BACKGROUND OF THE STUDY

INTRODUCTIONAccess to formal credit by smallholder farmers is one of the key drivers of economic development, which can help break the vicious circle of poverty in most agriculture-based developing economies. Zimbabwe in recent years has witnessed increased calls for greaterdevelopment and efficiency of financial systems which are vital in allocating credit to farming households. Governments the world over frequently strive to provide cheap credit to the agricultural sector through subsidies and policies such as reducing the interest rate onborrowing. According to Delgado (1995) and Zeller et. al.(1997), easing potential capital constraints through the granting of credit reduces the opportunity costs of capital-intensive assets relative to family labor. This then encourages the adoption of labor-saving, higher-yielding technologies which in turn increases land and labor productivity, which is crucial in encouraging development.

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