An investigation of the factors for unsustainable accessibility and use of credit in financing agriculture in Kenya
Kimetto, Daniel Kimoi
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The agricultural sector is still the backbone of Kenya's economy contributing about 25% of GDP. The sector continues to be dominant in the Kenyan, economy and a major contributor to economic growth. The sector also generates 60% of the country's foreign exchange and provides employment to about 70% of the total population. The sector also provides nearly all the food requirements of the nation and bulk of raw materials in the industrial sector. The growth of this sector in recent times has been too slow compared to the first two decades of independent Kenya. One of the major constraints to agricultural growth has been inaccessibility of credit by farmers especially the small-scale farmers that accounts for 75% of the total agricultural output and 70% of the marketed produce. The existing literature shows that many commercial banks avoid this sector as they term it more risky venture. Report from AFC also confirms the low access of credit by farmers. The establishment of Micro finance institutions is meant to alleviate this situation, but it is still at its infant stage in Kenya. Legal regulations are yet to be passed by parliament to institutionalize and legalize them. This study wishes to critically analyze the factors for unsustainable accessibility and use or credit in financing agriculture in Kenya. It tries to describe the characteristics of these factors and the extend of each factor in influencing unsustainable accessibility and use of credit in financing agriculture in Kenya. Further. it seeks to know whether these factors influence small-scale farmers and medium and large-scale farmers the same way. The findings of this study will help financial institutions, government and other development agencies to come up with effective ways of accessing credit to farmers in Kenya. It is also evident from existing literature that agricultural sector is faced with many challenges which do affect sustainable accessibility and use of credit. Some of the factors for unsustainable accessibility and use of credit in financing agriculture in Kenya include: high interest rate, methods of loan recovery, low savings by farmers, collateral used to secure credit, types of credit available, high level of fungibility, poor production efficiency, lack of credit education, high poverty levels among farmers, low Profit margins of agricultural produce, scale of production, poor markets and marketing of agricultural produce, government policies, farming risks and lack of financial institutions in rural areas. The study reviews literature related to: the importance of agriculture in Kenya; challenges facing agriculture in Kenya; factors for unsustainable accessibility and use of credit in financing agriculture; importance and nature of agricultural finance; history of agricultural finance in Kenya and finally trends in agricultural finance. This is meant to give better insight and view of the current situation of credit finance of agriculture in Kenya. It also describes the nature of the factors for unsustainable accessibility and use of credit in financing agriculture. Descriptive survey approach was used where 24 small scale farmers and 26 medium and large scale farmers from selected locations of Soy and Moiben Divisions of Uasin-Gishu district were given questionnaires to fill, seeking their views on factors for unsustainable accessibility and use of credit in financing agriculture in Kenya. Their views formed descriptive data that was analyzed using statistical tools such as percentages, correlation, multiple regression and cross tabulations. SPSS software was used to help in the analysis and the easier interpretation of the data and to come up with conclusions and recommendations effectively.