Masters Degrees (Agricultural Economics)
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Browsing Masters Degrees (Agricultural Economics) by Subject "Agricultural credit accessibility"
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Item Open Access Access to credit and agricultural production in Lesotho(University of the Free State, 2012-01) Motsoari, Charmaine; Van Schalkwyk, H. D.; Cloete, P. C.English: One of the factors hindering development in Lesotho is the limited access to credit. The development of the rural economy in developing countries depends on growth and development in the agricultural sector and other small and medium enterprises. These enterprises constitute the engine of growth, employment and income for the rural community. In an effort to make the landscape of rural finance more attractive and to fulfil the national objectives of increased production, policy makers and donors adopted the conventional approach of advancing credit, where all practices and operational procedures were geared towards the interests of the borrower. The initiatives to advance credit include amongst others, an emphasis on project appraisals, relaxing collateral requirements and the charging of close to market interest rates. Despite the changes, the problem of limited access to financial services still exists. In fact, these approaches (policies) invariably resulted in distortions in the financial markets, and reduced the number of financial products and services to which farmers have access. The purpose of this study therefore, was to examine factors that influence small-scale farmers’ access to credit, thereby affecting their productivity and to make suggestions for government interventions and for the reduction of market failures in the rural financial markets of Lesotho. The study was conducted in two agro-ecological zones in Lesotho, namely; the Lowlands and the Highlands regions. A random sample of districts in the regions was done to select representative districts in each region. Leribe, Mafeteng, and Berea districts represented the Lowlands while Mohale’s Hoek and Thaba-Tseka districts represented the Highlands region. Stratified random sampling was employed to select borrowers and non-borrowers for the study. The study employed the logistic regression model (logit) within the principal component regression (PCR) framework to assess factors affecting small-scale farmers’ access to credit. PCR was used to take care of the multicollinearity between the variables. Firstly, the variables included in the logit model were subjected to principal component analysis (PCA) in order to reduce the variables into a few uncorrelated principal components (PCs). After principal components (PCs) were calculated, PCs with the smallest eigenvalues were eliminated and then PCR was fitted using standardised variables to improve the estimation power of the logit model. The empirical evidence of the study indicates that non-farm income, savings and remittances and pensions confirmed that increasing the household’s total income reduces the probability of a household being credit constrained. This shows that a better household situation affects the decision of the lender to ration the loan or that the household has less demand for loans because of its own equity capital accumulated through past income earnings. Farm income on the other hand, is positive, confirming that a higher farm income may improve the farmer’s creditworthiness and in some cases create a demand to expand production, thus increasing the demand for credit. The study revealed that farm income values of borrowers are higher than those of nonborrowers but lack of baseline data makes it difficult to associate the differences to the loans obtained by borrowers. However, the changes in income among borrowers are linked to the use of credit, confirming the hypothesis that credit has a positive effect on income and improvement of living conditions of credit users. Research into the behaviour of credit institutions in Lesotho will help to explain some of the actions taken by credit institutions, and at the same time assist policy-makers in formulating appropriate interventions.