According to common wisdom, access to formal credit is limited, and farm inputs are financed largely through informal credit. The findings of this study are :
- The use of traditional credit (formal, informal, tied and untied) for financing modern inputs is extremely low. This applies in all countries, and for all crops and farm sizes.
- Farmers primarily finance modern input purchases with cash from nonfarm activities and crop sales.
- Tied output-factor market arrangements play a very minor role in financing external inputs, but appear to be relatively widely used for labor credit.
- “Traditional” cash crop farmers selling to processors rarely receive credit from processors, except in a few enclaves such as larger tobacco farmers in Tanzania
Based on these findings, the policy message of this note is that rural development policies and programs that spur broad development of the rural nonfarm sector would benefit farm input purchases and thus productivity and food security. These would certainly be important complements to credit policies and programs.
