1.1 Background of the Study
Agriculture accounts for a lot of land use in most of the developing countries; hence it is probably the single most powerful influence on environmental quality. Agriculture remains the principal livelihood of the rural poor (Malik, 1999).
Agriculture has been the backbone of the Ghanaian economy. Agriculture is very vital to society. It helps to alleviate poverty, provide food security and economic growth. It is the backbone of many African economies especially Ghana (World Development Report, 2008). It is estimated that about 86% of the poor and the rural folks depend on agriculture for their livelihoods and also provide jobs close to` 1.3 billion smallholder farmers (Tita, 2009). According to World Bank Report (2008), agriculture in developing countries contribute an average of 29% to Gross Domestic Product (GDP) and also employs about 65% of the economically active labour force of the population, from production to marketing of various agricultural produce (World Bank, 2008).
According to Ogundeji (1998), agricultural business like any other business activity can be financed through microcredit personal savings, hire purchase and cooperatives societies, private placements, partnership and friends or family assistance. Awotodunbo (2008) also stated that microcredit serves as an important source of funds to farmers which can be used in the production process. The success or otherwise of every farming system to a large extent, depends on getting a good farmland, workforce, capital, managerial acumen and dexterity.
In Ghana, more than 80 percent of all agricultural production is done on land holdings of less than one hectare (Brown et al., 2000). The sector also contributed 22 percent of the country's total GDP from the periods of 1996 – 2002, contributed 30.4 percent to GDP in 2006, 29.1 percent in 2007, 31.0 percent in 2008, 31.8 percent in 2009 and 29.9 percent in 2010. This makes the agricultural sector very essential and dominant in Ghana's economy, accounting for over 50 percent of foreign exchange earnings. In Ghana the agricultural sector is made up of 5 sub-sectors such as Livestock (5 percent), Fisheries (7 percent), Forestry (11 percent), Cocoa (14 percent) and Crops other than Cocoa (63 percent of agricultural GDP). The Ministry of Food and Agriculture, (MOFA) is responsible for the management of crops, fisheries and the livestock subsectors which accounts for about 75 percent of the total GDP from Agriculture whilst smallholder farmers who apply basic technological knowledge in production account for about 80 percent of the total agricultural production (Ennin, 2001). In spite of improvements made in the agricultural sector over the years, the sector's performance has been dwindling due to the lack of funds. Much remains to be done to raise credit access which is a vital component in the modernization of agricultural activities and increase in productivity.
Microcredit is a widespread and celebrated tool of contemporary international economic capital, and training with which to establish their own small businesses on the condition however of repaying the initial investment to be recycled in new investment to poor people. Microcredit consists in lending funds to the poor in order that they use them to start or improve their businesses. Since most agricultural lands in Ghana are subject to severe droughts and degradation which frequently leads to food deficits, it is appropriate to examine the needs of the rural and urban poor farmers to ameliorate their lives. Out of a total land of 23,853,900 hectares, 13,628,179 hectares representing about 57.13 percent of the total land area in Ghana is suitable for agricultural production. The total area under cultivation in 1994 was 5,300,000 hectares representing 38.89 percent whiles the total area under irrigation was 10,000 hectares but 1,100,000 hectares are for areas under inland waters (Annan, 2011). In view of this fertilizer application is one of the most methods farmers usually used to improve crop yields during drought and unfavorable conditions. For example, farm yard with various crops require an average of 6-7 kg of fertilizer per hectare. There is the need therefore to rapidly transform the agricultural sector in Ghana since Ghana's population is expected to increase from 24million in 2008 to about 36 million by 2020. This growth will automatically have an effect on the availability of lands for the purposes of agricultural production. As such, some attempts have been made to shift the focus from the agricultural sector to non-farming ones in the hope of providing innovative solutions to farmers who have exhausted environmental resources. Although much attention has been paid to the physical causes of food shortages, it is appropriate nonetheless to examine the root cause of the decreasing trend in soil fertility in the context of its availability and sustainability to ensure that there is an effective and efficient remedy in place. The success of an improved agricultural practice in increasing productivity and revenue is dependent on the usage of modern technological methods and implements adopted by a farmer. Farmers in Ghana and for that matter, West Africa consider many different variables prior to investing in the farming system.
