Constraints and strenghts of microfinance in agriculture: a comparison between Albania and Honduras

An early strand of the literature focuses on the preferences of farm households toward risk. Majority of these studies, on the basis of both experimental and observed data on farmer behaviour, conclude that peasants are risk-averse, (e.g., Moscardi & de Janvry 1977, Binswanger & Sillers 1983). However, this empirical literature wrongly attributes to risk aversion all the departures from economic efficiency and confounds risk behaviour with other underlying factors. The empirical evidence (Roumasset, 1976; Binswanger, 1980, Eswaran & Kotwal, 1989 and 1990) makes it possible to postulate that such differences in farms behaviour could only be explained by the differences in farm household constraints, such as access to credit, marketing, extension programs, institutional arrangements, etc. (Mendola, 2007). On this brief statement of the problem, the paper compares two national cases, Albania and Honduras, discordant in terms of results of micro-credit applied to agriculture. The performances of these micro-credit systems are used as indicators of market opportunities for the farm household and its structural development in disadvantaged socio-economic contexts. The comparison proposed is based on an exploratory research on the Albanian Savings and Credit Associations (Belletti & Leksinaj, 2011a), and a logit model calibrated using the database collected in the research project "Alternative Rural Financial Systems, the case of Honduras" (Falck, 2001). The hypothesis supported in this work is that the opportunities offered to peasant farm households by access to microcredit is positively influenced by its connection to local markets while it is adversely affected by specialization and international market dependence. In Albania, access to credit is producing positive results in the direction of a better integration between farm households and local markets. In addition, this integration seems to occur in a process of consolidation of smallholding structures resulting from agrarian reform rather than an evolution toward specialization. By contrast, in Honduras the farm household is characterized by specialization in the production of commodities largely traded on the international market (coffee, cereals, etc.), and this despite the fact that Honduras farm household appears suited to production oriented to self-consumption under the constraint of size and the high cost of market access. This smallholding does not seem able to find in the credit opening channels a sufficient condition to initiate a process of income generation. So the smallholding placed in difficult socio-economic contexts seems to be able to generate income if it is oriented to production for local markets while it seems to be financially inefficient if it is oriented to foreign commodities markets. The case of Albania shows that access to credit results in increased economic and financial efficiency of peasant farm but not the increase of farm size.