Credit Constraints and Agricultural Risk for Non‐Farm Enterprises

Ousman Gajigo

African Development Review, 2013, vol. 25, issue 4, 648-662

Abstract: This paper uses two nationally representative datasets collected in 1992 and 2003 in Gambia to analyse small, non‐farm enterprises. The results reveal evidence of significant credit constraint among these non‐farm enterprises. Specifically, household wealth is a significant determinant not only of entry into the enterprise sector but also determines investment levels conditional upon entry. Furthermore, the marginal returns to investments in enterprises are very high and significantly exceed the prevailing lending rates of banks in the country. Besides being credit constrained, these enterprises are also affected by farm‐related variables. Agricultural risk adversely affects enterprise investment. This latter result underscores the importance of livelihood diversification.

Date: 2013
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