The revival of smallholder cash crops in Africa: public and private roles in the provision of finance

Abstract

This paper examines the role of finance in smallholder cash crop production in Sub-Saharan Africa following market liberalization, drawing on theoretical arguments and fieldwork in Ghana, Tanzania and (for comparison) Pakistan. Smallholders' needs for finance for input purchase and traders' needs for finance to facilitate the supply of inputs and the purchase of produce are considered. It is argued that many smallholders need seasonal credit if they are to use inputs and that this can often be best achieved by loans to intermediary traders. But the development of credit markets is blocked by a high incidence of ‘strategic default’ on loans. Various mechanisms can be used to improve loan repayment rates from farmers, and these are analysed with a particular focus on ‘interlocked contracts’. © 1998 John Wiley & Sons, Ltd.