Informal financial market in Ghana: factors influencing participation by maize farmers

Abstract

The study examines characteristics of informal financial market in Ghana and identifies the determinants of maize farmers’ participation in informal financial market. The analysis is based on data collected from a survey of 595 maize farmers in seven districts of Ashanti and Brong Ahafo Regions of Ghana during May-July 2010. Descriptive statistics, Analysis of Variance (ANOVA) and logit model were used to analyse the data. The study revealed that intermediaries operating within the informal financial market are relatives and friends, maize traders, farm input sellers and private money lenders. Maize traders are major players in the informal credit market followed by agricultural input sellers. Also the study revealed that informal lenders accept maize for loan repayment. Analysis of variance suggests that the mean loan period and amount were not statistically significant among informal lenders. However, there is significant difference among interest rate offered by informal lenders. From the logit result regional location, gender, engagement in other economic activities and the level of agricultural commercialization were observed to be factors that influence farmers’ demand for informal credit. A policy that would empower traders to offer credit to farmers would not only increase access to credit but also trade, consequently farm income which may promote savings and access to credit. Also, access to informal credit can be improved through development of market centres.