THE IMPACT OF MICROFINANCE ON AGRICULTURE

PRODUCTIVITY: A CASE STUDY OF SMALLHOLDER MAIZE

FARMERS OF NAMWALA DISTRICT IN ZAMBIA.

By:

Adam Chabala (MBA)

A Dissertation submitted to the University of Zambia in partial fulfillment of the award of a

degree of Masters of Business Administration in Finance.

THE UNIVERSITY OF ZAMBIA

LUSAKA

2019
 COPYRIGHT
I hereby cede to the University of Zambia library all the intellectual property rights attaching to
this research paper/work. As the owner of the copyright over this work, the University may store,
publish or otherwise distribute the entire volume of this work or parts thereof as its discretion will
dictate. I further certify that where applicable all copyright permissions and or other authorization
to use privileged information has been obtained and attached hereto. Therefore the University
should not suffer any prejudice owing to the contents of this work.

©2019, Adam Chabala

 DECLARATION

I, Adam Chabala, declare that this dissertation represents my own work. This paper has not
previously been submitted for a degree at this or any other university and does not incorporate any
published work or material from another dissertation with the exception of that which is
referenced.

Signed………………………………………….

Date…………………………………………….
 APPROVAL

This dissertation by Adam Chabala has been approved as a partial fulfillment of the requirements
for the award of the degree of Master of Business Administration with Finance by the University
of Zambia.

Name of Examiner: Signature Date

………………………… .………………… .……………..

………………………… …………………. ………………

………………………… …………………. ………………

Supervisor…………………… Signature……………….. Date………………..

 DEDICATION

To my late Grandfather Alfred Chabala

(May God grant you eternal rest)

 ACKNOWLEDGEMENTS
First and foremost I would like to thank the Almighty Jehovah God for making everything that I
have achieved possible, for I would have not achieved this if you had not allowed it.

My sincere gratitude and thanks goes to all the participant (farmers) and institutional
representatives who made this research possible by cooperatively giving the necessary information
needed for the successful completion of this thesis. Further respect and appreciation goes to my
supervisor Dr.Dale Mudenda and other University of Zambia research coordinators under the
graduate school of business for their constructive criticisms and support throughout this study. My
final salutation goes to everyone who participated in this research directly or indirectly.

THANK YOU.
 TABLE OF CONTENTS

COPYRIGHT ............................................................................................................................ i
DECLARATION ...................................................................................................................... ii
APPROVAL ............................................................................................................................ iii
DEDICATION ........................................................................................................................ iv
ACKNOWLEDGEMENTS ......................................................................................................v
LIST OF TABLES .................................................................................................................. ix
LIST OF FIGURES ................................................................................................................ ix
LIST OF APPENDICES ...........................................................................................................x
LIST OF ACRONYM ...............................................................................................................x
ABSTRACT............................................................................................................................. xi

CHAPTER ONE: INTRODUCTION ......................................................................................1

1.1 Background.................................................................................................................................... 1
1.2 Statement of the research problem ............................................................................................... 3
1.3 Objectives of the study. .................................................................................................................. 4
1.3.1 Research Questions................................................................................................................. 4
1.3.2 Hypothesis .............................................................................................................................. 4
1.4 Significance of the study ................................................................................................................ 4
1.5 Scope of the study ......................................................................................................................... 5
1.6 Organization of the study ............................................................................................................... 5

CHAPTER TWO: CONTEXT OF THE STUDY. ...................................................................6

2.1 Introduction ................................................................................................................................... 6
2.2 Agriculture in Zambia .................................................................................................................... 6
2.2.1 GDP and Agriculture credit in Zambia ...................................................................................... 7
2.3 Concepts and applicability of Microfinance. ................................................................................. 10
2.3.1 Development and status of microfinance in Zambia .............................................................. 12
2.4 Chapter Summary ........................................................................................................................ 13
CHAPTER THREE: LITERATURE REVIEW.................................................................... 14
3.1 Introduction ................................................................................................................................. 14
3.2 Theoretical Literature. ................................................................................................................. 14
3.2.1 Minimalist-integrated approach ............................................................................................ 14
3.2.2 The Neo-Classical and Endogenous Growth Theory ............................................................... 15
3.2.3 The Solow Development Model ............................................................................................ 15
3.3 Empirical literature. ..................................................................................................................... 15
3.4 Conceptual Framework ................................................................................................................ 18
3.5 Chapter Summary ........................................................................................................................ 19

CHAPTER FOUR: METHODOLOGY ................................................................................. 20

4.1 Introduction ................................................................................................................................. 20
4.2 Study area ................................................................................................................................... 20
4.3 Research Philosophy .................................................................................................................... 21
4.4 Research Design........................................................................................................................... 22
4.4.1 Sample size and Sampling techniques ................................................................................... 22
4.4.2 Data collection ...................................................................................................................... 22
4.5 Analytical approach and estimation techniques ........................................................................... 23
4.6 Chapter Summary ........................................................................................................................ 24

CHAPTER FIVE: RESULTS AND DISCUSSION ............................................................... 25

5.1 Introduction ................................................................................................................................. 25
5.2 Results ......................................................................................................................................... 25
5.2.1 Socioeconomic and Demographic characteristics. ................................................................. 25
5.2.2 Impact of Microfinance on Agriculture productivity............................................................... 27
5.2.2 Proportional impact of Production determinants. ................................................................. 29
5.2.3 Challenges and factors affecting Agriculture Credit. .............................................................. 31
5.3 Discussion .................................................................................................................................... 32
5.3.1 Microfinance impact on agriculture. ...................................................................................... 32
5.3.2 Challenges of Agriculture credit............................................................................................. 33
5.4 Chapter Summary ........................................................................................................................ 34
CHAPTER SIX: CONCLUSION AND RECOMENDATIONS. .......................................... 35
6.1 Introduction ................................................................................................................................. 35
6.2 Conclusion ................................................................................................................................... 35
6.3 Recommendations ....................................................................................................................... 36

REFERENCES ........................................................................................................................ 37
APPENDIX .............................................................................................................................. 40
LIST OF TABLES

Table 1: Lending to the agriculture sector (K’Million) 2005-2015............................................................ 9

Table 2: Summary of Age and Household statistics ................................................................................ 25

Table 3: T test results-Levels of input use. ............................................................................................. 27

Table 4: Maize Productivity. .................................................................................................................. 28

Table 5: Output of Maize per 50Kg bag ................................................................................................. 28

Table 6: Regression analysis of production determinants. ...................................................................... 29

Table 7 : Socioeconomic determinants of production. ............................................................................ 30

Table 8: Challenges of credit access....................................................................................................... 31

LIST OF FIGURES

Figure 1: Contribution of Agriculture to GDP .............................................................................8

Figure 2: Conceptual Framework .............................................................................................. 18

Figure 3: Map of Namwala district ............................................................................................ 20

Figure 4: Distribution of Farmers by Gender ............................................................................. 26

Figure 5: Distribution by occupation……….......…………………………………………………………………………26

Figure 6 : Education level by distribution .................................................................................. 26

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LIST OF APPENDICES

Farmers Questionnaire……………………………………………………………………….. 39

Institutional Questionnaire…………………………………………………………............... 45

ACRONYMS

GDP : Gross Domestic Product

NATSAVE : National savings and credit bank.

MFI : Microfinance Institution

NCB : Non-Credit beneficiaries

CB : Credit Beneficiaries

ANOVA : Analysis of Variance

x
 ABSTRACT
The focus of this study was to explore the impact of microcredit on agriculture productivity based
on the setup of smallholder maize farmers of Namwala district. The paper employed a mixed
method approach. The sample size that was used in the study was hundred (141) respondents
comprising of 70 farmers who had accessed microcredit as the treatment group and 71 farmers
who didn’t benefit from credit as the control group, for a 5 year time frame.

The Findings show that there is a significant relationship between access to credit and maize
production. Also, consistent with the perceptive views of the respondents on the impact of
microcredit on maize production, the results showed that an increase in microcredit to the farmers
would increase maize production by more than 27% of the initial production. This shows that
microcredit has significant impact on maize production. The output levels of the treatment and
control group were both analyzed and tested, thereby showing that the amount of inputs acquired
through credit had varying impact on productivity with technology having the major influence on
agriculture credit with an increase of about 6.914 fold per increase in credit finance directed
towards technology. This renders technology advancement as a major component of
productivity.Fertiliser and improved seed had 1.419 and 0.385 multiplier impact on productivity
respectively. A further quantification of the output of the respondents revealed that credit
beneficiaries produced about 4300Kgs of maize after access to credit as compared to 2615Kgs for
non-credit beneficiaries. These findings suggest that access to credit has a positive impact on
agriculture productivity. In conclusion recommendations were made surrounding the need for
easing the access to agricultural credit, reducing the credit interest rate and extending the formal
financial intermediation in the rural areas of the district. Easier access to credit will ultimately
contribute to higher productivity of the farmers enabling them to attain higher technical efficiency.

Keywords: Credit, Impact, Maize, Productivity, Farmers, Namwala

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 CHAPTER ONE: INTRODUCTION
1.1 Background
Agriculture is the key priority sector in the growth and poverty reduction agenda of many
developing countries. A well performing agricultural sector translates into significant
improvements in the Gross Domestic Product (GDP), food security, foreign exchange,
employment levels and the tax base of many countries. In the case of Zambia Agriculture has the
potential of enhancing economic growth and reducing poverty, since over 60 percent of the
population mainly live in the rural areas, were their livelihoods are mainly derived from
agriculture. (Robinson, 2001; GRZ, 2006)

According to a study by Agri-Pro Focus (2014) approximately 70% of Zambia’s households are
involved in agriculture or aquaculture. Small scale farming activities and self-employment are the
two highest income earners for Zambian households, but investments in many of these productive
activities are constrained by lack of access to financial services, as approximately 62.7% of the
adult population currently experiences financial exclusion (Finscope, 2009 as cited by APF).

