Potential of Fragmented Landholding on Crop Diversification and Credit Worthiness to Smallholder Farmers in Tanzania

Abstract

In most developing economies, agriculture sector is dominated by smallholder farmers who are faced with unstable crop output and income due to dependency on unpredictable weather and market conditions. Most farms in Tanzania are in fragmented landholdings which do not adequately provide appetite to financial institutions’ financial support. Smallholder farming is perceived by most financial institutions in Tanzania as a risky business and hence receives inadequate financial support. This situation hampers the efficiency and sustainability of farming as business by smallholder farmers. The potential of fragmented landholdings on crop diversification and credit worthiness to smallholder farmers have not been explored in Tanzania. The current paper presents findings on the potential of crop diversification in promoting smallholder farmers’ credit worthiness. Key findings are that, fragmented land holdings offer avenue for crop diversification which reduces variability of farm output and income given the changing climate and crop market dynamics. The policy implication is that, smallholder farming in fragmented landholdings is potentially credit worthwhile borrower. For effective support to smallholder farmers, financiers should consider crop diversification and yield status when assessing farmers’ credit worthiness as alternative to collaterals and hence lowering interest rate charged to borrowing farmers with reduced credit default risks.