Factors influencing participation in microfinance services: the case of small holder farmers in Nyamagabe District, Rwanda

Abstract

Many smallholder farmers in Rwanda depend on agriculture directly or indirectly for their livelihood, but often lack self-financing for their activities. Like in many other parts of the world, such farmers are excluded from participation in traditional commercial banking services. Evolution of microfinance organizations therefore seems handy. Despite the increasingly important roles assigned to microfinance services in poverty reduction in Nyamagabe District, little is known about their contribution to the income and livelihood of the beneficiaries in Rwanda in general and in the smallholder farming sector in particular. The drivers to farmers’ participation in the services are also not strictly known. This study sought to assess the factors influencing smallholder farmers’ participation in microfinance services. The analysis is based on household data collected from a survey of 240 households in three sectors of Nyamagabe District in March 2011. Logistic model and Descriptive statistics were used to analyze the data. The results from Logistic model shows that age, farm labor participation, savings, annual total assets, annual interest rate and source of income influenced the smallholder farmers’ decision to participate in microfinance services. The study finds out that participation in microfinance services should change the smallholder farmers’ lives. This study also will help policy makers to take appropriate actions towards up-scaling or reforming the rural financial system. The study recommended that public and private sectors will need to support microfinance institutions both in urban and rural areas. The emphasis should be put on the level of savings mobilization and reduction of annual interest rate, so that smallholder farmers could have a chance to participate in well functioning microfinance services for increasing their incomes and agricultural productivity. There is a need also to encourage the young people to participate in microfinance services for improving their welfare.