In this research report, Aliou Diagne and Manfred Zeller examine the case of Malawi, where several institutions offer credit to poor, smallholder farmers to allow them to buy fertilizer, seeds, and other inputs for growing maize and tobacco as a way of helping raise incomes. Surprisingly, they find that farmers who participated in these credit programs ended up with less net crop income than those who did not. Their results make clear that the conditions surrounding credit programs must be right—that is, they must reflect the actual opportunities and constraints faced by poor farmers—for credit to work effectively. For example, credit is not of much use in.
