Modelling the Impact of Credit on Intensification in Mixed Crop-Livestock Systems: A Case Study from Ethiopia

Access to credit is one strategy for promoting the adoption of yield-enhancing technologies. However, advancing credit to smallholder farmers for encouraging technology adoption is a complex policy issue. The objective of this paper is to identify appropriate and sustainable credit repayment policies to encourage intensification in the Ethiopian Highlands. Using a household model, we analyze the impact of advancing in-kind credit in the form of fertilizer and seed to smallholder farmers in the Ethiopian highlands and alternative credit repayment strategies. The results indicate that in kind input credit of fertilizer and seed provided to farmers in the highland of Ethiopia increased the value of household crop output moderately and hence allowed the household to increase its consumption. This scheme requires borrowers to sell their crop immediately at harvest to repay their credit. An alternative repayment scheme of extending the repayment period to allow households to capture seasonal price variation is proposed. The amount repaid is also tied to yields of wheat.