In rely on the expected agricultural income.

In the study of Cochrane and Thornton (2016), a total of 300 households in 3 different communities in Ethiopia were surveyed on the case of smallholder borrowing and debt. The result showed that farmers who have access to irrigation infrastructure borrowed at least once within the last 5 years. This can be attributed to the preference of lenders to prioritize those farmers with greater assets or those who have the ability to repay them. Loans are usually taken by farmers to meet their basic needs or to maintain their assets.Farmers have the option to borrow formally or informally. Farmers in Ethiopia choose to borrow from informal lenders because the duration of repayment can be extended to form a lifelong debt, compared when choosing to borrow in government institution that is short term and time-bound and results to loss of their land when they fail to repay their debts. For smallholder farmers, however, there are barriers to informal lending. They rely heavily on personal networks, ethnicity and religious affairs. These means that the more connection you have the easier it is for farmers to loan but those with poor connections they are forced to borrow from government institutions.To repay the loans taken by farmers, they rely on the sale of the crops that they harvested. Many households experience instances when they are able to repay short term debts if they rely on the expected agricultural income. Relying on the sale of their crops however entails risk, because there are unforeseen events that sometimes occur. With this, it destroys the harvest and will be a negative for farmers resulting to failure of paying their debts. When this occurs for succeeding years, their debt accumulates and results to the loss of their land. According to Domi (2014), financial incentives offers farmers just accomplishing a specific level of production however it doesn’t guarantee that it will boost the profits since the costs of the products are impacted by the taxes and subsidies from the government. In any case, with the non-attendance of government endowments and taxes farmers can utilize the optimal level of inputs in their production to guarantee that their activities are still profitable. According to Musara et al. (2011), there are times when cash loan for accessing more agricultural inputs were insufficient that led to lesser harvest and consequently, lesser income. This brought about 60 % of respondents failing to repay their obligations. This then results to farmers supplementing the inadequate agricultural inputs to loans more. This points out that cash loan from agribusiness firms is not beneficial all the time and this circumstance like this discourages small-scale farmers in participating in contract farming.As cited in the study of Koji (2009), crop yields can be expanded with the use of additional fertilizers. Additionally, having small farm land area is a constrained from expanding crop yields and it somehow requires a cash loan from the bank, micro-finances, or through informal credit which is likely to charge an interest, higher than the rate of formal credit. According to Tadesse (2014), his study suggests that poorer farmers heavily depend on cash loan than better-off farmers. The absence of money available drives farmers to depend on cash loans from other sources. However, this does not help poor people but further drives them to fall into obligations and be trapped in poverty.According to Mulwa et al. (2017), with resource limitation of smallholder farmers, access to cash loan was a major determinant in decision making whether to join or not. However, farmers who have access to other sources of income does not adapt because they are less exposed to production risk since they don’t rely solely on their agricultural income. However, Mwambi et al. (2016) argued that small-scale farmers that have access to credit can produce high quality goods that can earn premium prices thus resulting to a higher income. According to Rao et al. (2014), with access to cash loan, it gave the farmers incentive to harvest 2-3 crops on their farm land giving them the chance to have more income gains. Moreover, enhanced innovation and proper asset allocation can increase their earnings. According to Tessema et al. (2015) and Mahmood et al. (2014), the availability of credit or loan at cheaper, lower interest and easy repayment may induce farmers to engage in activities that can provide substantial benefits such as a contract farming scheme which gives an opportunity to earn higher income and encourage small-scale farmers to improve their agricultural inputs. According to Deb and Suri (2012), advancement fund given by firms will enable farmers to secure enough capital to contribute and get production gains. Credit plans between the farmers and the firms happened where farmers are offered with money advances for utilization or in-kind advances in the form of high quality fertilizers, in return for an agreement on the natural product. In addition, effective credit market gives farmers the chance to meet necessities and appropriate inputs, in this manner, they are able to help farmers to gain a better livelihood and better income (Saqib et al, 2017). According to Kabungo and Jenkins (2016), reimbursement issues are probably going to emerge regardless of the possibility that the crop production gains will yield a positive net present returns. In addition, the contracting agent only lend to individuals from their social network or to those favorable to them, within which they can implement their contracts. This results to exploitation of the financial contracts on which the lender is acting on his interest alone that may hinder farmers from generating a higher income (Luan and Bauer, 2016). Thus, based on the literature reviews, a hypothesis was suggested: