Impact of Institutional Credit on Crop Productivity in Kemkem Woreda, Ethiopia

Abstract

Among many factors that affect farm production, access to credit has been identified as important element in agricultural production. Farmers demand institutional credit to improve farm productivity, but are often denied by financial institutions. While there has been significant research on credit constraints in developing countries, there is surprisingly little information pertaining to the actual impacts of credit constraints on crop productivity. The objective of this paper is to investigate the impact of credit on crop productivity. The primary data was collected using structured questionnaires administered to individual households. Triangulation with key informant interviews, field observations, and interactive discussions with farmers and farmer groups provided information behind contextual issues underpinning the statistical inferences. A multistage sampling technique was used to select crop growers who applied for institutional credit. Propensity Score Matching is specified to estimate propensity score from the pre-treatment characteristics using binary logit model to obtain matched treated and non-treated (control) observations as inputs for impact analysis and estimate the Average Treatment Effect on Treated (ATT).The results offer the strong and positive impact of institutional credit on crop productivity implying that credit enables the farmers to purchase superior quality or high yield variety seeds, fertilizers and pesticides and agricultural yield increases because of timely and adequate inputs. Thus, the study recommended in time provision of appropriate amount of loan for the enhancement of crop productivity in the study area