Efforts to eradicate poverty in the world require a particular focus on agricultural households of SSA, amongst which poverty remains ubiquitous. This dissertation, titled Agricultural Finance, Non-Farm Employment, and Rural Poverty, uses evidence from SSA to explore some of the constraints faced by farming households in Sub-Saharan Africa (SSA). First, while agriculture remains central in the economy of most SSA, yields are still relatively low compared to other parts of the world. Financial restrictions are cited amongst the main constraints to inputs use in SSA. Thus, the first essay of this dissertation titled Updating the Landscape on Farm Input Credit in SSA explores input financing and the role of credit therein. Our results consistently show that traditional credit use is extremely low (across credit type, country, crop and farm size categories) and farmers primarily finance modern input purchases with cash from nonfarm activities and crop sales. Second, the consistent lack of credit for agricultural inputs observed in the first essay, motivated the second essay titled Sustaining Input on Credit through Dynamic Incentives and Information Sharing. This essay uses a framed field experiment to explore conditions that can minimize strategic default, source of market failure in input credit markets in developing countries, where institutions for contract enforcement are weak or nonexistent. The results show that the existence of an information exchange system, amongst input sellers, which mimics the role of a “credit score” (with potential benefits from its informal nature), can effectively deter default behavior by farmers receiving inputs on credit. Moreover, productivity shocks that affect the return to the use of inputs also affect the opportunity cost of repayment, and thus farmer’s decision to repay. Third, the findings in Essay 1, in addition to recent evidence from the literature, indicate increasing contribution of non-farm activities to households’ income in SSA. Therefore, the third essay of this dissertation titled the Heterogeneous Welfare Effects of Non-Farm Employment explores the effects of rural non-farm activities (wage and self-employment) on rural household welfare. It also explores the heterogeneous effects of participating in non-farm activities across the welfare distribution. The results confirm that participation in non-farm activities is generally welfare improving and poverty reducing. However, households at the lower tail of the welfare distribution benefit significantly less from participation than the wealthiest. Low education, assets, and access to credit are important barriers that limit the participation of the poorest in lucrative non-farm employment opportunities. Together, these essays shed light on important policy considerations for improving the livelihood of poor households in developing countries. While the expansion of Information and Communication Technologies in SSA offers new hope for financial inclusion of marginalized groups such as farmers, improving access to the non-farm sector by households will likely improve modern input use and agricultural productivity. Beyond just the effect on inputs use, participation in the non-farm sector significantly improves welfare and reduces poverty amongst rural households. However, it is important to address barriers that limit participation in more lucrative non-farm sectors by the poorest, who currently benefit less from participation compared to the non-poor.
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