The Determinants of Institutional Credit Access of Smallholder Farmers in woreda Raya Alamta. Southern zone of Tigray, Northern Ethiopia

Abstract

This study aimed to analyse the determinants of access to formal credit by smallholder farmers in Raya Alamata Woreda. Preferences of smallholder farmers towards financial credits was scored and ranked, sources of financial credit for smallholder farmers were assessed and factors affecting formal credit access of small holder farmers were analysed and identified in the study areas. A stratified random sampling procedures were employed to select three rural Kebele administrations and 167 farm household heads were selected using probability proportional to size. Semi-structured interviews were employed for collecting quantitative data from the sampled farm households in the study area. Three Focus group discussion, fifteen key informants’ interview and field observations were held to generate qualitative data. Ranking techniques of credit sources were applied to know the preferences of all respondents and focus group participants for credit sources. Descriptive statistics and binary logit model were employed for analysing the quantitative data. STATA version 14 was used for data analysis. The results of the study were indicated that, out of 167 respondent house hold heads, 74 of the sampled farm households were formal credit users, whereas the remaining 93 of the respondents were non-users. Relatives, friends and neighbours were preferred as the best credit source for borrowers in the study area than other sources due to its interest free, low transaction cost and adjustments of repayment time. In the study areas, access to formal credit services of smallholder farmers was limited due to some-times inconvenience of group lending in which group members took responsibility of paying the defaulters risk, high interest rate charged on borrowers and some respondents having external financial supports. But, the logit model results reveal that sex of household heads, attitudes of household heads towards credit risks, preference of household heads for group lending, age of the household heads and experience of the household heads in credit using are important factors significantly affecting access to formal credit by smallholder farmers.