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Open AccessArticle

Factors Affecting Farmers’ Access to Formal and Informal Credit: Evidence from Rural Afghanistan

1
Graduate School of International Development and Cooperation, Hiroshima University, Hiroshima 739-8529, Japan
2
Faculty of Agriculture, Nangarhar University, Jalalabad City, Nangarhar 2601, Afghanistan
*
Author to whom correspondence should be addressed.
Sustainability 2020, 12(3), 1268; https://doi.org/10.3390/su12031268
Received: 26 December 2019 / Revised: 18 January 2020 / Accepted: 4 February 2020 / Published: 10 February 2020
(This article belongs to the Collection Sustainability in Financial Industry)
Adequate access to credit is necessary for the sustainable development of agriculture. This study uses a double hurdle model to investigate what affects farming households’ credit participation and amount, and a Probit model to find out credit constraints. For this purpose, the data from a survey of 292 farming households in Afghanistan was utilized. The study finds that households obtain credit for their agricultural activities from various formal and informal sources. The results of the double hurdle model reveal that the financial activities of the households were positively determined by crop diversity, education, number of adults in a household, size of land, and access to extension. Non-agricultural income decreases the likelihood of participation. The results of the analysis of credit constraints indicate that formal credit did not help small-scale and remoter farming households; however, these households relied on informal credit, especially when they faced income shock. Furthermore, religious belief increased the chances of avoiding formal credit but not informal credit. It is suggested that formal credit should be expanded to rural areas, especially to small-scale farming households. Policy makers should also consider increasing access to extension. Formal financial institutions should provide Sharia-compliant credit, which increases the confidence level of households in using formal credit in Afghanistan. View Full-Text
Keywords: formal credit; informal credit; participation; amount of credit; credit constraints; double hurdle model; probit model formal credit; informal credit; participation; amount of credit; credit constraints; double hurdle model; probit model
MDPI and ACS Style

Moahid, M.; Maharjan, K.L. Factors Affecting Farmers’ Access to Formal and Informal Credit: Evidence from Rural Afghanistan. Sustainability 2020, 12, 1268.

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