Rural Financial Inclusion: Prospects and Challenges of Collective Action in Extending Financial Services among Rural Smallholders Farmers in Tanzania

Alvin Uronu

doi:10.11648/j.ijae.20180302.11

Abstract

The paper presents prospects and challenges of the collective action in facilitating access to financial services among smallholder farmers in rural areas. It is based on data collected through Focus Group Discussions (FDGs) from 11 cases of Savings and Credit cooperatives (SACCOs), Primary Agricultural Marketing Co-operatives (AMCOS) and Farmers Associations (FA) in Dodoma and Morogoro regions in Tanzania. By using the content analysis, the paper presents three major findings. First, the groups are much relevant in strengthening the ability of the smallholder farmers to access financial services. Second, The majority of smallholder farmers rarely payback their loans obtained through wholesale borrowing. Thus, wholesale group lending results into ineptness which leads to debt frightening. Failure to repay their loans increases financial burden as interest and fine enlarge the loan size. Consequently, frightening cooperation and sustainability of groups and deepening poverty among smallholder farmers. It was further observed that, the main reason for poor repayment of the loans is poor group lending implementation arrangements. Thus, the paper proposes the implementation arrangement of the wholesale lending method that would reduce financial risks and ensure sustainability of the groups.

Highlights

In developing countries including Tanzania, the agricultural sector employs more than fifty percent of the people in which most of them are rural smallholder farmers
All the groups (SACCOS, Agricultural Marketing Co-operatives (AMCOS), and Farmers Associations (FA)) were used because they are used by financial institution to reach individual farmers
Both of these groups are formed by smallholder farmers who own an average of one to ten hectares and 90% based on rain-fed agriculture as collective actions

Summary

Introduction

In developing countries including Tanzania, the agricultural sector employs more than fifty percent of the people in which most of them are rural smallholder farmers. A real development and ending poverty strategies in such countries has to focus on the agricultural sector. A small proportion of credit goes to small scale farming activities because of high risk and unusually repayment schedules which do not fit the financial requirements (Harper, 2007), especially from formal financial service providers. This scenario, globally, necessitates researchers and policymakers to focus on addressing suitable financial access sources and techniques that would promote rural development (Roberts et al, 2017). Despite the advantages of group lending to the lenders, some previous researchers including Baland et al (2017) are pessimistic that, group lending does harms the members of the group as well

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Conclusion