| Abstract: |
Credit constraint is considered by many as one of the key barriers to adoption
of modern agricultural technologies, such as chemical fertilizer, improved
seeds, and irrigation technologies, among smallholders. Past research and much
policy discourse associates agricultural credit constraints with supply-side
factors, such as limited access to credit sources or high costs of borrowing.
However, demand-side factors, such as risk-aversion and financial illiteracy
among borrowers, as well as high transaction costs, can also play important
roles in credit-rationing for smallholders. Using primary survey data from
Ethiopia and Tanzania, this study examines the nature of credit constraints
facing smallholders and the factors that affect credit constraints. In
addition, we assess whether credit constraints are gender-differentiated.
Results show that demand-side credit constraints are at least as important as
supply-side factors in both countries. Women are more likely to be credit
constrained (from both the supply and demand sides) than men. Based on these
findings, we suggest that policies should focus on addressing both supply- and
demand-side credit constraints, including through targeted interventions to
reduce risk, such as crop insurance and gender-sensitive policies to improve
women’s access to credit. |