The determinants of access to financial services by smallholder farmers in Eswatini

Abstract

This study was carried out because smallholder farmers are generally excluded from accessing financial services and results in them being credit rationed. Smallholder’s socio-economic characteristics influence or become a barrier to their access to financial services. This study examines the determinants of access to financial services by smallholder farmers in Eswatini. This is important to probe because, by determining the level of financial access, financial service providers and policy makers would then be able to observe consumer behaviour, which would improve overall service delivery and its reception by smallholder farmers. The study used data of smallholder farmers from the Hhhohho and Lubombo regions of Eswatini. A sample of purposefully selected 150 smallholder farmers was used to analyse the levels of access to financial services in the study area. Descriptive statistics results show that the average age of the household heads was 52 years, with minimum and maximum ages being 18 and 91 years. The study further shows that 16% of individuals had no formal education. About 32.7% of smallholder farmers had received primary education, while a higher percentage (42.7%) of individuals had received secondary education, and only about 8.67% of smallholder farmers had received tertiary education. About 64.7% of the farmers were not employed formally. Instead, they could generate income from sources other than income obtained from agricultural purposes. The mean of years spent in maize farming was 24 years. In this study, 89.3% of the smallholder farmers did not keep farm records, and some 67.3% of smallholder farmers indicated that they did not receive any form of credit or savings from either the formal or the informal lending sources in the 2015/2016 farming season. Smallholder farmers who had access to savings, credit, insurance, or a combination of financial services amounted to 32.6% of the sample. Four logit regression models were estimated to determine the relationship between access to financial services and characteristics of farmers in the study area. The credit logit regression model showed that gender, farm records and information access significantly influence access to credit. Access to credit determines whether smallholder farmers were going to invest in planting for the following season. About 11.3% of the smallholder farmers had access to some sort of savings. There were three independent variables that were significant in the logistic model for savings. These were land owned, off-farm income and record keeping. The logit regression for insurance had four significant variables. These were tertiary education, marital status, occupation, and information access. The logit model for total access had two significant variables including off-farm income and information access. Conclusions drawn from the study were that farmers participation in the financial sector is limited. The level of financial access is low, and a majority of smallholder farmers in the study area do not have access to financial services. Those who do are employed by the formal sector. Access to informal sources of finance is also limited as male smallholder farmers who are the main decision makers do not belong to peer groups that would act as social collateral. Smallholders and small micro and medium enterprises can access financial services with the intention to grow their businesses into sustainable sources of income. Smallholder farmers are generally excluded from the formal financial sector mainly because of poor record keeping. One of the requirements to access financial services is proof of income. The keeping of financial records that show their revenue and the costs of production over a period of time could enable smallholder farmers to access the formal financial sector. Educational instruction on how to keep financial records could be given to enable farmers to access the formal financial sector. This study recommends that, to increase financial access policies to encourage agricultural efficiency at a commercial level as opposed to the subsistence level, where smallholder farmers will make a profession in agricultural production should be encouraged. Keywords: financial access, financial system, logit regression model, Eswatini