ECONOMIC IMPACT OF FORMAL AND INFORMAL CREDIT ON FARMERS' RETURNS IN THE RIVER NILE STATE, SUDAN

Abstract

This study was carried out in an attempt to examine the effects of coexistence of formal abreast informal loans on farm income and consumption of farmers in Berber and Abu-Hamad Localities. The study relied on primary data collected from a multi-stage cluster sample of 120 farmers and 30 "sheil" lenders, through a field survey in April-July 2007. The data were supplemented by secondary data from relevant sources. To achieve the objectives, descriptive statistical analysis was carried out for socio-economic features of farmers and a simple path analysis was fitted to estimate the correlation between loans, farm income and consumption. The study revealed that agriculture has been the main activity of the farmers. Wheat is the main staple food crop that is grown by more than 50% of the farmers, followed by other crops like broad bean, alfalfa as fodder, and onion as main cash crop. The average crop yields of these crops were less than the average yields of Hudieba Research Station at Elddamer. Onion and garlic were more profitable followed by alfalfa and funnel, while broad bean and wheat came last and wheat some times gave negative net returns. Needs for loans is urgent due to a high demand for capital to meet the high costs of production and consumption expenses. The results of path analysis indicated that self-finance and informal credit appeared to have positive direct effects on farmers' consumption, whereas formal credit assumed to have indirect effects. Farm income had significant and direct positive effects on consumption expenditure of farmers receiving formal and informal credit. Loans either formal or informal and so self-financing had a significant and direct positive effect on farm income. Sheil lenders secured high net returns which represented 44% of the capital lent. The study recommended the introduction of a credit system that can reach large numbers of low income producers, based on principles that differ from those designed to reach relatively few large producers. The system should have more flexible policies regarding credit collateral, down payment and repayment schedules