An analysis of the determinants of small-scale farmers' preference for alternative credit service providers in kenya: a case study of Bomet district
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Several microfinance schemes have gone operational in Kenya to address financial access to the poor people both in rural and urban areas. Important questions are however if and to what extent microfinance organizations over their long time existence have contributed in increasing the farmers' choices for credit services. Farmers seemingly have a wide choice of credit service providers yet it is not known why they prefer some providers and why some farmers still do not participate in the credit market. One hundred and fifty farmers in Bomet District, Kenya, were surveyed using a structured questionnaire. The objective was to identify the factors that influence small-scale farmers' participation in credit market and preference for alternative credit service providers following the emergence of micro finance organizations in Kenya. Descriptive analysis was used to characterize the farmers' preference while a Logit model was used to examine the factors influencing farmers' participation in the credit market. A proportional hazard model was fitted to the data to identify factors affecting choice of credit providers because of its ability to accommodate simultaneously the attributes of both the chooser and the choice. Findings from the study showed that majority of the smallholder farmers consisting of 46.7 percent preferred Faulu Kenya, and KWFT had the second most preference with 16 percent.. The skewed preference was mainly attributed to the unevenness of elements in the integrated approach used by these MFOs that includes non-financial services such as enterprise development skills, types of loans provided and the restrictions on their use, ease of loan access and mobile banking. The level of interest rates charged on loans did not seem to be an important factor for households in deciding in which microfinance organization to participate but non-price attributes of credit organization and their services playa larger role. The results indicates that participation in the credit market was affected by age, participation in extension programs, and experience In credit use, livestock ownership, group membership, lending procedure, repayment mode, family labour and attitude of farmers towards risk. On the other hand, the choice of credit providers was affected by age, education, wealth status, livestock ownership, experience in credit use and cooperative membership. The implication of these findings confirms that smallholders prefer some service providers over the others. Encouraging the establishment of more credit providers in rural areas offering more diverse range of products, including financial training in extension work, standardizing the lending procedure and flexibility in repayment periods, product innovation and measures to reduce risks provide the way forward. Therefore, importance should be given to encourage and mainstream innovations to provide attractive financial services to the poor farmers.