It is pertinent to note that the study depends largely on the availability and the accessibility of microcredit to invest in farming and non-farming activities thereby ensuring favorable results. This may serve as an alternate solution to combatting low agricultural production and to assist in raising farmers' incomes. Such an improvement may help to procure agricultural inputs and sometimes, in very poor agricultural seasons, to purchase food as well. Hailu (1991) and Garba, (1991) identified capital constraints as an additional major reason for low implementation of improved farming practices in Niger. Njeru and Njoka (1998) stated that due to patriarchal social authority structures, women even though receive substantial family support to start their businesses but these supports become very limited due to family responsibilities. It must be noted that when capital is lacking, investment in agricultural inputs will also be minimal since farmers will not like to risk the implementation of a new technology. Mohsin (2015) emphasized the fact that a Microcredit Guarantee Facility (MCGF) should be established and fully adopted and operated by various countries in the developing world in order to sustain the poor and the vulnerable in the society.
The Former UN Secretary General, Hon. Kofi Annan, also emphasized during the launch of the International Year of Microcredit (2005), that “Sustainable access to microcredit help to alleviate poverty by generating income, creating jobs, allowing children to go to school, enabling families to obtain healthcare and empowering people to make the choices that best serve their needs” (United Nations, 2005; Asiama, 2007). Constraints in capital attainment have been alleviated in other parts of sub-Saharan Africa through the implementation and introduction of micro-finance programmes for non-farming enterprises. In recent years, most countries across the globe are promoting MFIs not only for rural development intervention but also as a rural development remedy. Reardon et al. (1995) posits that credit programmes assisting non-farming enterprises can contribute indirectly to investment in the farming system. Microfinance is the attempt to improve access to small deposits and small loans for poor households left unattended by various banks. Ghana's agriculture remains predominantly small-scaled with majority of the farmers in food crop production, in mainly for domestic consumption (MOFA, 2007). Urban agriculture requires financial and political legitimacy to increase its contribution to the feeding of cities. Although there is increased political support for urban agriculture in many parts of the world, financial support for urban growers remains quite limited. Most urban growers lack access to credit to develop their activities using limited resources (UAM, 2011). Credit is one of the components of financial inputs considered fundamental to all production units (Dicken, 2007).
Micro-credit was first initiated in Bangladesh by Professor Mohammed Yunus in the late 1970's and has since gained significant developments over the past 30 (thirty) years especially in developing countries. Microcredit is a provision of small collateral-free loans to poor people in order to foster income generation and poverty reduction through self-employment (Chowdhury, 2009). According to Zeller (2010), microfinance institutions' (MFI) database form eighty-five developing countries in 2010 identifies that there are 688 institutions from Indonesia and 790 institutions worldwide are supported by international organizations which constitute about 54 million members, 44 million voluntary and compulsory savings, and 23 million borrowers.
Microcredit is generally a term which refers to the provision of a broad range of services including deposits, loans, payment services, money transfer and insurance to the poor and low-income households and their micro-enterprises (Khawari, 2004). Microcredit schemes extend small loans and other financial services to people who are considered traditionally not bankable to enable them generate income and spur entrepreneurship. Since access to credit depends largely on the willingness and ability to repay at a price which covers the total loan by a lender, it has become very difficult for these small scale farmers to access credit due to the fact that, most of them do not have the required collaterals to signal their guarantee credit worthiness of repaying the loans. Credit sustainability and other financial services to farmers and the rural inhabitants in the developing countries has resulted to be a tedious task which has become a major development challenge in most of the African countries (Onumah and De-Graft Acquah, 2011). Klein et al. (1999) emphasized that since there are about 1.2 billion poor people living in the rural areas, there is the likelihood of a high incidence of rural poverty which can be reduced with an improvement in the services of rural financial institutions. Even though, several reforms and new financial institutions have emerged, there is still a substantial gap persisting in many financial markets (Onumah and De-Graft Acquah, 2011). Since microcredit forms the bedrock of farms' success, it is worthwhile that a comprehensive study is undertaken to unearth the bottlenecks involved in the process and to suggest antidotes to stem the weakness.
The United Nations, recognizing the role Microcredit can play in achieving the Millennium Development Goals (MDG), declared 2005 as the year of microcredit, whose primary aim was to help reduce global poverty by the year 2015 (United Nations, 2005). The UN Resolution that established the year also called on various countries to “highlight and give enhanced recognition to the role of microcredit in the eradication of poverty, its contribution to social development and its positive impact on the lives of living in poverty” (United Nations Resolution, 2000).
In spite of the significant contribution of agriculture to the Ghanaian economy, credit facilities available are very meager. The total volume of microcredit available to farmers in various banking institutions keeps on declining as compared to that of the non-agricultural sector (Anang et al., 2015). The level of credit availability and accessibility in the sub-region is not sufficient considering many potential farmers who are producing on a large scale and are financed by informal lenders and small microfinance entities (Furness, 1980). Even though some non-governmental organizations (NGO's) have undertaken innovations and various experiments to ensure increased productivity in the sector, there are a lot of inefficiencies existing in their operations.
In order to examine investment in the farming system effectively, it is essential to take into account all the social components as well as economic factors. In doing so, the amount of resource recycling taking place within farming system becomes apparent. On the other hand, credit may also bring about a significant change in the farming system by providing scarce working capital for important non-farm or farm investment. Additionally, credit may disrupt the delicate balance of resources which exists in a farmer's household by causing the household to incur debt which they may struggle to repay even when their assets are sold.
Figure 1.1 Effects of Micro Credit on Farmers' livelihood activities
According to Sebstad et al. (1996), there exists a complex interaction within a poor Peri-urban farming system, between the farm and non-farm income and the social obligations. Credit plays a crucial role within this system. Although microcredit programs may target a non-farm income, a farmer may diversify the utility of that credit in order to maximize the potential profits. Micro-credit programmes both formal and informal, have sometimes contributed to rural incomes by providing working capital for small, non-farm enterprises (Ashe et. al., 1992). There have been many successes and failures in microcredit programs. This research investigates how the Peri-urban farmer uses microcredit and how it directly or indirectly impacts on the farming systems. It is therefore clear that the success of every agricultural production unit and for that matter vegetable production, hinges immensely on its access to microcredit hence a study on this topic is imperative.
1.2 Problem Statement
There exit a complex convergence of endemic political, social and economic policies which contributes to lack of incentives for farmers to undertake various experiments in new technologies. The willingness and the ability to take risk of undertaken an effective experiments with new technologies depend largely on the farmers' assurance of sufficient amount of food and income for their livelihoods. In view of this many farmers often diversify their income in order to achieve food security and income assurance. Microcredit has been proven to provide a wedge, in that it assists in the facilitation of income diversification by financing a non-farm enterprise (Reardon et al., 1994). Microcredit has been considered over the years to be one of the most effective and efficient strategy in reducing global poverty. Microcredit promotes economic growth since the loans given are supposed to be used to undertake various investments in farming and non-farming activities which yield additional profits. According to Simanowitz and Brody (2004), “Microcredit is a key strategy in reaching the MDGs; eliminating extreme poverty and hunger; and in building global financial systems that meet the needs of the poorest people”. Additionally, “Littlefield, Murduch and Hashemi (2003), also suggest that microcredit is a critical contextual factor with strong impact on the achievements of the MDGs. Resource poor farmers are only capable of making agricultural farming investment if their household's livelihood is secured. Credit can play that role of securing a household's livelihood and increasing productivity and agricultural investments. Poor management of natural land resources have been shown to stem from the persistence of poverty. Lack of credit facilities for farming activities such as, fishing, livestock, ancillary services and infrastructure have been a drag on productivity, growth and income in the agricultural sector (GoG Budget statement, 2008). The lack of secure titles to land has prevented Peri-urban farmers from switching from one investment type to others that have better returns (FAO, 2012). The field of agriculture has programmes that make it necessary for all farmers to use the various inputs including improved seeds and cuttings, fertilizer, herbicides, fungicides and the required farm tools. The outcome of the level of input available and accessed determines the total output. In a poor region, the use of modern inputs would depend upon the availability