Comparison between Finscope results of 2005 and 2009 show a slight improvement of 3.6% from
33.7% in 2005 to 37.3% in 2009 in overall levels of financial inclusion. Despite this slight increase
in overall levels of financial inclusion a majority of Zambian households remain financially
excluded especially in rural areas where the reports estimate that 65.6% of adult population is
financially excluded. Thus with the importance of the agriculture sector towards economic
development on mind, the country has developed well-articulated agricultural policies and
strategies which emphasize objectives such as attainment of food security, maximizing farmers’
incomes through rural financial inclusion and development of the microfinance sector (Robinson,
2001;APF,2014)

The use of microfinance in the development and rapid progress of the agriculture sector, in both
the rural and urban sector has seen a steady increase over the past years (Eliasu, 2014). According
to Ledgerwood (1999), “microfinance is defined as the provision of a broad range of financial
services such as deposits, loans, savings, payment services, money transfers, and insurance to the
poor and low-income households and their micro-enterprises who are excluded from the formal
financial systems”. Despite the definition above microfinance practices today mainly focus on
1
micro-credit: providing the poor with small credit with the hope of improving their labour
productivity and thereby lead to increment in household incomes (APF, 2014)

Microfinance is considered as an effective strategy for development as it has played a major role
in reducing poverty, income distribution and achieving development goals. Past precedence
revealed that rural financial inclusion and participation in microfinance helped the rural poor boost
their income, and develop their productivity potential in agriculture terms (Umara et al, 2011).

In order for microfinance organizations to venture into agriculture, it is important to understand

the context of agriculture and their potential role in it. Indeed, agricultural microfinance is not
business as usual but requires a different approach from that which is typically applied in many
microfinance schemes, this is because the agricultural sector is characterized by generally much
lower returns on capital, slower velocity of capital, higher uncontrolled risks and less
understanding of finance and business (Miller, 2011).

Though it is argued that improved productivity and output levels will be achieved through the
introduction of new production technology, credit is a prerequisite to gain access to such
technology particularly for the small-scale farmers in Africa with little or no capital of their own.
The inadequate levels of credit in the agriculture sector has raised concern among researchers and
policy makers with emphasis been directed towards its impact on productivity. Many empirical
studies have revealed cases of credit insufficiency among rural farmers in developing countries
(Deaton 1997; Girabi and Mwakaje, 2013; Suleman and Adjei, 2015; Abbas, 2005) with other
writers further suggesting that, in the rural areas of developing countries, credit constraints have
significant adverse effects on farm output (Feder et al., 1990; Sial and Carter, 1996), farm
investment (Carter and Olinto, 2003), and farm profit (Carter, 1989).

However the empirical assessment of the impact of credit on any outcome is very scanty in Zambia,
and particularly in relation to maize productivity, none exists to the best knowledge of the authors.
This shows that there is still a gap in the literature that must be filled with particular focus on
Namwala district of Zambia.

2
1.2 Statement of the research problem
Zambia’s economy has grown steadily in real terms since 2001. However the percent contribution
of the agricultural sector to GDP has declined from 16% in 2001 to 12.6% in 2009. The sector in
Zambia supports the livelihoods of over 70% of the population with 78% of women in engaged in
agriculture, compared to 69% of men. Despite the importance of agriculture in supporting the
livelihoods of many Zambians, its performance has generally been poor as can be seen from the
agricultural growth rate of 3.5% that is considered to be far below the countries potential (Brian et
al,2007).

Population growth, rapid urbanization, and stagnant agricultural production are contributing to an
emerging structural deficit of agriculture products in the Southern Africa region. Therefore
knowing that improvement in productivity is a pre-requisite for agricultural and economic growth,
Zambia like many other sub-Saharan nations has been striving for mechanisms to sustainably
improve small-holder agriculture productivity so as to increase its contribution towards the
country’s GDP (Mike et al, 2009).

In the light of agriculture sector liberalization, many productivity hindering issues have emerged
such as prohibitive transport costs, high input prices, lack of land tenure security which makes
credit inaccessible, and the insolvency of rural finance, which has left a gap in small farmer credit
supply and overall access to agriculture finance (Brian et al,2007).

Agricultural finance in Zambia is fundamentally dysfunctional with, credit and financial services
been considered as scarce, expensive and heavily skewed towards the larger, corporate sector.
These Inadequacies to access credit and financial services has remained a central concern for
farmers and a key constraint to the modernization and diversification of the economy. Many
studies that have focused on the constraints of agriculture credit in Zambia and its importance on
the wellbeing of farm households have been undertaken (Gunther, Kelsey, and Masiye 2014; Mike
et al, 2009).
However, the empirical analysis of the impact of credit on maize productivity with a specific
reference to the setup of Zambia’s rural district does not exist, according to the best knowledge of
the researcher. Therefore, this research seeks to highlight notable effects of microfinance on the
productivity of smallholder farmers based on the setup of Namwala district of Zambia, with the
aim of filling in the existing knowledge gap.

3
1.3 Objectives of the study.
The main objective of this study is to explore the role of micro-credit on agriculture. Specifically
the study seeks to:
1. To explore the association between access to micro credit and farm output.
2. To examine the credit determinants that play a decisive role in agricultural production.
3. To determine the challenges involved in credit utilization.

1.3.1 Research Questions

1. How does access to micro credit affect farm output?
2. What role do credit determinants play in agricultural production?
3. What are the challenges involved in credit administration.

1.3.2 Hypothesis
The following are the null hypotheses that were used for the study:

Ho1: There is no statistically significant difference between credit beneficiaries and non-
beneficiaries with respect to farm output.

Ho2: There is no statistically significant relationship between credit determinants and

agriculture production.

Ho3: There are no Challenges that are involved in credit administration.

1.4 Significance of the study

Rural financial services have potential to make a difference in agricultural productivity, food
security, and poverty reduction, but lack of an efficient sustainable and widely accessible rural
financial system remains a stumbling block and a major development challenge in most of the
developing countries.

Therefore it’s from this study, that these challenges faced in expanding credit and financial services
to the agriculture sector are evaluated with specific focus on some of the policy issues that can
boost up such credit. Studies such as this one seek to furnish the policy makers with the relevant
information regarding the issues of credit in the agriculture sector, which thereby helps them
prioritize different areas and earmark necessary resources accordingly. This, in turn, helps achieve

4
allocative efficiency as well as technical efficiency and realization of the long term economic
goals.

The policy implications of carrying out this study evidently show us that there is need for more
research on these financial disciplines so as to help in the development of policies that can be
directed towards developing and adopting the most efficient and effective means of poverty
reduction in the rural agriculture sector. The gap that is prevailing on this topic justifies this
research as viable knowing it shall aim to fill in that research gap with emphasis on a country like
Zambia where such a research has not been done despite the countries adverse mechanisms to
develop the agriculture and rural sector.

1.5 Scope of the study

In contextual terms, the study will cover: microcredit, financial inclusion and all the financial
services present in the area and their impact on the rural clients and farmer outputs. This study
shall seek to analyze information from a 5 year time frame considering the tenure of most credit
facilities offered to farmers.

1.6 Organization of the Dissertation

The study is organized into five chapters. The introductory chapter highlights the background
information on agriculture and microfinance in Zambia, statement of the problem, objectives and
research hypotheses of the study. Contextual review of agriculture and microfinance are presented
in chapter two. The theoretical and empirical review of the study shall be presented in chapter
three as the literature review. The materials and methods that include the study area, population
and sample size selection, data collection procedures and data analysis techniques are discussed in
chapter four while the major findings of the study are presented in chapter five. Finally, the
discussion, conclusion and recommendations for this study are covered in chapter six which is the
concluding and final chapter of this study.

5
 CHAPTER TWO: CONTEXT OF THE STUDY.

2.1 Introduction
This section presents a situation analysis with regard to smallholder farmers in the country under
study. It provides a historical background on the development and performance of the agriculture
sector in relation to changes in microfinance and investment inflows.

2.2 Agriculture in Zambia

Agriculture is an important branch of the Zambian economy, providing employment to about 70%
of the labor force. This sector stands as the main support for the rural economy. This assertion is
based on the fact that:

About forty nine percent of the Zambian population depends on agriculture, primarily
through smallholder production for their livelihoods and employment. Notwithstanding
this fact, in 2015 the sector contributed 8.5% to the GDP and approximately 9.6 percent of
national export earnings (CSO, 2015; World Bank, 2016 as quoted by Chapoto and
Chisanga, 2016).

Despite the potential impact of the agricultural sector on poverty reduction and overall
development of an economy, the sector has been staggering in growth as characterized by low
production and poorly functioning markets for outputs. The low productivity rate of the agriculture
sector has been linked to the fact that Small holder farmers who mainly form this sector rely on
rudimentary methods with limited technology, skills and inputs such as improved seeds that would
increase yields (Sulemana and Adjei, 2015)

The staggering growth of the agriculture sector in Zambia can be statistically explained by its
reduction in GDP below 8.1% for the year 2016. Furthermore due to a myriad of factors including
a reduction in production due to poor rainfall, load shedding, rising input prices, and the
depreciation of the Kwacha coupled with a lack of investment proceeds directed to the sector the
country recorded a decline in agricultural GDP growth from 1.1percent in 2013/14 down to -7.7
percent in 2015 with further effects been seen in the reduced 2016 GDP (Chapoto and Chisanga,
2016).

6
Therefore with the performance of the agriculture sector in mind it can be stated that unless
appropriate investments are made, conducive and stable agricultural policies are implemented, and
the business environment is improved, potential of the sector won’t be realized, as only major
reduction in developmental terms will be witnessed (Chapoto and Chisanga, 2016).

As part of the journey towards improved performance one writer highlighted that:

Agricultural credit is one of the measures which are used by the governments to increase
agricultural production and improve the living standard of farmers in developing countries.
Credit removes a financial constraint and helps accelerate the adoption of new
technologies, increase productivity, and improves national and personal incomes. In
addition, farmers need credit to meet short-term requirements of working capital and long-
term investment in agriculture and other income-bearing activities (EEA, 2004/05 as cited
by Tilahun 2013 p30).

