This paper examines the impact of microcredit on the adoption of technology and productivity of rice cultivation in Tanzania.
Collaboratively with BRAC, a globally-known microfinance institution, we offered microcredit specifically designed for agriculture to randomly selected farmers. We estimate the intention-to-treat effect (ITT) as well as the local average treatment effect (LATE) of microcredit, by using the eligibility to the program as an instrumental variable (IV).
Overall, we find statistically weak or even null evidence that the BRAC program increases the use of chemical fertilizer. Also, credit use does not result in an increase in paddy yield, profit from rice cultivation, or household income for borrowers. Our results from sub-sample analyses suggest that credit does not increase the fertilizer use by those who have better access to irrigation water as they have already applied the amount of fertilizer near to the recommended level. On the other hand, credit increases the fertilizer use by those who have limited access to irrigation water and have previously used little fertilizer. However, possibly due to the poor yield response to fertilizer, the increase in chemical fertilizer use does not result in higher yield for them. We also observed similar phenomenon for the comparison between trained and non-trained borrowers before the intervention.
Keywords: Microcredit, Technology Adoption, Agriculture, Tanzania, Africa