Impact Of Agricultural Market Reforms On Smallholder Farmers In ...

eforms. These last two findings suggests that (a) farmers that have increased their use of inputs
have either realized the benefits of modern agricultural technology or, more likely, they have
diversified into higher value crops (such as tobacco) where the application of more expensive
inputs is more profitable; and (b) seeds have become more available since 1995, albeit at higher
prices.
Access to and use of credit
As expected, not many smallholder farmers apply for credit. A little less than 20 percent
of the smallholder farmer households applied for credit during the period June 1997 to June 1998
(see Table 5.22). The main reasons cited for not applying for credit are due to (1) difficulties
dealing with lending institutions (32 percent), (2) unavailability of credit institutions (24 percent),
(3) lack of collateral (19 percent), and (4) not wanting to borrow money (18 percent). In over 90
percent of the households, it is the household head who applies for the loan. Of those that applied
for a loan, only two-third received the loan they applied for. The main purposes for a credit
application are for personal expenses (37 percent of the applicants), agricultural investments (28
percent), or fertilizer purchases (14 percent). The main sources of credit were friends and family
(57 percent of applicants), followed by the MRFC (17 percent), the National Association of
Business Women (NABW) (4 percent) and the Small Enterprise Development Organization of
Malawi (SEDOM) (4 percent). As in many other sub-Saharan African countries where rural
credit markets are not well developed, smallholders have to rely mainly on relatives and friends to
secure some credit when they are cash-constrained. The average amount borrowed is about MK
550 for an average period of four months and at an average monthly interest rate of 7 percent
Only 25 percent of the households mentioned that their access to credit has changed since 1995.
Of those households, 59 percent said that there has been an increase in access to credit while 41
percent said there was a decrease. The decrease in credit access is attributed solely to the closure
of a credit source in the area. Of those that experienced an increase in credit access, the main
contributing factors are less collateral requirement (40 percent), more availability of different
sources of credit (35 percent), and a new source of credit opened in the area (24 percent).
Contrary to expectations, female-headed households do not seem to have significantly less access
to credit than male-headed households. As Table 5.22 indicates, about 16 percent of the former
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