The general realization of the situation described above is that, most farmers lack economies of
scale as a result of the small scale production, resulting in a high per capita cost and generally low
production levels. Finance or agriculture credit has been noticed to be inadequate to expand
production in the sector especially by the low- income earners or farmers who hold small farms
thus affecting the general contribution of the sector to the development of the economy (Suleman
and Adjei, 2015).

In reference to the above passage it can be said that the provision of finance is related to increased
productivity of farmers through improved technology in the sense that, adoption of improved
agricultural technology by farmers can contribute to an economically efficient agriculture sector,
and financial viability of farmers through improved production and productivity (Suleman and
Adjei,2015).

2.2.1 GDP and Agriculture credit in Zambia

Zambia has enjoyed a sustained period of rapid economic growth from 2008 through to 2016 in
spite of the global financial crisis in 2008 and the decline in the copper prices. This economic
growth has not had a similar impact on the agriculture sector which has seen a decline in its growth
as shown in figure 1.The growth rate of the Zambian agriculture sector has been characterized by

7
a declining trend from the year 2011 in spite of the realization and emphasis of the diversification
of the economy away from mining dependency.

Figure 1: Contribution of Agriculture to GDP

Source Central statistical Office (2016)

Zambia’s agricultural GDP has over the years been sustained at above 6% (Figure 1). Figure 1
shows the contribution of agriculture to GDP and the value added per worker for the period 2005
to 2016.The figure also shows that the contribution of agriculture to GDP has been declining since
2004 due to a reduction in the productivity of the sector.

The agriculture sector in Zambia has witnessed a decrease in its liquidity from about 16.2 percent
in 2005 to about 6.8 percent in 2016.This decrease has been attributed to many factors that can
range from the reduction in lending to agriculture sector and reduced investment inflows to that
sector. The percentage of credit that is issued to the sector in comparison to the overall economic
sectors has been decreasing and staggering as shown in table 1 above.

Figure 1 and table 1 show that the contribution of agriculture to GDP has been unequal to the
resource potential of the country because of factors that are centered on the lack of significant
investment inflow and low liquidity in the sector. A study by FAO (2014) has revealed what this
research has highlighted that the levels of finance and credit provided to the agriculture sector has
a direct and proportional effect on its performance and overall contribution to the GDP.

8
Table 1: Lending to the agriculture sector (K’Million) 2005-2015

Year Agriculture sector Aggregated sector lending % of total lending

2006 1,065.90 3,400.60 31%
2007 1,210.30 4,106.50 29%
2008 1,321.40 5,864.30 23%
2009 1,565.10 6,136.80 26%
2010 1,623.70 6,535.40 25%
2011 2,124.40 8,106.20 26%
2012 3,763.00 10,840.30 35%
2013 3,752.40 11,739.00 32%
2014 3,596.50 13,074.20 28%
2015 4,535.50 17,567.20 26%
Source: BOZ (2015)

Inadequate liquidity in the agriculture sector can be directly linked to the reduced contribution of
agriculture to GDP, as liquidity is the major determinant of the success of most industries.
Agriculture in Zambia currently employs three quarters of the population and contributes about
8.5% to GDP.The improvement in the performance of this sector is considered to be the key in
diversifying Zambia’s economy and increasing its contributions to the GDP.For that reason
agriculture finance is critical to boost food production, increase export earnings, employment
prospects, help address food security and also to address the livelihood needs of the poor.

Zambia like most other sub-Saharan countries has shown limited financial capacity to fill the
investment gap with commercial banks’ lending less than 10% to agriculture while microfinance
loans are usually too small and call for high interest rates that are unsuitable for the seasonal nature
of agriculture – Figure 1 (Da Silva & Mhlanga, 2009).

Despite the realization of the importance of lending and investing in the agriculture sector, Zambia
like other countries has witnessed major challenges in the flow of agriculture finance. The major
drawbacks and constraints that are been faced when it comes to finance and agriculture are as listed
below:

 Credit flows are highly unevenly distributed across the sector, with the bulk of finance
going to commercial level agriculture.

9
  Agricultural businesses, particularly those involved in the production of field crops, are
intensive users of credit. Seasonality and cash flows associated with agricultural production
means that farmers are very reliant on credit.
 Levels of credit overall in Zambia are low compared to neighboring countries.

The gross effect of the constraints described above is that, most of these farmers lack economies
of scale as a result of the small scale production, resulting in a high per capita cost and generally
low production levels. Finance or capital has been identified as been inadequate to expand
production in the sector especially by the low- income earners or farmers who hold small farms
(MoFA, 2008).

The bulk of finance flowing to the agricultural sector is targeting commercial level producers and
agricultural processors. Only a handful of financial service suppliers are actively engaged in rural
and agricultural finance. The overall consensus is that agricultural business finance is expensive
and difficult to obtain with the exception of the largest lead firms. Furthermore a study by Sharma
(2014) confirms and supports our findings based on his analysis on the impact of agricultural credit
from commercial bank on GDP growth by using the time series data of Nepalese economy
covering the period 2002-2012. This study has found that agricultural credit has positively and
significantly impacted agricultural GDP of Nepal. However, use of fertilizer and improved seeds
have not shown any significant impact on agricultural GDP. He recommends the extension and
deepening of financial service system in the rural area and facilitating the agricultural lending
(Nepal Bank, 2014

2.3 Concepts and applicability of Microfinance.

Micro-finance is commonly understood as the supply of financial services to poor individuals or
groups that would otherwise lack access to traditional or formal banking services. It offers a variety
of products and services, such as “micro-credit,” “micro-savings,” “micro insurance,” and
financial services training (Hulme et al., 2009).Others have defined microfinance as the “provision
of a broad range of financial services such as deposits, loans, savings, payment services, money
transfers, and insurance to the poor and low-income households and their micro-enterprises who
are excluded from the formal financial systems” (Ledgerwood,2002 as cited by Girabi and
Mwakaje,2013 p229).

10
The question of whether microfinance can reduce poverty and lead to economic development, has
long been of interest to economists and policymakers, with different writers having opposing
theories centered on its applicability to development.

According to the United Nations Capital Development Fund (UNCDF, 2004),micro-finance plays
three key roles in development: (1) it helps very poor households meet basic needs and protects
against risks; (2) it is associated with improvements in household economic welfare; and (3) it
promotes gender equity by empowering women to engage in economic participation (as cited by
Gonzalez,2014 p9).

An opposing view has also been built by many writers that highlight the fact that poverty reduction
is not all about the provision of an income. By increasing the income of the poor, MFIs are not
necessarily reducing poverty because this all depends on what the poor do with the money as
oftentimes it is gambled away or spent on alcohol. Therefore focusing solely on increasing incomes
is not enough as effort needs to be directed towards helping the poor to sustain a specified level of
well-being by offering them a variety of financial services tailored to their needs so that their net
wealth and income security can be improved (Gonzalez,2014).

Another writer on microfinance Abbas (2005) studied and empirically analyzed income generating
and poverty reduction role of micro finance through regression and correlation methods. The
empirical evidence showed that there is a positive impact of micro finance on income and
consumption smoothening provided it is utilized in a rational way. The microfinance being utilized
in the most appropriate manners to reduce the poverty in the community (as cited by Imtiaz,
Mehmood, Akram, Irfan, 2014)

Thus the impact of microfinance on poverty alleviation is a keenly debated issue that is generally
not accepted as a silver bullet, because it has not lived up in general to its expectation. However,
when implemented and managed carefully, and when services are designed to meet the needs of
clients, microfinance can have positive impacts, not just on clients, but on their families and on
the wider community. There is however a need for greater assessment of these wider impacts if
the true value of microfinance to development is to be understood (Zohir and Matin, 2004).

11
2.3.1 Development and status of microfinance in Zambia
Zambia has got about three categories of institutions providing microfinance services. These
comprise the formal suppliers of microfinance (that is NATSAVE,BUILDING SOCIETY, savings
and loans companies, commercial banks), the semi-formal suppliers of microfinance (that is credit
unions, financial non-governmental organizations (FNGOs), and cooperatives), and the informal
suppliers of microfinance (for example clubs, rotating and accumulating savings and credit
associations, traders, moneylenders and other individuals).

The banking sector in Zambia is dominated by foreign owned banks which account for 53 per cent
of total banking sector assets. ZNCB, the state owned bank, accounts for a further 19 per cent.
The commercial banks, therefore, account for over 72 per cent of banking sector assets, 75 per
cent of deposits and 80 per cent of loans .The number of non-bank financial institutions, including
microfinance institutions, also increased dramatically. There are about 26 non-bank financial
institutions registered with the BOZ, including twelve leasing companies, three building societies,
two deposit taking financial institutions and one development bank. (Maimbo, 2001; BOZ, 2004).

Despite these numbers of financial institutions in Zambia a large proportion of the population is
still excluded from the formal banking sector and still do not have access to financial services.
The majority of the financial institutions’ branches are concentrated in urban areas and even the
relatively newly formed MFIs are concentrated along the line of rail. The outreach of MFIs despite
their proliferation in the last few years has been very poor, thus there is need to preach the
importance of microfinance institutions establishment in rural areas in Zambia as microfinance has
a vast array of benefits to an economy (Chiumya, 2004).

Microfinance offers a variety of benefits that can be harnessed by the Zambia government so as to
effectively address material poverty, the physical deprivation of goods or services, and the income
to attain them. When properly guided, the material benefits of micro financing can extend beyond
the household into the community. At the personal level, microfinance can effectively address
issues associated with “non-material poverty, which includes social and psychological effects that
prevent people from realizing their potential (Mike et al, 2009).

12
2.4 Chapter Summary
This chapter stood as the background of the concepts that categorically fall under this study, with
a particular focus and emphasis directed towards the Zambian setup. These concepts stood as a
theoretical guide for the principles that surround microfinance so as to enable cognition and
coherence of the research. The Chapter that follows shall further dig into the literature review that
directs this study.

13
 CHAPTER THREE: LITERATURE REVIEW

3.1 Introduction
This chapter provides an explanatory guide of the theories and empirical studies that have been
reviewed about microfinance and its correlation to agriculture productivity. It is subdivided into
the theoretical literature, empirical literature and the conceptual framework.

