CHAPTER ONE
INTRODUCTION
Background of the Study
Agriculture accounts for a lot of land use in most of the developing countries; hence it is probably the single most powerful influence on environmental quality. Agriculture remains the principal livelihood of the rural poor (Malik, 1999).
Agriculture has been the backbone of the Ghanaian economy. Agriculture is very vital to society. It helps to alleviate poverty, provide food security and economic growth. It is the backbone of many African economies especially Ghana (World Development Report, 2008). It is estimated that about 86% of the poor and the rural folks depend on agriculture for their livelihoods and also provide jobs close to` 1.3 billion smallholder farmers (Tita, 2009). According to World Bank Report (2008), agriculture in developing countries contribute an average of 29% to Gross Domestic Product (GDP) and also employs about 65% of the economically active labour force of the population, from production to marketing of various agricultural produce (World Bank, 2008).
According to Ogundeji (1998), agricultural business like any other business activity can be financed through microcredit personal savings, hire purchase and cooperatives societies, private placements, partnership and friends or family assistance. Awotodunbo (2008) also stated that microcredit serves as an important source of funds to farmers which can be used in the production process. The success or otherwise of every farming system to a large extent, depends on getting a good farmland, workforce, capital, managerial acumen and dexterity.
In Ghana, more than 80 percent of all agricultural production is done on land holdings of less than one hectare (Brown et al., 2000). The sector also contributed 22 percent of the country‟s total GDP from the periods of 1996 – 2002, contributed 30.4 percent to GDP in 2006, 29.1 percent in 2007, 31.0 percent in 2008, 31.8 percent in 2009 and 29.9 percent in 2010. This makes the agricultural sector very essential and dominant in Ghana‟s economy, accounting for over 50 percent of foreign exchange earnings. In Ghana the agricultural sector is made up of 5 sub-sectors such as Livestock (5 percent), Fisheries (7 percent), Forestry (11 percent), Cocoa (14 percent) and Crops other than Cocoa (63 percent of agricultural GDP). The Ministry of Food and Agriculture, (MOFA) is responsible for the management of crops, fisheries and the livestock subsectors which accounts for about 75 percent of the total GDP from Agriculture whilst smallholder farmers who apply basic technological knowledge in production account for about 80 percent of the total agricultural production (Ennin, 2001). In spite of improvements made in the agricultural sector over the years, the sector‟s performance has been dwindling due to the lack of funds. Much remains to be done to raise credit access which is a vital component in the modernization of agricultural activities and increase in productivity.
Microcredit is a widespread and celebrated tool of contemporary international economic capital, and training with which to establish their own small businesses on the condition however of repaying the initial investment to be recycled in new investment to poor people. Microcredit consists in lending funds to the poor in order that they use them to start or improve their businesses. Since most agricultural lands in Ghana are subject to severe droughts and degradation which frequently leads to food deficits, it is appropriate to examine the needs of the rural and urban poor farmers to ameliorate their lives. Out of
a total land of 23,853,900 hectares, 13,628,179 hectares representing about 57.13 percent of the total land area in Ghana is suitable for agricultural production. The total area under cultivation in 1994 was 5,300,000 hectares representing 38.89 percent whiles the total area under irrigation was 10,000 hectares but 1,100,000 hectares are for areas under inland waters (Annan, 2011). In view of this fertilizer application is one of the most methods farmers usually used to improve crop yields during drought and unfavorable conditions. For example, farm yard with various crops require an average of 6-7 kg of fertilizer per hectare. There is the need therefore to rapidly transform the agricultural sector in Ghana since Ghana‟s population is expected to increase from 24million in 2008 to about 36 million by 2020. This growth will automatically have an effect on the availability of lands for the purposes of agricultural production. As such, some attempts have been made to shift the focus from the agricultural sector to non-farming ones in the hope of providing innovative solutions to farmers who have exhausted environmental resources. Although much attention has been paid to the physical causes of food shortages, it is appropriate nonetheless to examine the root cause of the decreasing trend in soil fertility in the context of its availability and sustainability to ensure that there is an effective and efficient remedy in place. The success of an improved agricultural practice in increasing productivity and revenue is dependent on the usage of modern technological methods and implements adopted by a farmer. Farmers in Ghana and for that matter, West Africa consider many different variables prior to investing in the farming system.
