| Abstract: |
Credit constraints are among key challenges to unlocking the great economic
and social potentials of small farm agriculture in sub-Saharan Africa. This
research sets out to analyze the extent to which farmers are
credit-constrained, the underlying generating mechanisms, and how financial
inclusion through the reduction or elimination of credit constraints would
benefit smallholders in the specific agro-ecological region of the Senegal
River Valley. So far the literature tends to focus on credit applicants when
defining access to credit dummy, ignoring in the process the vast majority of
farmers who stay out of the market. Instead, the paper recognizes that credit
constraints come in different forms to the extent that they translate into
market entry barriers at the pre-application stage (ex-ante) or contribute to
deteriorate the credit profile at the post-application stage (ex-post).
Farm-level data are used, and a model that controls for both endogeneity and
farmers’ self-selection into the credit market is developed. The results
suggest that credit constraints, mostly originated from high transaction costs
and high risk, are harming farmers’ performance, and access to credit leads to
increased yields and labor productivity. The extent of the gains depends on
the stage at which the constraints manifest themselves, as well as the
performance indicator and the reference group. These results suggest various
policy options to be considered in order to unlock the economic and social
potentials associated with financial inclusion in the farming sector. |