agricultural credit.
Variable
constant
Sex
Age
Age square
Education
Farm size
Household size
Income
Group membership
Source of credit
Number of observations
LR Chi-square (9)
Probability Chi-square
Log likelihood
Pseudo R2
Coefficient
-1.9422
-0.7044
0.0384
-0.0003
1.9523
0.0147
-0.0522
-0.0001
0.2159
1.2352
2329
754.35
0.0000
-1236.903
0.2337
Standard Error
0.3915
0.1193
0.0174
0.0002
0.1027
0.0122
0.0150
0.0000
0.1000
0.1121
Z
-4.96***
-5.91***
2.20 **
-1.74*
19.02***
1.21
-3.48***
-2.33**
2.16**
11.02***
*, **, *** denote significance at 10, 5 and 1% respectively. Source: Authors computation, 2014.
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Hananu et al.
Competing Interest
Authors have declared that no competing interest exist.
ACKNOWLEDGEMENTS
The authors are grateful to the USAID-Ghana, the
Kansas State University (KSU), University of Cape Coast
(UCC), the Institute of Statistical, Social and Economic
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