Abstract
Credit is a crucial factor for tea growers to pay for physical farm inputs mainly input fertilizers, research and development of high yielding tea clones and labour in order to improve the production of green tea leaf and to meet factories’ demand for raw materials. However, mismanagement of accessed credits by farmers has been reported among the snags affecting the sector development. The study analyzed the determinants and impact of credit utilization on farm income among smallholder tea growers in Nyaruguru District, Rwanda. Crosssectional tea household level data were collected from 358 farmers randomly selected from tea cooperatives. The credit utilization and causal effect were estimated using the Endogenous Switching Regression model. Results showed a positive and significant relationship between credit utilization and tea farm income. Precisely, the causal effect of credit is a 7% increase in tea income for farmers who utilised credit for tea production, while its potential effect is up to a 55% decrease in tea income for those who divert credit for out-off tea production uses. Furthermore, training on good agricultural practices and credit management, cost of farm inputs, labour and access to group credit significantly influence utilization of credit for tea production. However, the size of credit (cash) and off-farm businesses significantly increase the diversion of credit and level of tea farm income. Tea farmers are encouraged to use tea credits for planned projects. Sensitizing farmers to procure farm input fertilizers in bulk through cooperatives should be vigorously pursued to discourage credit diversion.
 Key words: tea credits, tea farming households, farm income, endogenous switching regression
Highlights
Agriculture investment is a national priority for transforming agriculture and greater financial inclusion
Characteristics and Descriptive Statistics of the Respondents The age of the respondent is positive and significant at a 5% level (Table1). This implies that farmer’s age is positively correlated with credit utilisation decision. This shows that older farmers show the uprightness in utilising credit for tea production than youth as they are risk-averse to venture for income diversification (Langyintuo and Mekuria, 2005)
The results revealed that credit employment has a positive effect on tea production and income
Summary
Agriculture investment is a national priority for transforming agriculture and greater financial inclusion. The yielded substantial progress in financing agriculture results from government’s funding measures for access to financial services for farmers and agribusinesses through the Financial Sector Development Program (2013-2018), The National Financial Inclusion Strategy (NFIS) and the National Agriculture Policy (NAP) (GoR, 2012). Rwanda so has two key market development entities-the Development Bank of Rwanda (BRD) and the Business Development Fund (BDF) both are active in the financing agriculture sector. Through the National Bank of Rwanda (NBR) there is a system of monitoring credit disbursed to the agriculture by value chains and value chain stages in all financial institutionscommercial banks, Microfinance (MFIs) and SACCOs. According to the World Bank (2018), agri-finance is a key focus area for Access to Finance, and Rwanda plays a role of a specialized donorfunded initiative and for the World Bank’s lending projects. The loans for agriculture increased from 57 billion in 2012 to a 90 billion in 2016 (World Bank, 2018) with agri-processing and tea production as the leading investment over this period
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