Analysis of factors associated with access to credit from formal financial institutions among the farmers in Ndeija SubCounty, Rwampara District

Abstract

Agriculture finance has been considered a driving input towards the success of Agricultural production hence helping the subsistence farmers to maintain their expenditure on basic needs and increase their incomes (Horda and Terway 2018). Agriculture as a strategic sector provides subsistence and income to a large portion of the population but also contributes to national economy and therefore the need for reliable and timely data about accessibility of financial services is important for policy makers (FAO in Uganda, 2022). Credit is very important for agricultural sector to uplift the level of productivity of output such as food for the population. Farmers always obtain less crop production due to inadequate capital and agricultural credit is the alternative capital to increase productivity in developing countries like Uganda. This study investigates the determinants of access to credit and constraints of households with respect to both formal and informal financial institutions in Ndeija Sub county, Rwampara district. The target population was farmers who access credit in Rwampara, 60 respondents were simple randomly sampled and data was collected by cross section surveys using a questionnaires and face to face interviews. The results showed that 46 out of 60 farmers covering 76.66 percent had accessed credit while 14 famers covering 23.33% had not accessed credit. Results showed that 67.39% of the people who accessed credit got it from informal sources while 32.62% accessed credit from formal sources. 30.43% had accessed credit from SACCOs, 13.04% from banks, 17.39% from microfinance, 19.57% from money lenders and also 19.57% from family and friends. The findings of this study showed household head age in years, land owned by household, the education level and the marital status of the respondents were the variables which were presumed to have an impact on the access of credit using a probit regression model. From the results of this study, the distance between home and credit source and the household size do not impact credit access. Finally, Lack of clear business records is the biggest challenge facing farmers accessing credit from formal sources like banks and MFIs with 80% whereas high interest rate was the biggest constraint facing famers accessing credit from informal sources like money lenders, family and friends with 90.9%.