Participation and utilisation levels of smallholder farmers agricultural credit guarantee scheme in Shinyanga and Iringa Regions, Tanzania

Agricultural credit is a key instrument in improving smallholder farmers’ agricultural production. However, in Tanzania, access to agricultural credit is a significant challenge due to the higher transaction costs of lending to smallholder farmers. The Smallholder Farmers Agricultural Credit Guarantee Scheme (SCGS) was introduced in 2018 to enhance access to credit. The study employed a double hurdle model and a Heckman two-step selection model on farm-level survey data of 500 smallholder rice farmers to estimate determinants of participation and levels of credit utilisation. The results revealed that ten variables significantly influenced participation in the SCGS, six variables determined the levels of credit utilisation and four variables had a joint influence on both participation and credit utilisation levels. Specifically, education level, household size, SCGS awareness, land ownership, rice farm size, extension services, frequency of extension contacts and membership in farm-based groups positively explain participation in the SCGS. Similarly, age, education level, household size, rice farm size, frequency of extension contacts and loan repayment period positively determined credit utilisation levels. Moreover, education level, household size, rice farm size and frequency of extension contacts jointly influenced participation and credit utilisation levels. However, off-farm income and savings from the previous cropping season negatively determined participation. These results offer valuable insights for policymakers on factors driving participation in the SCGS and credit utilisation levels, thereby supporting the design of effective strategies to enhance smallholder farmers’ participation in the SCGS and credit utilisation levels.