It is pertinent to note that the study depends largely on the availability and the accessibility of microcredit to invest in farming and non-farming activities thereby ensuring favorable results. This may serve as an alternate solution to combatting low
agricultural production and to assist in raising farmers‟ incomes. Such an improvement may help to procure agricultural inputs and sometimes, in very poor agricultural seasons, to purchase food as well. Hailu (1991) and Garba (1991) identified capital constraints as an additional major reason for low implementation of improved farming practices in Niger. Njeru and Njoka (1998) stated that due to patriarchal social authority structures, women even though receive substantial family support to start their businesses but these supports become very limited due to family responsibilities. It must be noted that when capital is lacking, investment in agricultural inputs will also be minimal since farmers will not like to risk the implementation of a new technology. Mohsin (2015) emphasized the fact that a Microcredit Guarantee Facility (MCGF) should be established and fully adopted and operated by various countries in the developing world in order to sustain the poor and the vulnerable in the society.
The Former UN Secretary General, Hon. Kofi Annan, also emphasized during the launch of the International Year of Microcredit (2005), that “Sustainable access to microcredit help to alleviate poverty by generating income, creating jobs, allowing children to go to school, enabling families to obtain healthcare and empowering people to make the choices that best serve their needs” (United Nations, 2005; Asiama, 2007). Constraints in capital attainment have been alleviated in other parts of sub-Saharan Africa through the implementation and introduction of micro-finance programmes for non-farming enterprises. In recent years, most countries across the globe are promoting MFIs not only for rural development intervention but also as a rural development remedy. Reardon et al. (1995) posits that credit programmes assisting non-farming enterprises can contribute indirectly to investment in the farming system. Microfinance is the attempt to improve
access to small deposits and small loans for poor households left unattended by various banks. Ghana‟s agriculture remains predominantly small-scaled with majority of the farmers in food crop production, in mainly for domestic consumption (MOFA, 2007). Urban agriculture requires financial and political legitimacy to increase its contribution to the feeding of cities. Although there is increased political support for urban agriculture in many parts of the world, financial support for urban growers remains quite limited. Most urban growers lack access to credit to develop their activities using limited resources (UAM, 2011). Credit is one of the components of financial inputs considered fundamental to all production units (Dicken, 2007).
Micro-credit was first initiated in Bangladesh by Professor Mohammed Yunus in the late 1970‟s and has since gained significant developments over the past thirty years especially in developing countries. Microcredit is a provision of small collateral-free loans to poor people in order to foster income generation and poverty reduction through self- employment (Chowdhury, 2009). According to Zeller (2010), microfinance institutions‟ (MFI) database form eighty-five developing countries in 2010 identifies that there are 688 institutions from Indonesia and 790 institutions worldwide are supported by international organizations which constitute about 54 million members, 44 million voluntary and compulsory savings, and 23 million borrowers.
Microcredit is generally a term which refers to the provision of a broad range of services including deposits, loans, payment services, money transfer and insurance to the poor and low-income households and their micro-enterprises (Khawari, 2004). Microcredit schemes extend small loans and other financial services to people who are considered traditionally not bankable to enable them generate income and spur entrepreneurship.
Since access to credit depends largely on the willingness and ability to repay at a price which covers the total loan by a lender, it has become very difficult for these small scale farmers to access credit due to the fact that, most of them do not have the required collaterals to signal their guarantee credit worthiness of repaying the loans. Credit sustainability and other financial services to farmers and the rural inhabitants in the developing countries has resulted to be a tedious task which has become a major development challenge in most of the African countries (Onumah and De-Graft Acquah, 2011). Klein et al. (1999) emphasized that since there are about 1.2 billion poor people living in the rural areas, there is the likelihood of a high incidence of rural poverty which can be reduced with an improvement in the services of rural financial institutions. Even though, several reforms and new financial institutions have emerged, there is still a substantial gap persisting in many financial markets (Onumah and De-Graft Acquah, 2011). Since microcredit forms the bedrock of farms‟ success, it is worthwhile that a comprehensive study is undertaken to unearth the bottlenecks involved in the process and to suggest antidotes to stem the weakness.
