Abstract

PurposeThe purpose of this paper is to explore smallholder agricultural financing in Ghana’s Northern region by identifying farmers’ preferred traditional and innovative financing methods and estimating the determinants of use of innovative financing methods.Design/methodology/approachThis paper presented a list of documented traditional financing methods to farmers during in-depth interviews and employed descriptive statistics to summarize choice and amounts sourced from traditional methods. Two questions from the survey revealed a felt need for extra financing sources for credit-rationed farmers. Farmers with positive responses to either or both questions were classified as “users of innovative financing”. The authors then used a probit model to examine factors that influence decisions to use innovative financing method.FindingsFarmers’ own savings, reinvesting past season’s profits and financing maize production with income from other commercial crops were the most popular traditional methods. The authors found complementary relations between formal and informal lending systems in the rural financial market. Smallholders also took farm and non-farm “by-day” jobs to raise income for farm investment and/or joined Village Savings and Loans Associations (VSLAs) specifically to take advantage of possible credit opportunities. These two latter methods were operationalized in this study as innovative agricultural financing. The results show that access to credit, social capital and market participation increased the likelihood of using innovative financing methods. Alternatively, farmer group membership, diversity in crop production and being a household head diminished the likelihood of innovative financing use.Practical implicationsThe activities of VSLAs can be regulated and expanded to spread its benefits to more farmers. Also, creating avenues for dry season labour market participation in the region could enable farmers raise capital for farm investment.Originality/valueThis study explores existing practices and farmer innovations to agricultural financing and, by so doing, deviates from the vast literature focussing mainly on microcredit provisioning as the main model of smallholder agricultural financing in Africa.

Full Text
Published version (Free)

Talk to us

Join us for a 30 min session where you can share your feedback and ask us any queries you have

Schedule a call