The extent of farm credit in the Libyan agricultural sector

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.