3.2 Theoretical Literature.

There are a number of theories that outline various concepts related to microfinance and its impact
on the productivity of the agriculture sector. It’s from some of these theories that have been sub
listed below, that this research has been scientifically modeled and guided.

3.2.1 Minimalist-integrated approach

The theoretical reflection incorporated in this study is based on the ‘minimalist-integrated
approaches’ argumentation to the provision of rural microfinance as adopted from Mago and Costa
(2018) and Ledgerwood (1996) who discussed the ‘minimalist-integrated’ nexus, which used the
perspectives to establish the relationship between microfinance and smallholder farming. The
minimalists argue that the only single “missing piece” in enterprise development is credit
(Ledgerwood, 1999, p. 66 as cited by Mago and Costa). The ‘minimalist approach’ does not work
well for smallholder farmers, since provision of ‘credit only’ without follow-up services is likely
to be detrimental and lead to extreme levels of non-performing agriculture loans, because the poor
farmers are tempted to use the acquired credit for other uses other than the intended purpose. The
‘fungibility’ behavior is explained by lack of follow-up services, such as training in financial
management, savings and improved credit servicing (Mago and Costa, 2018).

The integrated approach on the other hand looks attractive and convincing thereby calling for the
provision of both financial and non-financial intermediation that include training, social
intermediation, social services provision and enterprise developmental services. Proponents of the
integrated approach argues that enterprise development provides a holistic approach that has both
financial and non-financial services embedded in its model. However, according to Ledgerwood
(1996), MFIs that offer non-financial services often face sustainability challenges, hence, they
need to be sufficiently funded. They can also form strategic partnerships with the government and
donor agencies to promote the integrated approach to microfinance provision. Such partnerships

14
are likely to enhance the sustainability of smallholder farmers. Smallholder farmers therefore need
government support so as to improve their productivity which also promotes their livelihoods
(Mago and Costa, 2018; Ledgerwood, 1996).

3.2.2 The Neo-Classical and Endogenous Growth Theory

The neoclassical perspective is based on a basic principle in economics which suggests that
economic growth requires capital investment in the form of long-term commitment. The
neoclassical growth theories assume that capital investment like Foreign Direct Investment (FDI)
and credit provision can channel required funds to the productive sectors of a capital deficient
economy which, in turn, would help to increase the economic growth rate by increasing the
marginal productivity of capital (Murad and Idewele, 2017).

3.2.3 The Solow Development Model

The key variable in Solow growth model is labour and productivity (output per farmer). Solow
opines a continuous production function linking output to the inputs of capital and labour which
are sustainable. This theory determines the values of the variables, equilibrium conditions, that is,
conditions that tell us when the economy is in a position of balance and when the variables we are
focusing on are ―stable, that is, when the variables are changing in simple and predictable ways
(Murad and Idewele, 2017).

3.3 Empirical literature.

The accessibility to financial services in a country has diverse consequences on various
developmental programs of a country. These financial services range from lack of deposit facilities
can force households to rely on inefficient and costly alternatives. The lack of access to medium-
and long-term finance can inhibit investment by a majority of small and marginal agricultural
households in Zambia. This inadequate fund of marginal farmers has negative impact on the
agricultural productivity of the whole country. It’s therefore imperative that agriculture finance is
given considerable attention in a country’s development agenda (Chiumya, 2004).

Agriculture finance is used for various developmental agendas such as agricultural production,
trading, processing and transport, resulting in an increase in the use of agricultural inputs and
increased output of agricultural production. This hence leads to enhanced employment
opportunities in these sectors for the wider community and reduction in the prices of such products

15
due to increased supply. Agriculture finance through MFIs can also help to establish new
marketing links and increase the income of traders, and this can therefore lead to reduced migration
due to increased employment opportunities and increased income (Zohir et al. 2004).

Literature has shown that microfinance has a great influence on agriculture production. A study
by Suleman and Adjei (2015) on the impact of microfinance on agriculture in the Pru district of
Ghana found that microfinance is positively related to the production levels of crops, when
production levels of borrowers (Treatment) and non-borrowers (Control) where compared over a
given crop season.

Girabi and Mwakaje (2013) conducted a study to investigate the impact of MFI on smallholder
farm productivity based on sunflower and maize. Their Findings showed a significant difference
in input use and farm productivity between credit borrowers and non-credit borrowers, where the
farm productivity by the former group was persistently high compared to the latter. In their study
a regression analysis was used to suggest that input use (fertilizers, improved seeds and hired labor)
had significant impact on agricultural productivity. Although farming technology such as tractors
and ox-ploughs as well as land size were not significant in determining agricultural productivity
nevertheless, they had positive relationship to agricultural productivity (Girabi and Mwakaje,
2013).

Empirical analysis of rural financial inclusion and the impact of microfinance on agriculture began
about 30 years ago as people began seeking sustainable ways to develop their livelihoods. The
studies so far remain few and the results of these studies are highly provocative. The first school
of thought questions the relevance of microfinance as a poverty reducing policy in the first place.
(Adam & Von Pische, 1992) argued that “debt is not an effective tool for helping most poor people
to enhance their economic condition be they operators of small farms or micro entrepreneurs”. The
main argument of Adam and Von Pische (1992) is that there are other more important constraints
that face small agricultural households and they include product prices, land tenure, technology,
market access and risk. Also in support of the same view is Gulli (1998) who argues that credit is
not always the main constraint for micro enterprises´ growth and development, and that poor
people demand a wide range of financial, business development and social services for different
business and household purposes.

16
On the other hand, some scholars argue that, the influence of microfinance on agriculture
production is not always positive. They argue that providers of micro credit have not generally
addressed the credit and financial needs of small and marginal farmers because of their priority of
funding to the poor and because of various perceived problems related to the seasonal nature of
farm business (Suleman and Adjei, 2015).

Burgess and Pande (2005) found that, “Formal subsidized credit has been ineffective in reaching
the poor, and may even undermine rural development and increase rural poverty.” These
contradicting studies on the role of microfinance, indicated that they found no strong causal link
between increased access to micro-finance and poverty reduction or social well-being for the poor
and smallholder farmers (Gonzalez, 2014).

Wright (2000, p.6) states that much of the skepticism of MFIs stems from the argument that
microfinance projects “fail to reach the poorest, generally have a limited effect on income, drive
women into greater dependence on their husbands and fail to provide additional services
desperately needed by the poor”. In addition, Wright says that many development practitioners not
only find microfinance inadequate, but that it actually diverts funding from “more pressing or
important interventions” such as health and education thus generally have no positive impact on
farm production and poverty alleviation as a whole (2000, p.6).

Agriculture constitutes an important part of developing countries’ GDP and a greater part of rural
households’ income.Smallholder farmers manage about 80% of the world’s estimated 500 million
small farms and provide over 80% of the food consumed in a large part of the developing world,
thus contributing significantly to poverty reduction and food security (United Nations
Environment Program, 2013; FAO, 2006 as cited by Gonzalez, 2014).

Despite the above fact, agriculture still lacks financial services needed to foster sustainable
agricultural development, which hence threatens its ability to meet the fast growing demand.
Without access to financial services, many of the cash starved farmers who dominate the rural
landscape are unable to adopt the most productivity-enhancing practices (Morvant-Roux, 2008;
Gonzalez, 2014).

17
3.4 Conceptual Framework

Figure 2: Conceptual Framework

Source: Researchers analysis (2018)

Microfinance: microfinance in the context of this study is the provision of a broad range of
financial services such as insurance, credits and loans to farmers who cannot access funds from
banks. It is a quantitative variable but was transformed into a qualitative variable and regrouped
as very broad, broad and narrow.

The diagram above illustrates the conceptual framework of microfinance and agricultural
productivity for this study. The study samples were grouped into credit beneficiaries and non-
credit beneficiaries knowing quiet well that not all farmers had access to credit. The inputs
considered in this study include agrochemicals (fertilizers, pesticides) and improved seeds. Credit
beneficiary farmers were also expected to be able to apply improved farming technology such as
tractors, power tillers or ox-plough. According to Olayide and Heady (1982), a change in
productivity over time will depend upon changes in the types and quantities of inputs and
technology used. The productivity in this study was analyzed for maize knowing that it’s the most
cultivated crop and the one that required most inputs in the area. The productivity was determined
in terms of yield per hectare.

18
3.5 Chapter Summary
In conclusion this chapter used theoretical findings to come up with a coherent theoretical and
conceptual framework to support this study. These frameworks have guided the success of this
research as shall be highlighted in the chapter below that shows the methodology of the study.

19
 CHAPTER FOUR: METHODOLOGY

4.1 Introduction
This chapter presents the procedures used to design and conduct this study. It includes a description
of the study area, study population, sample selection techniques, materials for data collection and
methods for data analysis. This paper employed the qualitative research methodology as an attempt
to answer the questions that emerged under the problem statement.

4.2 Study area

Figure 3: Map of Namwala district

The study area is Namwala district, which is a rural district located in the southern Province of
Zambia as shown by the map below. Namwala district forms the north-western corner of Southern
province, framed between latitudes 15° 15' and 16°30' south and longitudes 25o 15' and 27o 15'
east with an area of 8293 sq. miles of which 3260 sq. form the Kafue National Park. It is bounded
on the north by Mumbwa, on the north-west by Kaoma,on the south-west by Sesheke, on the south
by Kalomo, and on the east by Choma and Mazabuka districts.

The district has Rainfall averages 750 mm (30 ins) per year with a long dry season from mid-
March to mid-November, it centers about the Kafue river, the only real perennial stream. The river

20
has an enormous influence on the country, flooding vast areas each season and providing the
district with an important fishing industry. Namwala District is a highly rural district located on
low-lying plains with pastoral farming as a major economic activity. The district is an agriculture
hub that holds the highest percentage of livestock compared to all districts in the Southern Province
of Zambia. A significant portion of the rural population is also engaged in smallholder crop
production. However, low rainfall conditions subdue the agricultural activities in the area. This
condition is worsened by poor access to finance for the promotion of smallholder farming activities
in the area.

