Analysis of the Use of Land as Collateral for Financing in Rural Kenya a Case Study of Kivani Location, Machakos County

Abstract

The development of the world's economies, particularly those of emerging countries, depends heavily on land. Despite being a crucial tool for gaining access to loans, the adoption and enforcement of land as collateral is relatively low particularly in rural Kenya. This study aims to close the existing information, policy, and practice gaps related to the need for financing secured by land title deeds. In order to determine the extent of land-based financing in rural Kenya and factors influencing its use, this study explores the usage of land in the capacity of collateral instrument. The study aimed to determine the degree to which Machakos County rural landowners utilize their titles as collateral for borrowing; determine how well-known utilizing title deeds as guarantee for loans is in rural Machakos County; determine factors influencing the usage (or not) of property ownership titles as security for borrowing in Rural Machakos County; determine the prevalence of the use of other forms of collateral to secure finance for development in Rural Machakos County; and establish the challenges faced in use of title deed as collateral for financing in Rural Machakos County A descriptive survey research design was utilized in the study. 724 households in Kivani Location, Machakos County, as well as 30 financial institutions, including banks, SACCOs, and microfinance organizations, were the study's target population. The study used the Nassiuma (2000) approved random sampling technique and sampling formula, yielding a sample size of 96 respondents. Data were gathered in the context of this research by employing a self-administered structured questionnaire and topic discussions. Tables and graphical techniques were used for presentation while descriptive statistical methods were used for data analysis. The study revealed that the adoption of land as collateral among rural landowners is low at 11%. Instead, the rural landowners depend overwhelmingly on group and household guaranteed loans in lieu of traditional guarantee. Various factors, including societal, lending, and property registration issues, contribute to this situation. To expand the use of land-based financing, the study recommends implementing simpler and more affordable procedures for land titling and registration, reducing inefficiencies in land registries, and providing education on the importance of individual land ownership. By addressing these barriers, more individuals can formalize land ownership, become eligible for land-based financing, and stimulate economic development in rural areas.