Determinants Of Group Lending By Agricultural Financing Institutions In Kenya: A Case Of Agricultural Finance Corporation Of Kenya

Abstract

The study sought to find out whether joint liability, service providers and transaction cost determined smallholder farmer group lending by AFC. The study used survey method because it sought to obtain information from the smallholder farmers that described the phenomena of agricultural group lending by AFC. Besides, the survey sought to explain existing status of the variables outlined under the research proposal. Primary data was collected using a structured questionnaire which was in two forms: one for group members and another for the bank. Both questionnaires were of closed ended questions that sought data to be analysed using quantitative measures. Secondary data was obtained from client files and the Bank Equinox Based System (EBS). Ninety six (96) out of 120 questionnaires administered to farmers were successfully filled and returned back and this represented 80% return rate hence ensuring a close sample to the original. The study found out that in as much as the finance institutions worked with farmers’ groups in raising agricultural production in Bura, there were several factors they considered in lending to farmer which aimed at safeguarding the money they inject into farming activities to ensure its repayment. Most of these factors hinder farmers from accessing credit either individually or as a group from finance institutions due to their inability to provide the requisite collateral requirements set by the lending institutions. Further, in Bura irrigation scheme, farming is the main source of livelihood, the farmers practice agriculture on small scale and most of them do not have the required collateral by lenders hence this further locks them out from accessing credit thus a disadvantage to their growth and expansion. In this case, group lending is adopted to advance loan facilities to farmers. It was deduced that to a larger extent joint liability determines as well influences group lending in Bura irrigation scheme. Most of the tangible factors influencing group lending in Bura Scheme had great effect on accessibility and loaning by AFC and other finance institutions. Service providers were major determinants of group lending and their presence in farmer groups encouraged banks and other financial institutions in availing credit to farmers and this was found meet the Agricultural value chain required. Lastly, it was concluded that being in a group reduced drastically the cost of transacting and processing loans as well as maintaining loaning accounts. This was due to pooling of money together while in group hence not a determinant to group lending by financial institutions and AFC. Following the findings, the study recommended a revision of security of loans required by AFC to broaden it and ensure as many farmers as possible are able to access loans, not only through group guarantee. Farmers should strive to improve on their agricultural production through investing in quality seeds and collaboration with service providers in order to increase collateral that can guarantee individuals. Lastly, there is need of market guarantee by NCPB for commercial maize for the Bura farmers since the farmers experience losses by selling locally to middle men.