EMPIRICAL ANALYSES OF FINANCIAL CREDIT ON SMALLHOLDER FARMER’S PRODUCTIVITY MODELLING FARMERS CREDIT ALLOCATION FROM RURAL BANKS IN SIERRA LEONE

Abstract

Sierra Leone has experienced an increase in farmers’ accessibility to financial credit facilities in recent time. Financial credit plays a significant role in enhancing productivity and efficiency within the agricultural sector of emerging nations, and Sierra Leone is not exempt from this trend. The present study investigates the allocation of financial credit among farmers and its impact on technical efficiency. A three-stage sampling methodology was employed to gather cross-sectional data from a sample of 500 agricultural producers in Sierra Leone. The objective of this study was to evaluate the influence of financial support on agricultural productivity, with the ultimate goal of enhancing economic and technical efficiency. The evaluation of the effect of allocation techniques on technical efficiency is conducted through the utilization of the random frontiers truncated-normal with the conditional average model. The present study employed the Heckman treatment effect model and stochastic frontier analysis (SFA) to examine the production efficiency of smallholder farmers. The study’s empirical findings indicate that the provision of financial assistance by community banks has a notable and favorable impact on the technical efficiency of farmers. Despite the presence of many constraints, farmers’ access to financial financing remains limited. This is reflected in the total technical efficiency of farmers, which was measured at 0.81 (81%). This indicates that none of the farmers were able to achieve a production threshold of 1 (100%). Nevertheless, it is worth noting that the average disparity in efficiency between individuals who borrowed and those who did not borrow was 0.09, equivalent to a 9% variation. This finding provides further evidence supporting the notion that access to financial credit has a beneficial effect on the efficiency of farmers. This, in turn, leads to a reduction in the severity of poverty and extreme poverty. Despite facing challenges such as pest and disease infestations, financial constraints, and unpredictable weather conditions, the inefficiency model demonstrated that factors such as education, membership in a farmer-based organization, experience, access to credit, and participation in a government-sponsored mass spraying program had a notable and favorable influence on efficiency scores. Hence, it is advisable to propose a policy aimed at enhancing the accessibility of financial services from community and rural banking institutions that includes every group of smallholder farmers in Sierra Leone.