EFFECTS OF FINANCIAL INCLUSION ON AGRICULTURAL PRODUCTIVITY AND HOUSEHOLD WELFARE OF FARMERS IN GHANA

Abstract

Though government of Ghana is making frantic efforts to expand and sanitize the financial sector, the financial inclusivity of farmers is still low. Meanwhile, finance is critical in all facets of agricultural value chain and household welfare. The question has been whether or not financial inclusion of farmers results in improved agricultural productivity and household welfare. This study was conducted to investigate the effects of financial inclusion on agricultural productivity and household welfare of farmers in Ghana. Secondary data from Ghana Living Standard Survey round 7 (GLSS7) collected in 2016 and 2017 was used for this study. Bivariate probit model was used to estimate the determinants of access and usage of financial products and services. The Zero inflated Poisson was selected over the standard Poisson, the negative binomial based on its smallest Akaike Information Criterion and Bayesian Information Criterion estimates and was used to determine the intensity of financial inclusion. The effects of financial inclusion on agricultural productivity and welfare were both analysed using Endogenous treatment effect model. The results indicate a low level of financial inclusion of farmers. Household size, marital status, level of education, extension visits, distance from residence to agriculture office, and engagement in off-farm activities were the factors showed to be increasing a famers' chance to access and use financial products and services. On the other hand, age, sex of household head, location, irrigation, membership of an agricultural association was statistically significant and seen to be reducing farmers' chance of accessing and using financial products and services. Surprisingly and contrary to the apriori expectation, financial inclusion was seen to have diminishing effects on agricultural productivity. Congruent with the Aprio expectation, financial inclusion had a complementary effect on welfare of farmers. The study recommends that financial systems should be expanded and target more farmers. Farmers should be educated, encouraged, and supported to be financially included as this is critical to improvement in production levels and consequently, welfare. Government, financial institutions and other organizations providing financial support to farmers should monitor and ensure that moneys meant for agricultural production are not diverted into consumption.