Characterization of smallholder farmers and agricultural credit institutions in Rwanda

Abstract

The significance of access to agricultural credit in perpetuating agricultural productivity is unquestionable, because it is a means to achieving optimal productivity. The minimization of any barriers to agricultural credit access should, thus, be a global priority. One of the most significant and current barriers to agricultural credit access is information asymmetry which results into mutual distrust between lending institutions and  borrowers in this case the smallholder farmers. To address information asymmetry, both the lending institutions and borrowers need to have definitive descriptive information about either party. Without the profiling of institutions and potential borrowers, an information gap persists, thereby increasing mutual distrust. This study addresses that gap, in the context of Rwanda by characterizing smallholder farmers and agricultural credit institutions. A cross-sectional survey design was used in this study with smallholder farmers and staff in agricultural credit institutions in the Eastern, Western, and Central provinces of Rwanda as the units of analysis. A multistage sampling procedure was used, with stratified sampling of administrative levels spanning from province (stage 1) to districts (stage 2) and sectors (stage 3), followed by a simple random sampling of cells per sector, and the convenience sample of households. Staff in the financial institutions were purposively sampled. The data collected was analyzed using principal component analysis and cluster analysis with the K-means statistic (SPSS version 25). The largest cluster of smallholder farmers has the following characteristics:  household size of 1 to 5 people, farmers with education, owning arable land not exceeding a hectare, with more than five years of farming experience, earning from other off-farm activities, with no dependents under five years of age, and renting less than an acre of land. As for agricultural credit institutions, the largest cluster has following compositions: have mechanisms or measures established for managing loan defaults with the  majority using refinancing, rescheduling, and collateral release, with variable loan payback options, and provide targeted agricultural credit to farmers such as agricultural input premium. The research findings are particularly pertinent for maize- and rice-growing farmers, and how to reduce the information gap and the implications of broadening access to credit to smallholder farmers were discussed. This study emphasizes the need for characterization for both parties to be better informed about the characteristics and dynamics of each other, all in a bid to lessen asymmetric information and thus improve access to credit.