The determinants of smallholder farmers' access to formal credit; evidence from Uganda agricultural census data 2008 / 2009

Abstract

The broad objective of the study was to examine the determinants of smallholder farmer’s access to formal financial services in Uganda with specific reference to social demographic, economic and institutional factors. Secondary data from Uganda Agriculture Census 2008/2009 conducted by Uganda Bureau of Statistics in the 80 districts of Uganda as of July 2007 was used answer objectives of the study. This data was subject to univariate, bivariate and multivariate analysis to establish the social demographic, economic and institutional factors influencing access to formal financial services credit by smallholder farmers. At multivariate analysis, logit regression model was used to examine the determinants of smallholder farmers access to credit. From the logit model, empirical results from the regression indicates that social demographic factors of education and age of household head were significant (p-value=0.000 and 0.032) respectively but education level was more significant because its odds ratios were greater than one (primary=1.183, secondary=1.267 and postsecondary1.463) compared to farmers aged more than 44 years with odds ratio=0.942. Farmers with farm size >2 hectares was a more significant economic factor in accessing credit (odds ratio=1.119, p-value=0.000) compared to farmers who did not own livestock (odds ratio=0.923, p-value=0.001). Among the institutional factors hypothezed, farmers who accessed extension services had odds ratio 2.556 and p-value= 0.000 while a member of farmer group had odds ratio of 1.412 and p-value= 0.000) thus smallholder farmers who accessed extension services had more chances to access credit as seen by the odds ratio. The study therefore recommends the need for policy support for improved credit access, empowerment and involvement of the youth, more innovative ways of utilizing the small pieces of land and where possible seek the leasing option, promotion and support of UPE, USE and UTE government education programs, the need to decentralize extension services from sub county to village level, encourage farmers to form and join farmers groups and own livestock to improve their chances of accessing credit. Credit policy on rural micro-finance lending needs to be formulated in order to mobilize savings and maximize the available credit to the farming population in rural areas of Uganda