Much of the discussion about barriers to enterprise growth has traditionally focused on access to credit since the early days of the microfinance sector. This line of thinking makes the assumption that the main reason smallholder farms in developing markets aren’t producing more is because they lack the capital needed to invest in more inputs or products. Indeed, a growing body of evidence on microcredit suggests that the question of the impact of access to credit on small businesses is not cut and dry: Some studies find positive effects on profits and the number of new ventures created, while others find more modest effects on business outcomes.
Now imagine a scenario in which a farmer has access to the capital he or she would need to increase production, but just chooses not to. They’re acting irrationally, right? Not necessarily. In a recent study in northern Ghana, researchers took a closer look at the barriers to investment faced by small-scale farmers, and found something interesting.