Abstract:
Provision of credit has been identified as an important instrument for improving the welfare of smallholder farmers directly and for enhancing productive capacity through financing investment. However, credit use in the study area is very limited and constrained. This study was aimed to investigate the household perception, constraints of credit use and determinants of credit use among smallholder farmers in Misha District. A two-stage sampling procedure was employed to select sample households. Both primary and secondary data sources were used. Primary data were collected from 151 randomly selected samples of 151 credit users and non-users. The secondary data were collected from published and unpublished sources. The data was analyzed using both descriptive and econometric model. In the descriptive analysis frequency, percentage, mean, standard deviation, chi2 and t-tests were used. In the econometric analysis logit model was used to identify factors affecting household credit use decision. The result from descriptive statistics indicated that the limited loan size, lack of impartiality in credit provision, lack collateral, high interest rate, short loan repayment period were reported as the major constraints to smallholder farmers. While, the binary logit model result indicated that out of fifteen explanatory variables included in the model seven were significant. Education levels, landholding size, extension frequency, saving habit were positively associated with credit use. However, distance to Omo microfinance, lending procedure and collateral requirement were important factors negatively influencing formal credit use of smallholder farmers. Therefore, policy aimed to accelerate agricultural development in the area could be successful if these factors and problems are taken into consideration to farmer’s credit use from the formal financial sources. Based on the findings of the study and personal observation of the situation in which the identifying of factors affecting smallholder farmers’ ability to use formal credit services are found, some recommendations are forwarded: the government and other policy makers need to enhance enrolment of formal education, appreciation of saving habit, expansion of road, improving of financial infrastructures, provision of awareness creation training towards the benefit of credit, and improving of lending system in order to improving smallholder farmer livelihoods
