Determinants of Demand for and Repayment of Farm Credit in Economies with Market Coordination Failures: A Tanzanian context

Abstract

This study examines the determinants of farmers’ participation in farm credit market in Tanzania. Both neoclassical economics and new institutional economics perspectives were applied in the current study to analyze determinants of demand for- and repayment of farm credit for Tanzania respectively. Data were collected from a survey of 75 agrocredit contracts in Western Tanzania. The demand analysis of farm credit has shown that demand for farm credit is determined by incentive and capacity to acquire the credit. It is argued that in economies with market  coordination failures the demand for farm credit can only be justified if farmers are capable and willing to repay the credit they acquired in the past. It was also found out that the agrocredit repayment rate by borrower farmers in the study area increased with increase in implied cost of forms of coercion used to enforce repayment, quality of borrower farmer’s characteristics, utility cost of borrower’s degree of guiltiness or shame, value of multilateral relationships with market actors and value/volume of borrowed agrocredit. The paper concludes that under market coordination failures, the investment in social network and personalised relationships is inevitable in promoting supply and hence effective demand for farm credit

Key words: farm credit demand, farm credit repayment, market  coordination failures