A Research Report Submitted in Partial Fulfillment of the Requirements for
Award of the Degree of Master of Science in Accounting and Finance (MSc. AF) of
Mzumbe University
Tanzania like many other developing countries highly depends on agriculture for income
generation and job creation for her citizens. Owing to the sector being highly dominated
by smallholder farmers, lack of finance remains the leading obstacle and yet banks – the
major supplier of finance are quoted to be the least suppliers of finance to farmers
despite capital adequacy and ability to lend to smallholder farmers at lower interest rates
compared to other suppliers. This study therefore aimed at determining factors that
affect access to bank credit by smallholder farmers; analyzing the influence of access to
bank credit on the performance of smallholder farmers; examining obstacles
encountered by smallholder farmers in raising bank finance and finally assessing
perceptions of banks towards lending to smallholder farmers in Tanzania.
Methodologically, both qualitative and quantitative research approaches were utilized in
the study. Data from 162 smallholder farmers in Mvomero Districts and 3 banks
operating in Morogoro region was collected and used in examining accessibility of bank
credit to smallholder farmers, while descriptive statistics and the Logit regression model
were employed for analysis. The Logit regression model was particularly utilized to
determine factors that affect smallholder farmers‟ access to bank credit while descriptive
statistics were used to analyze the obstacles and influence of access to bank credit on
smallholder farmers‟ performance.
The study revealed that the value of assets invested in farming activities and education
were significant factors affecting smallholder farmers‟ access to bank credit and; lack of
collaterals, vital bank information, proximity to banks and high interest rates were some
among the major obstacles hindering smallholder farmers‟ accessibility to bank credit.
Further still, access to bank credit was found to have a significant influence on the
performance of smallholder farmers as it influenced both output and increase in annual
returns. Among others, it was recommended that the government should establish a bank
that will exclusively provide financial services to agriculturalists by establishing a credit
guarantee scheme. It was also recommended that banks should develop new financial
products that will cater for the needs of smallholder farmers.