DETERMINANTS AND WELFARE EFFECTS OF VILLAGE SAVINGS AND LOANS ASSOCIATIONS (VSLA) ON SMALLHOLDER FARMERS IN THE NORTHERN REGION OF GHANA

Abstract

The subsistent nature of rural farming in Ghana and Northern region for that matter creates a difficult aura for accessing financial credit to support household farming activities. To reverse this trend, majority of the farm households are engaged in Village Savings and Loans Associations. Village Savings and Loans Associations is a vital move to provide financial resources to the rural economy for welfare improvement. Meanwhile, whilst some smallholder farmers are members of Village Savings and Loans Associations, others are not. This study focused on identifying the factors influencing smallholder farmers' participation in Village Savings and Loans Associations in Northern Region of Ghana. It also assessed the effects of participation in the association on agricultural productivity and household welfare. Cross-sectional data was collected from a total of 448 households using a multistage sampling technique. Endogenous switching regression model was used to analyse the underlying factors determining participation of smallholder farmers in the association. A Propensity Score matching model was also used to assess the effects of participation in Village Savings and Loans Associations on agricultural productivity and household welfare. For robustness check, endogenous switching regression model was also used to assess the effects Village Savings and Loans Associations on household welfare and agricultural productivity. Garret ranking was further used to rank the constraints faced by smallholder farmers in participating in VSLA. Results from both estimates of the propensity score matching and endogenous Switching Regression revealed that age, household size, obtaining information on the association from friends and families, extension contacts, income from off-farm activities, active labour, distance to marketplace, participating in Planting for Food and Jobs, contract farming, TV set ownership, location (district) dummies were found to be influencing farmers' likelihood of participating in VSLA. The propensity score matching estimates showed that members of Village Savings and Loans Associations obtain 18.3% agricultural productivity higher than non-members. However, endogenous switching regression model result showed that there is a negative effect of membership of the association on agricultural productivity. This means that participation in Village Savings and Loans Associations does not result to an increase in agricultural productivity. The output of endogenous switching regression model showed that a participant of Village Savings and Loans Associations had a higher household welfare than a non-participant. Inadequate capital for VSLA contribution and number of times the meetings to contribute were identified as the major constraints faced by participants. The study therefore recommends that Village Savings and Loans Associations should be popularised among smallholder farmers. Members of Village Savings and Loans Associations are encouraged to channel proceeds from the association into agricultural production for improved productivity and better long term welfare.