A Tale of Two Hurdles: Examining the Drivers of Microcredit Application and Intensity Among Smallholder Farmers in Tanzania

Purpose: This study investigates the socio-economic and institutional factors influencing smallholder farmers’ application for agricultural microcredit and the intensity of their applications in the Morogoro region of Tanzania. Guided by Rational Choice Theory, the study addresses the persistent question of who applies for microcredit and why some eligible farmers choose not to participate, despite potential benefits. Study design: The study uses a cross-sectional survey design, collecting primary data from 352 randomly selected smallholder farmers using interviews based on structured questionnaires, to accommodate low literacy levels among many rural farmers. The Double Hurdle Model was employed to analyse the two-stage decision-making process: the likelihood of applying for microcredit and the intensity of application, conditional on participation. Findings: The results reveal that 75.85% of smallholder farmers applied for microcredit. Key determinants of microcredit application include education level, farm size, group membership, access to extension services, and proximity to financial institutions. Although awareness of microcredit is relatively high, application rates remain low due to collateral requirements and fear of default. Institutional barriers were also identified as significant constraints. Contributions: The study makes both theoretical and practical contributions. Theoretically, it advances understanding of microcredit behaviour by developing a mid-range conceptual framework that extends Rational Choice Theory to incorporate social, informational, and contextual mechanisms shaping decision-making. It demonstrates that farmers’ choices are boundedly rational, influenced not only by expected utility but also by factors such as education, experience, and access to extension services, institutional alignment (procedures, repayment terms, and collateral), and group membership. Practically, the study underscores the need for context-sensitive financial interventions that align credit design with farmers’ socio-economic realities. Implications: Our findings have direct implications for policy and practice: (i) policymakers should design microcredit programmes that are sensitive to farmers’ socio-economic realities, including collateral requirements and access barriers, and (ii) development practitioners can leverage financial literacy and extension services to enhance application rates and the effective utilisation of microcredit.