Abstract
Agricultural credit is a vital policy in improving farm performance since agricultural households face financial constraints in their business. This study aims to: (1) examine the impact of credit s on agricultural productivity while investigating the difference in impact generated by loans originating from governmental program loans and nonprogram loans and; (2) identify the characteristics of farm households that influence the use of credit in their business. This study employed cross-sectional micro-data at the household level drawn from the 2013 Indonesian Agricultural Census, in which 86,922 rice farm households were randomly selected as the research sample. The model was examined by using Two-Stage Least Square to avoid the selectivity bias. Results show that credit originated from government programs has a small impact on agricultural productivity, although the significant correlation appears. Furthermore, the use of credit, both government programs, and non-programs are determined by socio-economic aspects, agricultural subsidy, perceptions on risks, and perception on-farm profitability. Based on the results, the provision of credit to agricultural activities has to be supported by the provision of supporting incentives, such as agricultural counseling and irrigation facilities, in order to boost agricultural productivity effectively.
Highlights
The agricultural sector still holds a vital role for the Indonesian economy because this sector contributes around 13.5% to the Gross Domestic Product (GDP) and creates employment for 33.5% of the total workforce in Indonesia [1]
This study aims to: (1) examine the impact of credit used by farm households on agricultural productivity while investigating the difference in impact generated by loans originating from governmental program loans and non-program loans and (2) to identify the characteristics of farm households that influence the use of credit in their business
The objective of this study is to identify the impact of credit on agricultural productivity at the level of farm households in the context of rice farming
Summary
The agricultural sector still holds a vital role for the Indonesian economy because this sector contributes around 13.5% to the Gross Domestic Product (GDP) and creates employment for 33.5% of the total workforce in Indonesia [1]. Increasing agricultural productivity growth and encouraging development programs related to the agricultural sector has proven to be able to reduce poverty levels in Indonesia [2,3], especially in rural areas where 58% of the sparse population exists. Increased agricultural productivity cannot be carried out partially by the main actors of farming, namely farm households. This process requires intervention in the form of incentives to provide an accelerating effect for farm households that have limited resources. It is stated that increasing agricultural productivity requires adequate capital accumulation. Providing credit to farm households, especially small farmers who have limited financial resources, is an essential requirement. Credit can increase the capitalization of farmers to allocate more resources, especially to adopt better technology and invest more profitably [5,6,7]
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