Effect of subsidised credit financing on the financial performance of smallholder farmers in Kenya. a case of Kimira-Oluch Farm Improvement Project

Abstract

The Kimira-OluchSmallholder Farm Improvement Project was initiated in 2003 to reduce poverty by increasing food security and income for about 3,000 households. The appraisal study conducted in 2010 revealed that the project had not achieved its productivity targets, primarily due to farmers’ inability to access essential inputs and equipment. In response to the situation, a subsidised credit facility was introduced to support needy farmers. The study’s purpose was to examine whether the intervention improved beneficiaries’ financial performance, which was measured in terms of average annual sales. To achieve this, a quasi-experimental design and a mixed methods approach guided the research process. Data were sourced in October 2018 from 304 smallholder farmers, including 174 who accessed credit and 130 didn’t. Key findings show that access to the credit facility was skewed in favour of male farmers; the amount of credit accessed significantly correlated with farmers’ age, size of land and pre-intervention income level; while post-intervention annual sales realised by beneficiaries and non-beneficiaries were significantly different. Despite this, the intervention caused only a small effect size of about 23%, as indicated by Cohen’s d statistic. The findings demonstrate that integrating subsidised credit facilities in smallholder irrigation projects improved food security and income. This implies that subsidised financing interventions remain important enablers of smallholder farmers and contributors to poverty reduction in rural settings. Consequently, the study advocates for the continuation of the subsidised credit facility for smallholder farmers in the project, and initiation of similar interventions in other developing countries.