DETERMINANTS OF ACCESS TO CREDIT AND ITS IMPACT ON HOUSEHOLD FOOD SECURITY IN KARAGA DISTRICT OF THE NORTHERN REGION OF GHANA By Ma-Azu Abdul-Jalil A Thesis submitted to the Department of Agricultural Economics, Agribusiness and Extension, Kwame Nkrumah University of Science and Technology, in partial fulfilment of the requirements for the degree of MASTER OF PHILOSOPHY IN AGRICULTURAL ECONOMICS Faculty of agriculture College of Agriculture and Natural Resources March, 2015 DECLARATION I, MA-AZU ABDUL-JALIL, author of this Thesis, do hereby declare that, this submission is my own work towards my Master of Philosophy Degree in Agricultural Economics and that, to the best of my knowledge, it contains no material previously published by another author nor materials which have been accepted for the award of other degree of the university, except references to other peoples work which have been duly acknowledged in the text. Ma-Azu Abdul-Jalil(PG 2122508) ………………..………… ……………………… (Student Name & I.D) Signature Date Dr. Victor Owusu ………………..………… ……………………… (Major Supervisor) Signature Date Dr. J.A. Bakang ………………..………… ……………………… (Co- Supervisor) Signature Date Dr. Dadson Awunyo-Vitor ………………..………… ……………………… (Head of Department) Signature Date ii DEDICATION I am dedicating this work to my parents Mr. and Mrs. Ma-Azu, my brothers and sisters, Abdul-Aziz, Za-id, Muhideen, Faruq, Osman, Kumuriya, Rashida, Malika, A-isha, Safia, My grandfather, Late Alhaji Zuneidu Osman. Special dedication to my wife whose patience, prayers and encouragement made this dream a success and finally to our son Muhammad Tharwan Tipagya. iii ABSTRACT This study attempts to measure access to credit and its influence on food security in Karaga District of the Northern region of Ghana. The thesis assessed access to credit from both formal and informal sources. The study looked at the farm household characteristics, household assets, farm size and crop produced, demographic factors, farm and non-farm income activities in the study area , household head access to credit and forms of credits accessed, household livestock wealth, number of times eaten in a day by the household and month of stock depletion as measures of food security. The study also employed multivariate tobit model that estimated the determinants of credit. A chi-square test was used to link access to credit to food security. The study revealed that access to credit has significant impact on the household food security status of the farmers. Multivariate tobit estimates revealed that socio-economic factors such as age, male, household size, education, farm size and farmer-based organisation membership positively affect access to credit and subsequently food security. Also, institutional factors such as credit worthiness and guarantor had positive effects on access to credit and food security. Finally all locational dummies except Nyingali and Pishigu had positive influence on credit access and food security. iv ACKNOWLEDGEMENT I wish to acknowledge the strength and wisdom the ALMIGHTY ALLAH has given me since my conception to date, I would forever be grateful and thankful. I am much grateful to my supervisor, Dr. Victor Owusu who offered his invaluable contributions and suggestions as to how this thesis is organized. You encouraged and challenged me at every stage of this work and made very useful comments to me throughout this programme. I would not have been able to put up this thesis without you. I say ―MBO‖, and may ALLAH reward you handsomely. I am much grateful to Uncle Suhaiba, Sumaila, Abdul-Hamid (ALHAJ) and Yunus for their support financially towards field work and transportation. I am forever indebted to you and will remain grateful to you. To all lecturers of the Department, I am sincerely grateful for your constructive criticisms and suggestions made in the course of this write up. To all the Research Assistants especially Felix in the Department I salute you for helping in the data collection and analyses. May ALLAH reward you. My study would not have been possible without the support of friends, family and course mates especially Enoch Owusu-Sekyere who helped in analysis and restructuring of the entire thesis. God richly bless you. Special mention must also be made to Sadiq, Mr. Baako of Karaga MOFA, Dalla, Yahaya Iddi, Ibrahim Hamdu , Uncle Mubarik and wife and above all my wife Ruhaima. Your encouragement and support during the pursuit of this course cannot be measured. I say ―NIIKPANGMANGA‖ and May ALLAH keep us unified forever. v TABLE OF CONTENT DECLARATION................................................................................................................ ii DEDICATION.................................................................................................................. iii ABSTRACT ....................................................................................................................... iv ACKNOWLEDGEMENT ................................................................................................. v TABLE OF CONTENT .................................................................................................... vi LIST OF TABLES ............................................................................................................ ix LIST OF FIGURES ........................................................................................................... x LIST OF ACRONYMS .................................................................................................... xi CHAPTER ONE: INTRODUCTION ............................................................................. 1 1.1 Background .................................................................................................................... 1 1.2 Problem Statement ......................................................................................................... 3 1.3 Research Questions ........................................................................................................ 5 1.4 Objectives of Study ........................................................................................................ 6 1.4.1 Main Objective............................................................................................................ 6 1.4.2 Specific Objectives ..................................................................................................... 6 1.5 Justification of the Study ............................................................................................... 6 1.6 Organization of the Study .............................................................................................. 8 CHAPTER TWO: LITERATURE REVIEW .............................................................. 10 2.1 Operational Definitions of Key Concepts .................................................................... 10 2.2 Determinants of Access to and Participation in Microfinance Programmes ............... 11 2.2.1 Age ............................................................................................................................ 11 2.2.2 Household total value of assets ................................................................................. 12 2.2.3 Landholding size ....................................................................................................... 12 2.2.4 Member of a Farmer-Based Organisation................................................................. 12 2.2.5 Social Capital ............................................................................................................ 13 2.2.6 Education .................................................................................................................. 13 2.2.7 Loan Duration ........................................................................................................... 14 2.2.8 Household Size ......................................................................................................... 14 2.2.9 Use of Loan ............................................................................................................... 