Flexible Loans and Access to Agricultural Credit for Smallholder Farmers in Siaya County, Kenya
View/ Open
Date
2019Author
Odhiambo, Fredrick O
Type
ThesisLanguage
enMetadata
Show full item recordAbstract
Access to credit is a pervasive problem for smallholder farmers in developing countries.
While there are several factors why this is the case, the manner in which the loans are
designed could play a significant role in explaining the low access to credit in Africa. Studies
show that this problem might be exacerbated by the strict loan terms available in most
standard loans that are irrelevant to farmers’ irregular cash flows. Thus, as studies show, the
remedy could be in lenders offering flexible loans. As more lenders, especially in the
microfinance sector, design flexible loan products, research shows conflicting results in terms
of whether such products improve access to credit. These conflicts are due to
methodological, measurement and contextual differences. Further, previous studies focus on
single elements of flexible loans and not an index of several elements of flexibility to
determine whether the varying levels of flexibility in loan products would explain credit
access. Due to the limitations of these prior studies, this study attempted to re-examine the
effect of flexible loans on credit access in the agricultural sector by assessing whether the
degree of loan flexibility matters in credit access. The study used a cross-sectional survey
design where structured questionnaires were used to collect quantitative data from 103
farmers simple random sampling method and who had taken up loans with various credit
institutions in Ugenya sub-county. Further qualitative data on the supply side of credit access
were gathered through stylised facts where interviews were conducted with farmers, and local
authorities as well as secondary information. The questionnaire was pre-tested on a sample
of farmers and changes made before the final survey was conducted. The tool was also
examined for both validity and reliability. Using a combination of various data analysis
software, the study conducted descriptive, bivariate and regression analyses in order to
answer the research questions and test the hypotheses. Results of the descriptive analysis
showed that the average age of heads of households in the sample was 49 and that majority
of heads of households were men. The study also found that majority of the farmers had a
secondary level of education. The average household size in our sample was six people while
the average wealth of households, which was measured as the number of items owned, was
four. Majority of the farmers were enrolled in input credit programmes and the average size
of credit was KSh. 14,777. The descriptive results also showed that the average loan
flexibility as measured by the Loan Flexibility Index (LFI) was 0.419. The bivariate
relationships performed using chi-square tests showed that access to credit differed across
sex, education, type of credit, and wealth status of households. The results also showed that
access to credit differed across bullet payment, loan refinancing and loan rescheduling. The
regression results showed that none of the flexible loan elements had a significant influence
on access to credit and neither did LFI at 5% level of significance. The study concludes that
while flexible loans do not have a significant effect on access to credit, the direction of the
relationship suggests that farmers are credit rationed when the loans are highly flexible. The
study recommends that credit institutions should re-design their loan products in order to
meet the needs of farmers as well as eliminate informal and subconscious barriers to
exploitation of elements of flexible loans. The study also recommends that the government
should encourage and incentivise financial institutions to offer flexible farm loans through
targeted policies such as credit guarantee schemes. Further research should also be carried
out in this area to have a better understanding of the determinants of credit access in general
and the link between flexible loans and access to credit in particular.
Publisher
University of Nairobi
Rights
Attribution-NonCommercial-NoDerivs 3.0 United StatesUsage Rights
http://creativecommons.org/licenses/by-nc-nd/3.0/us/Collections
The following license files are associated with this item: