1 SUBSTITUTES OR COMPLEMENTS: FORMAL AND INFOMRL CREDIT

This study examines credit demand by maize farmers and analysed factors influencing their use of informal and formal credit. The analysis is based on data collected from a survey of 590 maize farmers in seven districts of Ashanti and Brong Ahafo Regions of Ghana during May-July 2010. Descriptive statistics, probit and bivariate probit models were used to analyse the data. The study revealed informal credit sources for maize farmers as relatives and friends, traders and private money lenders. Maize traders are major players in the informal credit market followed by agricultural input sellers. Among the formal sources rural banks are the most prominent. Regional location, Gender, engagement in other economic activities and the level of agricultural commercialisation were observed to be factors that influence farmers ’ demand for informal credit. In addition to these factors, farmer years of education and proximity to financial institution influence demand for formal credit. The result of the bivariate probit suggests that formal and informal credits are not necessarily perfect substitutes but they complement each other to provide credit needs of farmers in maize production