Allocation of Credit to Ujamaa Villages in Tanzania and Small Farms in Zambia

Extract

As agricultural production shifts from traditional methods (where land and labor are the major inputs and seed often is saved by the farmer) to more modern methods in which more of the inputs are produced off the farm, farmers' savings in Third World countries may be insufficient to purchase the needed inputs for cash. Thus credit may have to be provided from some source. Many governments have established agricultural development banks to increase the lending available to the agricultural sector and have experienced low repayment rates [a good summary is found in Donald (1976); also see World Bank (1975)]. Some writers have suggested that loans be made through cooperatives or a similar political group where selection of the borrowers is made by the group and there is group pressure for repayment. This study examines the experience of loans allocated through this type of arrangement to ujamaa villages in Tanzania and to small private farms in Zambia, and it seeks to establish some correlates of repayment ability.

Tanzania established the Tanzanian Rural Development Bank (TRDB) in 1971 and Zambia the Agricultural Finance Company (AFC) in 1970 to provide increased capital to the agricultural sector. Although both organizations make loans to both large and small farmers, this study concentrated on small farmer experience. In each country these organizations replaced predecessors with poor repayment experience (Due, 1978a). In each country lending procedures were reviewed and a determination made to attain high repayment rates. Training and administration were upgraded.