This study addressed a gap in knowledge about the outcomes of in-kind agricultural microcredit projects on the welfare of the poor and ultra-poor smallholders. This research focused on an in-kind agricultural micro-credit project in Marrambajane village (Ch6kwe district, in southern Mozambique). Within the framework of the project, beneficiaries were given in-kind credit (seeds, fertilizer) to grow cash crops (tomatoes, onion, cabbage). To participate in the project farmers joined an Association which was part of a larger Union of Associations. The study measured the changes in material wellbeing of beneficiaries and development of social capital as a result of participation in the project. Material wellbeing was measured through income gene~ation and acquisition of assets through participation in the project. In addition, the sustainability of the intervention was also assessed. The study made use of a case study design adopting both quantitative and qualitative methods. Multiple data collection tools were used to collect data. Participatory methods were used to develop a wellbeing ranking of beneficiary households. A questionnaire was administered with beneficiaries (farmers) as the primary unit of analysis; this was used primarily to measure acquisition of assets and levels of trust in Association and Union. Data on amount of income generated and credit owed was compiled from the project archives. Observation was used to assess condition ofinfrastructure and equipment. The microfinance triangle model was used to evaluate whether the project had achieved poverty outreach, improved the welfare of participants and was financially sustainable. Findings showed that the project led to slight increase of income and household asset value. This increase of income and growth of household asset value was exclusively observed during the period of project implementation (2001-2004), and one year after the end of sponsorship (2005). While participating in the project, households ranked as 'rich' and 'middle' received 1.2 times more credit and 1.6 times more income was generated compared with 'poor' and 'poorest' households. While there is no evidence of a difference in average median number of items bought in each of the wellbeing categories, the monetary value of the items acquired appeared to correlate with household wellbeing categories. The project was successful in building social capital through formation and legalisation of Associations integrated into one fanners Union, the Union of Association Uamechinga. However, high levels of trust between the beneficiaries and project technicians and between the beneficiaries and the Union management team were not achieved. The project collapsed in late 2005. Based on my analysis I argue this occurred because of multiple factors. Firstly, the emphasis on farming tomatoes, a high return but unpredictable cash crop, was problematic. A more effective project design would include production of tomatoes in combination with more reliable crops such as rice and beans. Secondly, the project enforcement of loan repayments was very weak and there was extensive subsidisation of operational and administrative costs. Analysis suggested that the project was distributing income above the real profit generated by the fanners. It is recommended that future projects implement direct or indirect methods to achieve stronger levels of repayment. Thirdly, the project's irrigation system was inadequate. In spite of the fanners recommending a furrow system an unsustainable piped system was implemented. This reflects lack of communication between project technicians and the community during the project design, and partly explains the poor level oftrust between the project staff and fanners. I argue that to ensure sustainability of in-kind micro-credit projects like the Marrambajane case, stronger capacity and infrastructure must be in place before state and donor assistance is withdrawn. / Thesis (M.A.)-University of KwaZulu-Natal, Durban, 2008.