The impact of agricultural credit on small holder household farmers’ income in Uganda

Abstract

Smallholder farmers are vital to Uganda’s agriculture, but limited access to credit limits their productivity and household income. This study examines how agricultural credit affects household income among 2,245 smallholder households across Uganda’s Central, Eastern, Northern, and Western regions, testing the hypothesis that access to credit has a positive impact on income. Using nationally representative cross-sectional data from the 2015 CGAP Smallholder Household Survey, a multiple linear regression model was used to analyze the relationship between credit, socioeconomic factors, and household income. The results indicate that agricultural credit has a positive but only marginally significant impact on income, with credit users earning approximately 28% higher than non-users. Marital status is strongly and positively linked to income, highlighting the benefits of shared labor and decision-making. Education also plays an important role, as farmers with higher levels of schooling tend to earn more, emphasizing the value of human capital in enhancing farm management and technology adoption. Age has a negative and significant effect on income, indicating that older farmers tend to earn less, likely due to decreased physical productivity and lower adoption of new technologies. Regional differences are evident, with farmers in the Eastern and Western regions earning more than twice as much as those in Central Uganda. Membership in a farmer group also has a positive and significant effect, emphasizing the benefits of collective action. The study finds that credit increases income, but its impact is greater when combined with education, collective action through forming and joining farmer groups, and regional-specific support. Therefore, the study recommends expanding affordable and farmer-friendly credit options, strengthening farmer groups to improve access to finance and information, enhancing adult education and training for better farm management, and implementing targeted regional interventions to reduce income disparities and maximize the benefits of agricultural credit. Subject keywords: Agricultural credit, household income, smallholder farmers