15 2.2.10 Income..................................................................................................................... 15 2.2.11 Cost of Lending (Interest Rate)............................................................................... 15 vi 2.2.12 Savings .................................................................................................................... 15 2.3 Household Food Security ............................................................................................. 17 2.3.1 Meaning of Household Food Security ...................................................................... 17 2.3.2 Measurement of Household Food Security............................................................... 18 2.3.2.1 United States (U.S.) Household Food Security Survey Module (HFSSM) ........... 19 2.3.2.2 Household Food Insecurity Access Scale (HFIAS) ............................................... 20 2.3.2.3 The Hunger Gap ..................................................................................................... 21 2.4 Microfinance and Household Food Security ............................................................... 21 2.5 Measurement and Determinants of Access to Credit ................................................... 24 2.6 Analyzing Access to Credit with the Credit Limit Variable ........................................ 25 2.7 Access to Credit and Participation in Credit Programs ............................................... 27 2.8.1 Factors Affecting Productivity in Smallholder Agriculture ...................................... 27 2.8.2 Level of Food Productivity of Smallholder Farmers ................................................ 28 2.9 Determinants of Households‘ Food Security ............................................................... 28 2.10 Impact of Agricultural Credit on Food Security ........................................................ 31 2.11 Credit Constraint, Access to Credit and Participation ............................................... 32 2.12 Measurement of Access to Credit and its Impact on Household Outcomes .............. 33 2.13Access to Financial Services ....................................................................................... 35 2.14 Characteristics of Credit Markets in Africa ............................................................... 36 2.15 Food Security Definition............................................................................................ 40 2.16 Global Perspective on Food Security ......................................................................... 41 2.15.1 Food Security in Northern Ghana ........................................................................... 44 2.15.2 Food Security Summary in Northern Ghana .......................................................... 45 2.15.3 Food Security Situation in Karaga District ............................................................. 46 2.16 Theoretical Discussions on Access to Credit. ............................................................ 49 2.17 Role of Credit in Alleviating Poverty ........................................................................ 50 CHAPTER THREE: METHODOLOGYOF THE STUDY ....................................... 53 3.1 Study Area ................................................................................................................... 53 3.1.1 Location and Size ...................................................................................................... 53 3.1.2 Climate, Soils and Topography................................................................................. 53 3.1.3 Population ................................................................................................................. 55 3.2 Research Design and Sampling ................................................................................... 57 3.3 Conceptual Framework ................................................................................................ 58 vii 3.3.1 Specification of Empirical Model ............................................................................. 59 3.3.2 Statement of Hypothesis ........................................................................................... 60 3.4 Data Analysis ............................................................................................................... 61 CHAPTER FOUR: RESULTS AND DISCUSSIONS ................................................. 62 4.1 Descriptive Analyses ................................................................................................... 62 4.1.1 Individual and household characteristics .................................................................. 62 4.1.2 Access to Credit ........................................................................................................ 64 4.1.3 Source of Credit to the farmer .................................................................................. 65 4.1.4 Food security status of farmers ................................................................................. 66 4.2 Empirical results .......................................................................................................... 67 4.2.1 Determinants of access to credit ............................................................................... 67 4.2.2 Effect of credit access on food security .................................................................... 72 4.2.3Analysis of Household Credit Constraints ................................................................. 73 CHAPTER FIVE: CONCLUSIONS AND RECOMMENDATIONS ....................... 75 5.2 Summary of main findings........................................................................................... 75 5.3 Conclusions .................................................................................................................. 77 5.4 Recommendations ........................................................................................................ 77 5.5 Limitations of the Study and suggestions for future research...................................... 78 REFERENCES ................................................................................................................. 79 APPENDICES .................................................................................................................. 96 Appendix one: Farm Household Questionnaire……………………………………….96 Appendix two: Farm Household Food Insecurity Scale (HFIAS)…………………….105 viii LIST OF TABLES Table 2.1: Components of food security and corresponding module items ...................... 19 Table 2.2: Scoring of the food security scales based on questionnaire responses ............. 20 Table 2.1: Areas under cultivation for the period 2006-2007 ............................................ 46 Table 2.2 Production levels of food crops for the period 2006-2007 ................................ 47 Table 3.1: Multivariate Tobit Model ................................................................................. 59 Table 3.2: Binary Logit Model .......................................................................................... 60 Table 4.1 individual and household characteristics of farmers.......................................... 63 Table 4.2 Sources of credit ................................................................................................ 66 Table 4.3: Household food security levels for farmers ...................................................... 67 Table 4.4Multivariate tobit estimate of the determinants of credit access from both formal and informal sources ..................................................................................... 68 Table 4.5 Binary logit estimates of the effect of credit access on household food security ...................................................................................................................... 73 Table 4.6 Constraints to credit access ................................................................................ 74 ix LIST OF FIGURES Figure 3.1: A Map Showing the Karaga District ............................................................... 56 x