Developing country, are suffering from financial shortage in almost all economic
sectors particularly in agriculture sector. The initiatives done by the government and
different donor agency to finance the farmers have not been able to cover the costs
associated with agricultural activities to farmers. As the result farmers continue using
tradition farming and depend on informal financial institutions to cover up their
financial costs (Wenner, 2010).The informal institutions charge very high interests
and often do not meet the needs of the farmers. For this case, microfinance is
considered as noble substitute for informal credit and therefore regarded as a
powerful instrument for poverty alleviation among the farmers who are economically
active but financially constrained (Murdoch & Haley, 2002).
This study presents an empirical investigation on this considerable effect of
microfinance toward agriculture financial predicament. The general question that
guided the study was “Can microfinance fill agriculture financial gap in developing
countries" with a particular focus to Iringa rural district in Tanzania. Cross- sectional,
primary data from a sample of 188 farmers was analyzed using the binary logistic
regression techniques, to see if microfinance can fill agriculture financial gap or not.
The study shows that; 17% of the farmers depend on informal institution and those
who depend on microfinance are only 9%. The supply of microfinance credit to the
farmers is very limited and it’s only 27% of the respondent, who were able to receive
the same amount they applied for. Furthermore its only 41% of the whole farmers
who managed to finance their agriculture cost. The odds ratio in favour of scale of
the farm increases the possibility of covering financial gap as the scale of the farm
decreases. Government subsidies have negative impact on possibility of
microfinance to fill the financial gap where as microfinance awareness has positive
influence on the possibility of microfinance to fill the gap.
This study therefore contributes to the understanding of the current situation
regarding agriculture finance and fills the unknown knowledge of microfinance
contribution toward agriculture financing gap.