Abstract
This study examines credit demand by maize farmers and analyses factors influencing their use of informal and formal credits. The analysis is based on data collected from a survey of 590 maize farmers in seven districts of Ashanti and Brong Ahafo Regions of Ghana during May-July 2010. Descriptive statistics, probit and bivariate probit models were used to analyse the data. The study revealed informal credit sources for maize farmers as relatives and friends, traders and private money lenders. Maize traders are major players in the informal credit market followed by agricultural input sellers. Among the formal sources rural banks are the most prominent. Regional location, Gender, engagement in other economic activities and the level of agricultural commercialisation were observed to be factors that influence farmers’ demand for informal credit. In addition to these factors, farmer years of education and proximity to financial institution influence demand for formal credit. The result of the bivariate probit suggests that formal and informal credits are not necessarily perfect substitutes but they complement each other to provide credit needs of farmers in maize production.
Highlights
The rural financial market in developing countries is composed of formal, semiformal and informal financial institution (Hussain and Demaine 1992; Steel and Andah 2005). Ghate (1992) defined formal financial services providers as registered companies that are licensed to offer financial services by Central Monetary Authority
According to Kashuliza et al (1998) informal financial services refers to all transaction, loans and deposits that take place outside the regulated monetary system this include activities of intermediaries such as relatives and friends, traders, money lenders
The aim of this study is to identify actors within the financial market in the Ashanti and Brong Ahafo regions of Ghana and factors influencing maize farmers’ demand for formal and informal credit and evaluate if their demand for these credit forms are complement or substitute
Summary
The rural financial market in developing countries is composed of formal, semiformal and informal financial institution (Hussain and Demaine 1992; Steel and Andah 2005). Ghate (1992) defined formal financial services providers as registered companies that are licensed to offer financial services by Central Monetary Authority. Ghate (1992) defined formal financial services providers as registered companies that are licensed to offer financial services by Central Monetary Authority. He asserted that these institutions are largely urban – based in terms of distribution of branches and the concentration of deposit and lending activities. According to Kashuliza et al (1998) informal financial services refers to all transaction, loans and deposits that take place outside the regulated monetary system this include activities of intermediaries such as relatives and friends, traders, money lenders. Semiformal institutors are described by Steel and Andah (2005) as institutions which are registered to provide financial services and are not controlled by central monetary authority.
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