4.3 Research Philosophy

There are two foremost scientific ideals interpretivism and positivism. These ideals are the
opposite of one another. Positivism ideals deal with objectivity, which points towards social world
properties that should not be inferred subjectively but measured through objective methods. The
positivistic ideal tries to reproduce the reality in as much objective way as possible. If the research
philosophy reflects the philosophy of positivism then the researcher will probably accept the
philosophical attitude of natural scientist (Saunders et al, 2009; Mohammed, 2007).

On the other hand, Interpretivism is an epistemology that advocates the necessity for the researcher
to understand differences between humans, in the role as a social actor. This emphasizes the
difference between conducting research among people rather than objects such as trucks and
computers. Interpretivism views the world and human beings in different ways than just how one
can observe, but the fact is that they are not being observed objectively but subjectively (Saunders
et al,2009;Mohammed,2007).

This research thus was between the positivism and interpretivism philosophy, as it was not only
focusing on objectively finding the impact of microfinance but to also explain how it can be
development and implemented in agriculture based on the perception of the interviewed
participants. Therefore, in this sense, we are not only working on the subject, but also the object.
So, we consider ourselves neither Positivist nor Interpretivist researchers, we are between these
two kinds of research philosophies.

21
4.4 Research Design
The research was a cross sectional survey with a descriptive orientation since its purpose was to
find out the impact of microfinance on agriculture productivity in Zambia. This study was both a
descriptive and analytic study. It describes how microfinance contributes to productivity and
Namwala district was chosen as unit of analysis to provide relevant data about the topic under
study.

4.4.1 Sample size and Sampling techniques

This study used members of Zambia national farmers union and farmers listed in the ministry of
agriculture as a sampling framework. These members were categorized into credit beneficiaries
(CB) and non-credit beneficiaries (NCB). In each category, 50% of farmers were purposively
chosen, with a total of 150 farmers selected for the interview. However due to unforeseen
circumstances 9 farmers were not interviewed leaving only 141 farmers interviewed, with the
removal of one questionnaire been done so as to ensure that the sampled size is equal in number.
This sampling technique was beneficial as it reduced travel and other administrative costs during
the data collection period. The farmers who did not use credit facility were selected from the
vicinity of the farmers using agricultural credit facility and having similar socioeconomic
characteristics (income level, amount of wealth, access to education and health facilities, cultural
values and farming practices) as the credit users. Such a selection has been made to reduce the
possibility of inclusion of outlier observations and make the sample units more homogeneous in
terms of socioeconomic characteristics.

As part of the study, 5 officials (working in credit departments) from different banks and financial
institutions out of 6 institutions which provided credit facility to farmers in the area were selected.
These 5 in addition to 2 officials from agriculture department and Zambia national farmers Union,
makes a total of 159 samples for the study. Due to unforeseen circumstances 9 farmers were not
interviewed leaving only 141 farmers interviewed, with the removal of one questionnaire been
done so as to ensure that the sampled size is equal in number.

4.4.2 Data collection

A structured questionnaire was used as the major instrument for data collection. Besides this,
interview technique was also used to extract detailed information wherever needed for open end
questions. The questionnaire were designed, pre-tested and administered to the smallholder

22
farmers for in-depth data collection. The purpose of this exercise was to collect specific
information from each household for gaining an understanding of the credit status, production and
market patterns of the farmers. During this phase the type of data collected included: socio-
economic and demographic characteristics, amount of loan borrowed, and type of input used, type
of farming technology, issues of market access and prices as well as production levels.

4.5 Analytical approach and estimation techniques

The following items have been used as part of the analysis of data:

 Frequencies, percentages, bar graphs and pie-charts to analyze socio-economic and

demographic characteristics of the sample farmer
 Descriptive statistics, multiple regression analysis, and t-test were used to analyze data using
the Statistical Package for Social Sciences (SPSS)

A t – test was applied to test the difference between means of variables regarding the two farmer
categories (i.e. CB and NCB), mean values were calculated as follows:

𝑋1− 𝑋2
𝑆12 2
⁄𝑁1 − 𝑆2 ⁄𝑁2

Where:
X1 and X2 are sample means of alternative groups;
S1 and S2 are sample variables for the two groups;

N1 and N2 are sample size for the compared groups.

In addition to the above T test a regression model was introduced and developed in this research
based on the work and study conducted by Girabi and Mwakaje (2013).

The adopted regression model is as expressed below:

Q = f (X1, X2, X3, X4, X5, X 6)

Q = a + b1X1 + b2 X2 + b3 X3 + b4 X 4+ b5 X5 + b6 X6+ u

Q= a+i∑X + u

Where: a = constant
Q = output from farm b ‟s = coefficients to be estimated.
23
X1 = Inputs (fertilizer, seeds, pesticides) X4 = Money (Kwacha)
X2 = Technology (tractor and ox-plough) X5 = Land
X3 = Hired labour u = error term

A further OLS regression model was developed taking into consideration the socioeconomic and
demographic factors and their impact on farm output (Outcome variable) as shown below:

Q = f (X1, X 2, X 3, X4, X5, X)

Output = a + Age + farm size + HH-size + level of education+Sex

Where the variables are as follows:

Q = output of Farm (Maize); X1 = age (years); X2 = sex (dummy: male = 1; female = 0); X3 =
household size; and X4 = level of education (years); and X5 = Farm size) and u = error term; b’s =
coefficients to be estimated.

In order to determine the factors influencing the farmer’s access to microcredit and provide a
detailed analysis of the decision of farmers to access credit, a scale analysis of the respondents
rating of the challenges encountered was used.

4.6 Chapter Summary

This chapter stands as a guide on how the research will be undertaken. It has shown us how data
will be collected and analyzed so as to answer the research questions. According to the information
given a questionnaire was used to collect data which was then analyzed using the T-test and
regression model in order to put it in a palatable form.

The chapter that follows shall seek to explain the findings that were gathered using the above
tools. The findings shall be presented using graphical and diagrammatical designs in order for
the research to be comprehensive.

24
 CHAPTER FIVE: RESULTS AND DISCUSSION

5.1 Introduction

This Chapter introduces the results and discussion of the finding in accordance with the listed
objectives. It shall be presented beginning with the results and then ending with the discussion.

5.2 Results
This initial part of chapter five presents the results and major findings collected in accordance with
the research objectives. It seeks to highlight our findings in presentable and understandable
diagrammatical presentations so as to enable appreciation of the researchable impact of credit on
small holder agriculture productivity.

5.2.1 Socioeconomic and Demographic characteristics.

The mean household size of the sample farmers is 12.48. The large family size is a reflection of
how the people of Namwala like many indigenous Zambians are embedded with a culture of joint
families and large family groups. Furthermore, the age of the farmers ranges from 35 years to 71
years with the average age centered on 50.59, giving us a glimpse of the trending and notional age
surrounding the agriculture occupation. (Table 2)

Table 2: Summary of Age and Household statistics

Trait Obs Mean Std.Dev Min Max

Age of
Household head 140 50.59 8.50 35 71
Household size 140 12.48 4.31 4 24

Source: Researchers Data analysis (2018)

The distribution of sample farmers by sex reveals that males dominate the agriculture community
in the sample with little room for females‟ participation and influence on the sector. The statistical
evidence according to figure 4 shows that the female farmers were about 7% of the sample as
compared to 93% for male house heads. This existing gender gap supports the study carried out
by Slavchevska (2015) that found that the agriculture sector is mostly managed and influenced by
men as compared to females causing a gender imbalance in the sector.

25
The Occupation Chart also shows that the major means of livelihood of people in the district is
oriented towards agriculture with all the participants highlighting agriculture as the major means
of survival (Figure 5). About 65% of the respondents said that they carry out other economic
activities such as teaching, businesses, fishing and livestock rearing for survival whilst 35% are
strictly in agriculture.

Figure 4: Distribution of Farmers by Gender Figure 5: Distribution by occupation

7%
Agriculture only
Female 35%

Male Agriculture and

65%
others
93%

Source: Researchers data analysis (2018)

According to statistical analysis of the educational backgrounds of the study it was clearly
observed that about 65 participants had no formal education as can be observed in Figure 4.
Further, only about 15 participants had attained Technical education, and the majority had primary
level as their highest educational attainment (Figure 6).

Figure 6 : Education level by distribution

30%
Percentage of population

25%
20%
15%
10%
5%
0%
Technical Higher Secondary Primary Informal Iliterate
education Education level level education

26
5.2.2 Impact of Microfinance on Agriculture productivity.
5.2.2.1 Accessibility and Use of Microfinance
The results have been analyzed in various forms that can enable any researcher appreciate the
levels of impact that microfinance has on agriculture productivity, with the estimation results of
the 70 credit beneficiaries and 70 non-credit beneficiaries showing that most of the results were
significant at 5%.

Table 3: T test results-Levels of input use.

Input Variable Category Mean Std Dev t-value 2 Tail sig (P-Value)
Fertiliser Non-credit beneficiary 158.92 104.53
Credit beneficiary 207.63 123.04 1.98 0.0128
Seed Non-credit beneficiary 99.93 53.48
Credit beneficiary 125.46 64.03 -2.56 0.0116
Technology Non-credit beneficiary 0.07 0.26
Credit beneficiary 0.97 0.29 -19.22 1.33E-40
Hired labour Non-credit beneficiary 43.6 9.19
Credit beneficiary 15.01 6.71 21.021 5.12E-43

Note: All the values are significant at 5%

Source: Researchers data analysis 2018

A check on how the acquired credit was used in agricultural production show that as high as
97.69% of the respondents from the CB used the loan to buy inputs while 2.3 % reported to use
the loan for hiring farm laborers (Table 3). Further the results in the table above show that there
was a statistically significant difference in the levels of using improved seeds and fertilizer at
P<0.05, between CB and NCB, with the CB using an average of, 125.46 kg improved seeds and
207.63 kg fertilizer compared to an average of 99.93kg and 158.92 kg, respectively for NCB.

The use of inputs in agriculture production goes further to also highlight as per table above that
NCB witnessed a high number of hired labour man days as compared to CB with a margin
difference of about 28.59 that is statistically significant at P <0.05 thereby providing valid evidence
on the fact that investing in technology reduces the use of labour in agriculture. The above fact can
also be supported by the high number of CB who use technology (i.e. Tractors) as compared to
hired labour, this statement is statistically validated by a look at the significant figures that appear
in the technology line as per table below.

27
5.2.2.2 Agriculture productivity and its determinants.
The productivity of maize harvest per hectare was statistically analyzed using a T test so as to
determine if there was any significant difference in the means of the two categories that would
render the rejection of the null hypothesis (Table 4).

Table 4: Maize Productivity.

Production per( ha) Category Mean Std Dev t-value 2 Tail sig (P-Value)
Maize production Non-credit beneficiary 2,615.07 643.67
Credit beneficiary 4,300.79 423.24 -15.25 1.915E-36***

Note: ***10% level of significance

Source: Researchers Data analysis (2018)

According to the results in table 4 it can be observed that there is a significant difference (P<0.1)
in agriculture productivity (maize) between CB and NCB. CB produced on average about 4300.79
Kg of maize per hectare compared to 2,615.07Kg for NCB. These figures evidently show that
farmers who are credit beneficiaries have a higher maize yield than their counterparties who have
never accessed credit. This hence implies that, the farms managed by CB were more productive
than that of the NCB mainly because of high input use as can be statistically supported by the T
values and probability levels that are lower than the level of significance and T-critical values for
the majority tests. This fact can be supported by the reviewed study conducted by Nepal rastra
bank (2014).

Table 5: Output of Maize per 50Kg bag

Number of bags CONTROL TREATMENT
Before After Before After
No % No % No % No %
Less than 20 bags 3 4.3 2 2.9 1 1.4 - -
20-40 bags 11 15.8 13 18.6 14 20 - -
41-60 bags 32 46 25 35.7 20 28.6 12 17.1
61-89 bags 24 34 30 42.9 30 42.9 28 40
90+ bags - - - - 5 7.1 30 42.9

Source: Researchers data analysis (2018)

Table 5 gives us another glimpse at the production levels of both CB and NCB before and after
the acquisition of credit facilities from financial institutions, According to the table above it can
be noticed that before the treatment group accessed microcredit the levels and quantity of

28
production was comparably similar to the produce of the control considering all other weather
factors are held constant. The output levels of about 42.9% (90+bags) for the treatment group and
nil for the control group shows that there was increase of production that can be accredited to credit
intervention.
In comparison the control group also witnessed some changes in the output levels during the period
the treatment group accessed credit, which can be attributed to the weather patterns and the
increase of the cultivated land by the control group.
5.2.2 Proportional impact of Production determinants.
Evidence from further statistical analysis using multiple regression analysis has shown that there
is a positive and significant impact on agricultural productivity for variables of fertilizers,
improved seeds and technology (Table 6).

It’s been seen that an increase in fertilizer access by 1 unit will increase maize productivity by
about 1.419 units while 1 unit increases in improved seeds application will result in 0.385 unit
increase. On the other hand, an increase in hired labour will result in the decrease of productivity,
this can be explained by the fact that labour increase means the farmer has not invested in
technology that can replace the use of hired labour in all areas of production, hence the lower
production levels as compared to a farmer who has invested in technology.

Table 6: Regression analysis of production determinants.

Regression Statistics
Multiple R 0.4219048
R Square 0.1780037
Adjusted R Square 0.1274193
Standard Error 448.25411
Observations 70

Input Variable Coefficient t-value 2 Tail sig (P-Value)

Fertiliser 1.419 2.64 0.010***
Seed 0.385 0.40 0.691***
Technology 6.914 0.80 0.428***
Hired labour -24.347 -0.12 0.901***

Note: ***10% level of significance

Source: Researchers data analysis (2018)

29
This decreasing effect of the increase in labour is rooted in the fact that hired labour will produce
a decreasing increase in production as compared to those that have implemented the use of
technology in the systems.

Table 6 has evidently shown that technology has the major impact on maize productivity as
represented by the correlation increase of 6.914 fold per unit increase in the use of technology.
This effect of technology can be justified by the efficiency and effectiveness that comes with the
use and adoption of technology in the agriculture sector.

Table 7 : Socioeconomic determinants of production.

Regression Statistics
Multiple R 0.894
R Square 0.800
Adjusted R Square 0.784
Standard Error 196.576
Observations 70

ANOVA
df SS MS F Significance F
Regression 5 9887257.74 1977451.548 51.174 4.54154E-21
Residual 64 2473088.04 38642.00068
Total 69 12360345.79

Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%
Intercept 3358.924 297.479 11.291 7.10E-17 2764.642188 3953.21 2764.64 3953.21
Age -0.364 4.441 -0.082 0.9349665 -9.235994775 8.51 -9.24 8.51
Farm size 13.997 13.582 1.031 0.306649341 -13.13697318 41.13 -13.14 41.13
HH_Size 61.160 8.792 6.956 2.22251E-09 43.5948469 78.72 43.59 78.72
Level of education 22.064 29.774 0.741 0.461362968 -37.41531221 81.54 -37.42 81.54
Sex -2.705 75.079 -0.036 0.971370046 -152.6918284 147.28 -152.69 147.28

Source:Researchers data analysis(2018)

The most significant socio-economic characteristics of the selected farmers in the study area
include Level of education (Coefficient of 22.064) and household size (Coefficient of
61.160).Table 7 shows that the farmers who had high levels of education easily accessed credit
and had higher agriculture production, the household size also contribute to the level of improved
productivity since most household members usually serve as sources of labor. In addition, the
result shows that the younger farmers seemed to be more productive than the older ones. Sex was
also measured using a dummy variable: a male farmer was scored 1 and a female farmer was

30
scored 0. The result shows that the female farmers are less productive than the male farmers in the
study area.

5.2.3 Challenges and factors affecting Agriculture Credit.

The farmers and officers were asked to choose what they actually thought were the challenges of
accessing credit, and the results in the table below stands as an exact reflection of their responses.
The farmers revealed that the issue of collateral was a major hindrance in them accessing credit
with about 75% of farmers adopting that factor, high interest had about 62%, payback period 55%
and the belief and perception of farmers about credit and financial institutions representing 29%.
The absence of financial institutions in the proximity of these rural farmers is also another factor
that has led to low usage of microfinance services by farmers and one of the major challenges
financial institutions encounter in debt recovery and loan issuance for credit offered to farmers.

Table 8: Challenges of credit access

Rank Challenge Frequency Percentage

1 Collateral 105 75
2 High interest rate 87 62
3 Payback period 77 55
4 Inherent Perception 40 29
5 Distance from Financial institution 65 46

Source: Researchers data analysis (2018)

A further analysis into the responses of Credit officers and other staff from financial institutions
highlighted that interest rates offered to farmers was quiet high due to the risk that is prevalent in
the business of agriculture (25%-45%) thus making it unaffordable for farmers who want to
borrow. The lack of institutions in strategic places that would serve the financial needs of the rural
farmers has also been highly criticized as the reason behind the lack of financial inclusion among
small holder farmers.

This chapter has answered the research questions by following the procedures stated in the
methodology. The findings of the study have been graphically and explicitly shown so as to enable
a clear and concise understanding of the research.

This study generally confirms that microfinance can increase agricultural productivity and this has
an impact on poverty alleviation in developing countries. This conclusion was arrived at due to the

31
change in productivity levels for credit beneficiaries after they accessed credit as compared to
when they didn’t access credit. Challenges faced by farmers in accessing financial services were
also listed and explained, most of these challenges can be attributed to the lack of sensitization and
availability of structured financial services based on the farmer’s needs.

5.3 Discussion
The analysis in this discussion shall include literature conclusions and findings by other writers so
as to enable the full coherence of our research findings.

5.3.1 Microfinance impact on agriculture.

The results that have been presented in section 4.1 evidently show that there is a significant impact
of microfinance on agricultural productivity. The difference in the levels of productivity between
those that had access to microcredit and those that didn’t suggests that microfinance gives a farmer
the financial capability to purchase inputs and improve farming technologies.

A study by Green and Ng'ongola (1993) concluded that access to credit by farmers could influence
fertilizer application. This research by Green and Ng'ongola (1993) supports the above results that
distinguish the rate of application of fertilizer by NCB and CB, with credit beneficiaries having a
higher rate of application as compared to non-credit beneficiaries. A further look at table 3
numerically shows a difference of about 48.71Kg in fertilizer application between the two groups.

The levels of productivity exhibited by the credit beneficiaries can be supported by the larger
fertilizer application that has an increase fold of about a 1.419 as highlighted in table 6.Devi (2012)
also argues in support of our findings by stating that that there is an enormous increase in the usage
of modern seeds, modernized inputs, fertilizers and pesticides after receiving the agricultural
credit, which increased yield per acre and thus the income of the farmers.

According to table 4 on maize productivity it was shown that CB produced more maize per Kg
(4,300) as compared to NCB (2615), this was mainly attributed to a difference in technology and
inputs used by the respective farmer categories as supported by table 6 that further highlights the
multiplier effect of technology (6.914) and other inputs in determining the productivity of the two
groups of farmers. As concluded and researched by other writers as those in the above paragraph
we can therefore positively say that microfinance has a positive and direct impact on agriculture
productivity. The difference in the levels of production between the control group (NCB) and

32
treatment group (CB) as shown in table 5 is also another evidential point of analysis to prove the
importance of microfinance in improving the productivity of agriculture.

However despite the emphasis on the increase in hired labor and other inputs for credit
beneficiaries, the results on the other hand show that hired labor unlike other inputs is not
correlated to agriculture productivity (Table 6).This result can be supported by the fact that an
increase in technology use for most farmers in the study area meant that they had reduced labor,
as a single machine can easily do what several humans would have done. This result is in
contradiction with the findings of Girabi et al (2013) who argued that access to credit enabled
farmers to pay for hired labor and thereby lead to an increase in productivity.

