Access to credit and its effect on the adoption of agricultural technologies: the case of Zanzibar

Access to credit is among key elements for improving agricultural production and poverty reduction. Credit can facilitate farm households to purchase the needed agricultural inputs and enhance their capacity to effect long-term investment in their farms. Despite this importance, the majority of farm households lacks access to formal credit. This study therefore was conducted in order to create knowledge of the factors that determine access of rural households to formal credit in Zanzibar and to establish the linkages between access to credit and the adoption of agricultural technology under the Zanzibar smallholder farming conditions. Conceptually, access to credit can be influenced by institutional factors and household characteristics. Analyses of factors at the household level is therefore important to design strategic interventions aimed at deepening financial services through rural households in Zanzibar. In conducting this study, both primary and secondary data were collected. The data collection took place between May and June, 2006, covering the five districts of Unguja and Pemba islands. The districts involved in the study were North ‘B’, West and Central (for Unguja island) and Wete and Chake Chake (for Pemba island). In total 750 households were surveyed. Secondary data were collected from relevant institutions, including existing financial institutions.The analysis of data collected was done descriptively as well as econometrically using STATA 10.0 and SPSS 13.0 computer softwares. The main findings of the study suggest that a number of socio-economic factors are important in influencing farm households’ access to formal credit. These factors are: the number of accesses to credit, the possibility of keeping livestock, having a bank account, the value of productive assets owned, household income and the intensity of adoption of agricultural technologies. As regards factors determining farming technologies adoption, extension contacts intensity, household size, number of accesses to credit, and value of productive assets were found to significantly influence the adoption of agricultural technologies. However, with the exception of the number of accesses to credit, these variables were significant only for the non-credit constrained households and not for the credit constrained households. These results suggest the need for targeting credit interventions to farm households who are credit constrained for improving access to credit and the adoption of agricultural technologies.