The Role of Credit Obtained from Input Suppliers in Farm Investment in Afghanistan <Article>

Access to improved technologies largely depends on the availability of credit. Access to formal credit is shallow in Afghanistan, and the farmers mostly rely on the informal credit. Input supplier credit is one of the informal sources of credit available to the farmers. Using qualitative data from the interviews of 23 farmers and 10 input suppliers from three cities of Afghanistan, this study aims to analyze the role of the credit obtained from input suppliers in farm investment, the reasons for obtaining and giving credit, and the problems faced. The study also analyzes the advantages the input suppliers have over financial institutions. The credit was provided in-kind, which is acceptable to the farmers as it complies with Islamic doctrines of finance. The credit reduced the risk of underinvesting in production. However, it did not help in acquiring capital goods and long-term investment. The credit was mainly based on good rapport. The short repayment period and the lack of transparency were the challenges faced by the farmers. Input suppliers gave credit mainly to expand their businesses. Default and currency risk were the main problems they faced. In lending to farmers, input suppliers had advantages over financial institutions in acquiring information, controlling borrowers, and in the social acceptance of the credit they disbursed. The study also suggests suitable policies to increase access to formal credit for farm investment in Afghanistan