5.3.2 Challenges of Agriculture credit

Despite the available accessibility to microfinance by farmers in Zambia and the positive impacts
on agricultural productivity, there are a number of factors that constrain microfinance access and
sustainability by smallholder farmers. These include the lack of collateral, high interest rates,
payback period, inherent perception and distance from financial institution.

In a structured response question, respondents were asked to state challenges in accessing

microcredit. The major challenges that were reported are lack of collateral, high interest rates, and
loan payback period. These results support those reported by Rweymamu et al. (2003) that, 60%
and 45% of the respondents in Mbozi and Ukerewe districts, respectively mentioned the level of
interest rate to be a factor affecting their decision to borrow. (Mukama et al., 2005) also reported
similar factors such as educational levels of clients, lack of capital to lend to clients and staff
related incentives and skills development that were constraining microfinance access in Tanzania.

According to the findings of the study it was observed that the trending interest rate been offered
by financial institutions to farmers in Namwala ranges from about 25% - 60%.This interest rate is
considered too high based on the cash flow projection of the farming business thus rendering
acquiring loans by most farmers as a not worthwhile venture. The proximity of financial
institutions and perception of smallholder farmers towards financial institutions were also other
major challenges highlighted in the study area, with most farmers saying they find it hard to access
credit because there are no or few institutions near to provide such services. Last but not least the

33
seasonal nature of agriculture is also another challenge that affects access to credit as most loans
require a regular payment towards the loan.

5.4 Chapter Summary

The above results and discussion have evidently shown that microfinance has a significant impact
on agriculture productivity, especially if its use is directed towards the procurement of technology
as has been highlighted.

In conclusion this study cannot be complete without a detailed explanation of what can be done to
yield benefits from these findings. It’s to that effect that the chapter below (Conclusion and
Recommendation) shall conclude the overall study and state policy recommendations based on the
study, which can be used to improve the productivity of agriculture.

34
 CHAPTER SIX: CONCLUSION AND RECOMENDATIONS.

6.1 Introduction
The study has conclusively shown that microfinance has a significant impact on agricultural
production. It has also revealed that despite the unimaginable desire for agricultural loans, farmers
in the area are challenged with factors such as lack of understanding of the loan acquisition process,
unavailability of collateral securities and high interest rates. This Chapter discusses the findings of
the research, and then concludes the whole study with recommendations to policy makers been the
last section.

6.2 Conclusion
The main objective of this study was to analyze the impact of MFI on smallholder agriculture
productivity with a focus on maize farmers of Namwala district. The overall findings of the
research have shown that there is a significant difference in input utilization and farm productivity
between CB and NCB, with beneficiaries exhibiting a higher output level than NCB. A regression
analysis suggests that input use (fertilizers, improved seeds and technology) had significant impact
on agricultural productivity. Although the impact of inputs on productivity was clearly witnessed,
it was also observed that hired labor was indirectly related to the increase in productivity with
NCB been considered as the major spenders on hired labor ,since they don’t utilize technology in
all aspects as compared to CB.

Statistical conclusion of the findings have shown that credit beneficiaries produced about 4300
Kgs of maize as compared to 2615Kgs for non-credit beneficiaries. This was linked to the high
use of inputs by CB (Fertliser-207.63, Improved seed-125.46) as compared to NCB (Fertiliser-
158.92, improved seed-99.93).The main determinants of productivity in the study were found to
be technology, fertilizer and improved seed with fertilizer exhibiting a 6.914 increase effect on
productivity as compared to 1.419 and 0.385 for fertilizer and improved respectively.

The study went on to further categorically show the output levels of the respondents with the CB
showing that their output levels increased to 42.9 % from 7.1% in terms of 50Kgs maize bags
production of more than 90 bags. Lack of this increment for non-credit beneficiaries during the
same time period conclusively tells us that microfinance has a significant impact on the

35
productivity levels of the agriculture sector despite the collateral and interest rate challenges that
come with microcredit.

6.3 Recommendations
i. Evidence from the study has shown that credit plays a significant role in increasing
agriculture productivity. Therefore, government should create policies that shall attract
financial investments towards the agriculture sector.
ii. Out of the disbursed credit to agricultural sector, a significant portion has gone to finance
farming technology as compared to fertilizer, pesticides, irrigation and other necessary
farm inputs. Thus, banks and financial institutions should be encouraged to diversify their
product features so to enable the disbursement of credit to enable acquisition of various
agriculture inputs.
iii. Farmers are a limited on the potential of utilizing credit facilities because they are spending
too much money on servicing the loans due to the very high interest rates that the loans
fetch. Thus, policy makers should ensure that the farmers get as much credit as they need
at a subsidized interest rate.
iv. The impact that finance has on agriculture productivity cannot be overemphasized as the
study has proven. Thus government should seek to implement measures that would ensure
that the agriculture sector is highly financed in order to appreciate and realize the call to
diversify the economy from copper dependence to agriculture.
v. Further studies need to be undertaken incorporating different crops and livestock in order
to fully appreciate the importance and impact of microfinance on agriculture productivity
in Zambia.

36
REFERENCES
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with Cheap Credit, Boulder, and Colorodo: Westview Press.
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Methods” www.globalnet.org.

Agri-Pro Focus Zambia (APF), 2014. A Market Study on Microfinance Services in Zambia. AP
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Alexander ferka July 2011 the impact of microfinance on the livelihoods of women in rural
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Aminu Sulemana and Samuel Appiah Adjei, 2015.Microfinance impact on agriculture production
in developing countries-A case study of the PRU district in Ghana. Journal of academic
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Bigsten, A. and A. Shimeles (2007), “Can Africa Reduce Poverty by half by 2015?” Development
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BOZ (2004) ‘Banking Industry Report for June 2004’.
BOZ, 2015.Financial and other statistics. Zambia
Chiumya.C, 2004.Banking sector reform and financial regulation: its effects on access to financial
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District Andhra Pradesh". Journal of Arts, Science and Commerce. Vol III. Issue 4(2).
Duy, V.Q. (2012). “The Role of Access to Credit in Rice Production Efficiency of Rural
Households in the Mekong Delta, Vietnam.” CAS Discussion paper No 84.
Frank Girabi, Agnes Elishadai Godfrey Mwakaje, 2013 impact of microfinance on smallholder
farm productivity in Tanzania: the case of iramba district Institute of Resource Assessment,
University of Dar es Salaam, Tanzania.

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Gunther Fink, Kelsey Jack, and Felix Masiye, 2014.Seasonal credit constraints and agriculture
labour supply: Evidence from Zambia.’’NBER working paper no 20218.Zambia.

Gonzalez, 2014 .Can micro-finance help small farmers in developing countries improve their
livelihoods? A Systematic Review, Florida, USA.

Rahman, H.Z. and M. Hossain. 1995. Rethinking Rural Poverty. University Press Ltd., Dhaka.
Robinson, M. (2001) “The Microfinance Revolution: Sustainable Finance for the Poor”, World
Bank, Washington.

Ledgerwood, J. (1999) “Microfinance Handbook: an Institutional and Financial Perspective, the

World Bank: Sustainable Banking with the Poor”, Washington D.C.

Ledgerwood, J., 2002. Microfinance handbook. An institutional and financial perspective.

Banking with the poor. Washington D.C: The World Bank.

Maimbo, S. (2001) The Regulation and Supervision of Commercial Banks in Zambia: A Study of
the Design, Development and Implementation of Prudential Regulations by the Bank of
Zambia between 1980 and 2000. PhD thesis, Institute for Development Policy and
Management, University of Manchester.

Mike Taylor, Joe Dougherty, Rob Muno, December, 2009.Zambia, s agriculture finance market-
challenges and opportunities.ZNFU.Zambia

Morvant-Roux, Solene. (2008). What Can Microfinance Contribute to Agriculture in Developing

Countries? Proceedings from the International Conference Paris, 4-6 December 2007.

Mohammad Arifujjaman Khan, Mohammed Anisur Rahaman,2007.Impact of Microfinance on

Living Standards, Empowerment and Poverty Alleviation of Poor People: A Case

Study on Microfinance in the Chittagong District of Bangladesh.

Nepal Rastra bank, 2014.Agriculture credit and its impact on farm productivity: A case study of
kailali district, Nepal.

Saunders M, Lewis P, Thornhill A (2009),Research Methods for Business Students, 5th

edition,Pearson Education, London

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Slavchevska V, 2015.Gender differences in agricultural productivity: The case of Tanzania.
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Sukhwinder Arora, Oliver Saasa, Robert Stone, Maria Abigail Carpio, Richard Williams and
Jeremiah Grossman Development of rural finance policy and strategy in Zambia,
2012.oxford policy management. Lusaka Zambia
Schreiner, M. & Colombet, H.H. (2001). From urban to rural: Lessons for microfinance from
Argentina. Development Policy Review, 19 (3), pp. 339–354.
Stephen Mago, Costa Hofix, 2018.Microfinance as a pathway for smallholder farming in
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Shoaib Ahmed Wagan,and Asif Ahmed Sethar ,2015 .Impact of Microcredit on
Agricultural Development in District Mastung Balochistan: A Case Study of Balochistan
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Poverty: A Case of Pakistan. Pakistan

Otero, Maria. 1989. A Handful of Rice: Savings Mobilization by Microenterprise Programs and
Perspectives for the Future. Accion Internationale.http://www.accion.org/pubs/main.asp
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39
 APPENDIX
Questionnaire for Farmers
This questionnaire has been prepared for the study entitled “The impact of microfinance on small
holder agriculture productivity: A Case Study of Namwala District” being carried out by ADAM
CHABALA a student at the University of Zambia, currently studying a Master’s in business
Administration with finance. All the information received hereby will be kept secret and will not
be used for any other purpose except this study.

