An identification and evaluation of factors influencing smallholder dairy farmers' choice of Agricultural credit source: The case of Githunguri Division of Kiambu County
The objective of this study was to determine if credit attributes and farmers’ characteristics influence smallholder dairy farmers’ choice of specific agricultural credit sources and also evaluate their significance. The significance of this objective arises out of the fact that Kenya’s population has continued to increase both in the rural and urban areas, with the latest population estimates showing that Kenya’s population is now over 39.8 million people (2009 projection). This population increase has resulted into pressure on land. As high potential agricultural land per capita holdings diminish in Kenya due to high population, it is critical that farmers attain high levels of economic efficiency to contribute to household food security and to overall national development. The population growth and density has a dual relationship with dairy farming. First, the high population creates market and price incentive for dairy production. Second, it causes pressure on land, leading to small land holdings per household thus leaving the farmer virtually with no option but to increase production by use of improved technologies. To adopt improved technologies, farmers need capital to finance their operations. For smallholder farmers, such capital can only come from credit sources because their marginal propensity to save is low. It is also surprising that small scale farmers in Kenya only absorb about a third of total agricultural credit that is available to them despite the fact that they account for about 80% of the marketed agricultural produce in Kenya (Nyangito et, al, 2004). Thus there is need to find out what factors determine the smallholder farmers’ choice of credit source for those who access credit. The study employed a conceptual and empirical model of analysis based on the Consumer Choice Theory as developed by Lancaster (1966) which postulates that preferences for goods are a function of the attributes possessed by the goods rather than the goods per se. An important implication of this theory is that the overall utility of a good can be decomposed into separate utilities for its constituent characteristics or traits. This translates into using the attributes of the good as the argument of the function in terms of utility function. A good can thus be described by the attributes that generate the utility or disutility to the individual. For credit access, this permits the analysis of farmers’ preference in terms of the utility they perceive to result from various credit attributes, so that the farmer is assumed to make a choice from various alternatives by considering the alternative that gives the highest utility to him or her. V Credit sources were classified into five models namely: Community owned rural finance, Donor led rural finance, Employed workers’ SACCO, Government led rural finance, Managed SACCO and Private Commercial banks. Primary data was collected from three hundred and forty seven (347) farmers randomly selected in Githunguri Division of Kiambu County using pretested structured questionnaire. A multistage random sampling procedure was used. The study established that credit attributes and farmers’ characteristic significantly influenced farmers’ choice of a particular credit source. The study concludes that, in order to raise the credit access of small holder dairy farmers to acceptable level, there is need to repackage the loan products to suit the needs of both the farmers and the financial institutions. The study also concludes that lending policies and respective financial products need to be compatible with the borrowing preferences of the smallholder dairy farmers. These policies need to address consumption credit demand that is compatible with small holder dairy farmers’ ability and willingness to pay. In the absence of this type of provisioning, there is need for public policy to lower education and health care costs for the small holder dairy farmers since such costs affect their productive capacity. Market research to monitor and inform on farmer characteristics and their preferred credit attributes should be undertaken on a continuous basis since the farmer’s needs are dynamic. However, this study was limited in relation to the type of data that the farmers could provide, and this made it impossible to use Multi Nominal Logit analysis to give a more elegant evaluation of the factors that influence choice, as envisaged by the researcher. Therefore, further studies could be undertaken to try and get richer data sets, such as longitudinal and panel datasets, which were not possible to collect in this study due to time and budget constraints.