The extent of farm credit in the Libyan agricultural sector

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Rural households in Libya are credit constrained, in terms of access and the amount of
credit received. Formal banks are the main players in credit market. Despite 44 branches
of agricultural banks distributed countrywide, these branches offer a limited number of
credit for different purposes every year. The shares of these branches in rural credit
market are quite small: agricultural banks provide only 24 % of loans and the other
banks, mainly the commercial banks, provide 76 % of loans. However, agricultural
credits provided by agricultural banks offer the most favorable terms for those
households that have a positive demand on agricultural credit. Households that have no
access to agricultural credits on the other hand face the problem of paying a higher
interest rate when applying for credit from non-agricultural banks. This study is an
investigation on ‘the importance of large credits in Libyan rural-areas, and the main
players in the rural-credit market’. This study determines factors affecting access and
credit applications in three different locations. In addition, the affect of households, land,
and socio-economic characteristics are analyzed using econometric analysis based on
primary data collected during field research in the years 2006 and 2007. Empirical
results from the data collected from three different regions in Libya confirm that more
than half of rural households have no access to credit and around 42% of rural
households do not want to participate in loan borrowing or take loans from any financial
institutions that charge high interest rate. This is mostly due to religious considerations
that prohibit ‘unethical’ interest rates charged by banks. The results clearly indicate that
more than 51.85% of the loans taken by households are used to build houses, 33.3% of
the loans are used in production inputs, and 9.8% of loans are used for family needs and
the remaining 4.9% of loans are used for social events respectively. Research findings
indicate that ‘socio-economic characteristics’ of heads of households are important
factors increasing the probability of access to credit. Households headed by married men
have a higher probability of access to credit compared to households headed by females
or bachelors and unmarried women. Heads of households with some years in schooling
and a permanent monthly income from off-farm activity have a higher probability of
access to credits than other heads who have less education or have no permanent
income. Different forms of credit constraints are discussed and comparisons between
selected samples are drawn in order to classify constrained and unconstrained
households.