of credit (Sarap, 1986). Credit availability and accessibility to farmers will enable them purchase the needed farm inputs to ensure increased productivity. It is however argued that farmers applying for microcredit are mostly discouraged by complex procedures and high interest rates (FAO, 2012). Since most of the small scale vegetable farmers are poor and cannot provide any collateral in order to receive large amounts of loan facilities from the banks, saving enough so as to enhance their productivity becomes unrealistic. In this regard, it must be noted that microcredit cannot be avoided if the aim is to improve investment alternatives and increase productivity by farmers. Thus, the effect of microcredit on small scale Peri-urban agriculture is a key issue which needs to be properly addressed and needs more enforcement. The importance of investment to the economic growth of Ghana cannot be overemphasized. Investment contributes to employment creation, growth of the economy, poverty alleviation etc. The constraints envisaged in accessing microcredit include, collateral requirement, late disbursement, association member, distant collection points, high interest rate, guarantor requirement, inadequate credit size and the repayment period of the loans. The main challenging factor is the inability of most farmers to source microcredit from MFIs due to lack of collaterals and late loans disbursement. The problem then is to investigate the determinants of microcredit access and farmers' investment amount in small scale Peri-urban agriculture being organized in Dzorwulu in the Ayawaso-West Sub-Metro of the Accra Metropolitan Assembly in the Greater-Accra Region. This research attempts to evaluate investment behaviors of the resource poor farmers in the Peri-urban vegetable growing areas in North and South Dzorwulu of the Accra Metropolitan Assembly. This research seeks to examine farmers who have access to microcredit through the MFIs and those who have not and determine the investment amount between these farmers and the constraints associated with credit accessibility in the sub-metro. In Ghana, low productivity associated with inadequate financial services, inadequate use of recommended technologies and poor distribution of agricultural inputs (NDPC, 2005 and ISSER, 2010) have been revealed as having had a greater positive impact on gardeners' earnings than age, years of schooling, gender, house-hold size or number of agricultural extension visits (FAO, 2012). These therefore lead to the following relevant research questions:
1) What factors influence farmers' access to microcredit?
2) What are the effects of microcredit access on farmers' investment decisions?
3) What are the major constraints in accessing microcredit by farmers?
1.3 Objective of the Study
The main objective of the study is to assess the role microcredit play in Peri-urban vegetable farmers' investment decisions in the Greater Accra Region. The specific objectives are therefore;
1. To analyze the factors that influence farmers' access to credit.
2. To estimate the effects of microcredit access on farmers' investment decisions.
3. To identify and rank constraints to microcredit by small scale vegetable farmers in Dzorwulu.
1.4 Relevance of the Study
Many approaches have been used to encourage farmers' implementation of new farming technologies, but very few have been successful. If the Government of Ghana and NGO's wants to ensure adequate vegetable production in the Peri-urban areas of the country, farmers may have to be encouraged and assisted to implement various improved farming technologies, microcredit may therefore be an indirect answer to this end.
This research focuses on the effects of microcredit access on investment which is relevant for various stakeholders to understand when examining the role played by microcredit in farmers' investments on farming and non-farming activities. If for example, there is a significant difference between farmers who receive microcredit and adoption of improved farming practices and farmers who do not receive microcredit, we can hypothesize that microcredit has a significant role to play in lowering a farmer's aversion to risk and raising their willingness to adopt an improved farming technology. Microcredit is undeniably an important source of ensuring increase in agricultural production. This study therefore seeks to determine the extent to which microcredits have improved the vegetable production of Peri-urban farming in Accra and to ascertain some of the challenges associated with accessing microcredit which are relevant for policy changes. The study will unveil lapses and inadequacies in accessing microcredit loans and provide corrective measures to ensure favorable results.
Finally, the study will add to existing literature concerning microcredits accessibility and farmers' investment behavior in small scale Peri-urban agriculture in Ghana.
1.5 Organization of the Thesis
This study is organized into five chapters including the introduction which consists of the background of the study, statement of problem, objective of the study, research questions, and relevance of the study. Chapter two reviews pertinent literature relevant to the present study. Chapter three presents the methodology of the study. Chapter four presents the results and discussion of the study. Chapter five covers the conclusion and the recommendations of this study
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