Does Institutional Finance Matter for Agriculture? Evidence Using Panel Data from Uganda
Smallholder agriculture in many developing countries has remained largely self-financed. However, improved productivity for attaining greater food security requires better access to institutional credit. Past efforts to extend institutional credit...
| Main Authors: | , |
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2014/06/19705737/institutional-finance-matter-agriculture-evidence-using-panel-data-uganda http://hdl.handle.net/10986/18827 |
| Summary: | Smallholder agriculture in many
developing countries has remained largely self-financed.
However, improved productivity for attaining greater food
security requires better access to institutional credit.
Past efforts to extend institutional credit to smaller
farmers has failed for several reasons, including subsidized
operation of government-aided credit schemes. Thus, recent
efforts to expand credit for smallholder agriculture that
rely on innovative credit delivery schemes at market prices
have received much policy interest. However, thus far the
impacts of these efforts are not fully understood. This
study examines credit for smallholder agriculture in the
context of Uganda, where agriculture is about 35 percent of
gross domestic product, most farmers are smallholders, and
the country has introduced policies since 2005 to extend
credit access to the sector. The analysis uses newly
available household panel data from Uganda for 2005-2006 and
2009-2010 to examine (a) whether credit effectively targets
agriculture, by examining determinants of borrowing across
different sources; (b) agricultural and nonagricultural
determinants of supply and demand credit constraints among
non-borrowers; and (c) the effects of borrowing and credit
constraints on household income, consumption, and
agricultural outcomes. The analysis finds that although not
many households report borrowing specifically for
agriculture, credit is fungible and agricultural outcomes do
substantially improve with institutional borrowing,
particularly microcredit. Among non-borrowers, supply and
demand credit constraints have fallen considerably over the
period, particularly in rural areas. Access to institutions
and infrastructure play a strong role in alleviating the
negative effect of credit constraints on welfare outcomes,
as well as determining the source of lending among borrowing households. |
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