Farmer innovations in financing smallholder maize production in Northern Ghana

Abstract

Purpose

The purpose of this paper is to explore smallholder agricultural financing in Ghana’s Northern region by identifying farmers’ preferred traditional and innovative financing methods and estimating the determinants of use of innovative financing methods.

Design/methodology/approach

This paper presented a list of documented traditional financing methods to farmers during in-depth interviews and employed descriptive statistics to summarize choice and amounts sourced from traditional methods. Two questions from the survey revealed a felt need for extra financing sources for credit-rationed farmers. Farmers with positive responses to either or both questions were classified as “users of innovative financing”. The authors then used a probit model to examine factors that influence decisions to use innovative financing method.

Findings

Farmers’ own savings, reinvesting past season’s profits and financing maize production with income from other commercial crops were the most popular traditional methods. The authors found complementary relations between formal and informal lending systems in the rural financial market. Smallholders also took farm and non-farm “by-day” jobs to raise income for farm investment and/or joined Village Savings and Loans Associations (VSLAs) specifically to take advantage of possible credit opportunities. These two latter methods were operationalized in this study as innovative agricultural financing. The results show that access to credit, social capital and market participation increased the likelihood of using innovative financing methods. Alternatively, farmer group membership, diversity in crop production and being a household head diminished the likelihood of innovative financing use.

Practical implications

The activities of VSLAs can be regulated and expanded to spread its benefits to more farmers. Also, creating avenues for dry season labour market participation in the region could enable farmers raise capital for farm investment.

Originality/value

This study explores existing practices and farmer innovations to agricultural financing and, by so doing, deviates from the vast literature focussing mainly on microcredit provisioning as the main model of smallholder agricultural financing in Africa.

Citation

Appiah-Twumasi, M., Donkoh, S.A. and Ansah, I.G.K. (2020), "Farmer innovations in financing smallholder maize production in Northern Ghana", Agricultural Finance Review, Vol. 80 No. 3, pp. 421-436. https://doi.org/10.1108/AFR-05-2019-0059