Profiling and Characterizing Trends and Patterns of Agricultural Credit in Tanzania

Abstract

Agricultural credit is crucial for improving productivity, sustaining economic growth, and supporting smallholder farmers' livelihoods. However, in Tanzania, the sector receives a disproportionately low share of total credit from formal financial institutions. This study analyzes the trends and patterns of agricultural credit from 2005 to 2018 and its implications for agricultural productivity and GDP. The research is guided by Credit Rationing Theory, Financial Intermediation Theory, and Institutional Theory, which provide insights into the challenges affecting credit accessibility. A longitudinal quantitative research design was employed, utilizing secondary time-series data from the Bank of Tanzania (BoT), National Bureau of Statistics (NBS), and other institutional reports. Data analysis included trend analysis, structural break tests (Zivot-Andrews), and comparative sectoral lending assessments. Findings indicate that agriculture receives less than 10% of total commercial bank lending, despite its substantial GDP contribution. The 2009 global financial crisis led to a structural decline in agricultural credit, which has not fully recovered. Key barriers include high interest rates, stringent collateral requirements, and risk perceptions, limiting access, especially for smallholder farmers. Although financial innovations such as value chain financing and government-backed programs have been introduced, their effectiveness is undermined by policy inconsistencies and institutional inefficiencies. To improve access to agricultural credit, targeted financial policies, risk management frameworks, and digital financial solutions are essential. Strengthening financial literacy, promoting inclusive credit mechanisms, and expanding agricultural insurance programs will be critical in fostering a sustainable and equitable credit system.