Exploring microcredit use patterns of Tanzanian smallholder farmers through multinomial logistic regression

Microcredit is widely promoted as a key instrument for enhancing agricultural productivity and rural livelihoods among smallholder farmers in developing economies. However, evidence increasingly suggests that access to microcredit does not automatically translate into productive agricultural investment, as loans are often diverted to meet competing household needs. Despite this concern, empirical evidence on the patterns and socio-economic determinants of microcredit utilisation among smallholder farmers in Tanzania remains limited. This study addresses this gap by examining how smallholder farmers utilise microcredit and identifying the factors influencing microcredit diversion (microcredit fungibility) in the Morogoro Region of Tanzania. Using a cross-sectional research design, data were collected from 240 smallholder farmers and analysed using descriptive statistics and multinomial logistic regression. The results show that 47.1% of farmers used microcredit exclusively for agricultural activities, while 28.7% diverted funds to non-agricultural uses such as food, healthcare, education, and social obligations, and 24.2% utilised microcredit to both farm and non-farm purposes. The regression results indicate that male farmers were significantly more likely to divert microcredit to non-farm uses, whereas higher levels of education were associated with reduced diversion. Household health status and headship dynamics also played a significant role in shaping utilisation decisions. These findings highlight the multifunctional role of microcredit within rural livelihoods and underscore the need for context-sensitive microcredit designs. The study recommends strengthening borrower training, post-disbursement monitoring, and the development of credit products aligned with agricultural seasons to enhance effective loan utilisation and productivity outcomes.