1.1 Personal Details

Age: ………………………. Household Size: ………….members
1.2. Sex of the Household Head?
Male
Female
1.3. Which level of education have you attained?
Illiterate
Informal Education
Primary Level
Secondary Level
Higher Education
Technical Education Related to Farming
1.4. Which occupation are you involved in?
Agriculture Only
Agricultural and Others
1.5. Which religion do you follow?
Hinduism
Buddhism
Islam
Christianity
Others

40
1.6 Marital Status:
Single Married Divorced Separated Widow/ Widower

1.7 Household size

1. Between 1-3
2. Between 4-6
3. Between 7-9
4. More than 9

1.8 Which type of crop do you mostly cultivate ?

RANKS
Types of crop mostly cultivated 1 2 3
Maize
Soya Bean
Cassava
Beans
Groundnuts
Sweet potatoes

Key: 1.Mostly cultivated 2. Sometimes cultivated 3.Not cultivated

Section B: Respondent’s awareness, access and utilization to microcredit
2.1. Do you have an account with any microfinance institution or bank?
Yes No

If yes, indicate the name of the institution:

………………………………………………………….
2.2. How long have you had an account with that microfinance institution or bank?
No Duration Tick
1 Less than 1 year
2 2-3 years
3 4-5 years
4 More than 5 years

41
If no, give two brief reasons: ………………………………………………………………
2.3. Are you aware of microcredit services/facilities financial institutions offer to farmers?
Yes No
2.4. If yes have you ever accessed one of those microcredit services over the past 5 years?
Yes No
2.5 If answer to 2.4 is yes, in which ways have you accessed the microcredit services (can be
more than one)
No Ways of access to credit Tick
1 Banks
2 Microfinance
3 NGOs
4 Other (Specify)

If answer 2.4 is no, why (Give 2 reasons):…………………………………………(Non-

Beneficiary end here)
2.6. If answer 2.4 is yes, which types of microcredit services available to farmers have you
obtained?
Types of microcredit obtained Tick (V)
Group lending (cash)
Individual lending (cash)
Group lending in kind (agriculture inputs, Fertilizers, seeds, pesticides,...)
Individual lending in kind (agriculture inputs, fertilizers, seeds, pesticides,...)

2.7 If answer 2.3 is yes, how much the size of the loan was obtained (ZMW)? (Tick any possible
answer according to your income)
No Amount Received Tick
1 < 5000
2 10,000-50,000
3 50,001-100,000
4 100,001-150,000
5 >150,001

42
2.8 Did the microcredit require any security or collateral?

Yes No
2.9. If yes, which category of security or collateral is required by MFI’s?
1 Collateral assets properties of the farmer 2. Level of saving with MFI’s

2.10 What types of collaterals accepted by MFI’s?

No Type of security or collateral Tick
1 Land
2 House
3 Initial individual savings
4 Group lending (Being members of
corperative)
5 Others specify

2.11 For what have you used the microcredit from Microfinance institution (tick any
possibilities)?
Use of Microcredit of Microfinance Answer
Yes No
Staring a new business activities
Buying fertilizers
Buying improved seeds
Buying land
Hiring or buying agriculture machineries
Buying Food & materials for the family
Buying livestock
Payment to farm workers
Paying health insurance (mutual)
Debt repayment
Social ceremonies
Paying school fees
Others (please specify)

43
2.12 Was the microcredit obtained sufficient for your planned activities or business plan?
1. Yes 2.No

If no why?
………………………………………………………………………………………………………
………………………………………………………………………………………………………

2.13 Have you paid back the microcredit obtained from your microfinance institution?

1. Yes 2.No
If the answer is no why? (Give your reasons)
………………………………………………………………………………………………………
………………………………………………………………………………………………………
2.14 Did you continue to work with your Microfinance after repaying your loan?
1. Yes 2.No
If the answer is no why? (Give your
reasons)..............................................................................................................................................
.............……………………………………………………………………………………………
…………

Section C: Impact of microcredit to increase agriculture productivity and improve

farmer’s wellbeing

3.1 Does access to microcredit have an impact on the quality and quantity of your agriculture
production?
Yes No
If no
why?………………………………………………………………………………………………
…………………….………………………………………………………………………………
……
3.3 If yes, how did access to credit increase your agriculture production? (Tick any possible
answer according to its contribution

44
 No Contribution Ranks
1 2 3 4
1 Buying or increase size of my land
2 Access to inputs (fertilizer, pesticides, improve seeds)
3 Access to improved seeds
4 Access to modern agri. Materials (tractor, mechan…)
5 Hiring competent labor

3.3 How much of the following inputs did you use for maize production?
Amount of Seed: Maize..... k.g per ha
Amount of Fertilizer: Maize..... k.g per ha
Amount of Labor: Maize ..............man days, per ha
Capital Expenditure: Maize (ZMW).... per ha
3.3.1 How much maize, millet did you produce this year?
Yield of maize: ………………50Kg bags per ha
3.4 How do you rate your household wellbeing to the rest of community after access to
microcredit?
No Family wellbeing rate Before access to After access to
microcredit microcredit
1 Very High
2 High
3 Moderate
4 Low
5 Very low

Give explanation to your choice…………………………………………………………………

…………………………………………………………………………………………………
Section D: Challenges to access and utilization of microcredit
4.1 What are the challenges do you face (farmers) in accessing funds from financial institution?
(Tick all possible answers based on the big challenges)
Ranks
Challenges 1 2 3 4
Inadequate information about MFI’s services
Afraid to borrow
Uncertainty of payment
High interest rate of loan
Lack of enough savings

45
 Little payback period
Lack of collateral
Long distance from microcredit facility
Bureaucracy (SDM)
Corruption or bribery
Lack of entrepreneurship skills in business planning

Key: 1.VeryHigh 2. Moderate 3. Low 4. Very low

Others (specify)………………………………………………………..
4.2 What constraints do you face in utilizing the microcredit (tick all possible answers according
to the main constraint faced)?
Ranks
Constraints 1 2 3 4
Long distance from the microcredit facility
Low investment returns
Small microcredit for many activities
Price fluctuation of agriculture produce
High taxes of agric. Products
Lack of skills in using credit
Lack of market for agric. Products
Climate change and crop diseases (rainfall or sun....)

Key: 1.VeryHigh 2. Moderate 3. Low 4. Very low

Others (specify)………………………………………………………..
Section E: Perception of farmers about the Microcredit institutions
5.1 What is your perception about your Microfinance services? (Tick all possible answers)
Farmer Perception on Microfinance services
Answer
Yes No
Female headed householders are main microcredit targeted
Very poor Farmers are the main microcredit targeted
Married members are better preferred for microcredit loans
Slow decision Making on microcredit application
Loan size Microcredit offered by MFI’S does not satisfy farmers’ needs
Interest rate paid on a loan offered is very high
Microfinance requires many documents to complete to obtain credit
Microfinance encourage farmers to save
Interest rate on deposit is sufficient
Time and distance is a problem to save in microfinance

46
 Others Specify……………………………………………
5.2 .How did you perceive utilization of microcredit in agriculture activities?
1. Very easy
2. Easy
3. Difficult
4. Very difficult
Give explanation to the selected answer…………………………………………………………
………………………………………………………………………………………………………
5.3 In your views, what you can say about the impact of microfinance on smallholder agriculture
productivity in Namwala?
………………………………………………………………………………………………………

Thank you for the information.

47
 INSTITUTIONAL QUESTIONNAIRE

This questionnaire has been prepared for the study entitled “The impact of microfinance on small
holder agriculture productivity: A Case Study of Namwala District” being carried out by ADAM
CHABALA a student at the University of Zambia, currently studying a Master’s in business
Administration with finance. All the information received hereby will be kept secret and will not
be used for any other purpose except this study.

Name of institution: ___________________________________

Sector: _____________________________________
Section A: Background Information of the respondent
1. Name of respondent: …………………………………………..
2. Sex: Male Female
3. Function/Position …………………………………………..

Section B: Questions
1. Which category of customers are you dealing with?
i. Cooperatives of farmers
ii. Big traders
iii. Small traders
iv. Individual smallholder farmers
v. Handcraft customers
2. Do men and women have equal opportunities to access credit in you Microfinance?
i. . Yes ii. No
If no why? ………………………………………………………
3. What are the target groups of customers for your credit system? (Tick any possibilities)
i. Individual Smallholder farmers
ii. Poor farmers
iii. Only women farmers
iv. Only men farm
v. Both men and women farmers

48
 vi. Traders
vii. Handcraft customers
viii. Other
(specify)……………………………………………………………………………………
…
4. What are the requirements to obtain credit from this your institution? (Tick any possibilities)
i. Applicant must be between 16-30 years
ii. Applicant must be between 31-54 years
iii. Applicant must be between 55- 65 years
iv. Applicant is above 65 years
v. Having enough savings on his account
vi. Having a valuable collateral security
vii. Having land property certificate
viii. Having a well-structured profitable project
ix. Being member of a cooperative
6. What is the maximum amount farmers are allowed to obtain from your institution?

i. Below 10,000
ii. Between 10,000 – 50,000
iii. Between 51,000 – 100,000
iv. Between 101,000 – 500,000
v. More than 500,000
7. What interest rate do you charge to a loan offered to farmers?

i. Below 5%
ii. Between 6%-10%
iii. Between 11%-20%
iv. Between 16%-20%
v. Between 21%-25
vi. Above 25%

8. How long do you allow the farmers to pay back the loan? (Tick all that apply)

49
 i. Below 1 year
ii. Between 1-2 years
iii. Between 3-5 years
iv. Above 5 years
v. All categories
9. What percentage of farmers succeeded to payback their credit in the last 5 years?

i. None
ii. 10%-30%
iii. 31%-50%
iv. 51%-70%
v. Above 70%
vi. All applicants
vii. Don’t know
10. What percentage of farmers have failed to payback their credit in last 5 years?

i. None
ii. 10%-30%
iii. 30%-50%
iv. 50%-70%
v. Above 70%
vi. All applicants
vii. Don’t know
11. How many times do you monitor and evaluate your credit to farmers?

i. Once per month

ii. Twice per month
iii. More than two per month
iv. Never

12. Do farmers repayment respect the payback period?

i. Yes

50
 ii. No
If answer to question above is No, kindly stated the
reason...................................................................................

13. How do you recover your money?

i. From our Offices and bankers

ii. Door to door at farmer’s houses
iii. Other (specify)……………………………………………………..
14. What are main challenges you face in recovering your loans from farmers?
…………………………………………………………………………………………

Thank you

51