The Impact of Mobile Loans on Dairy Productivity Among Smallholder Farmers in Githunguri Sub County, Kiambu County, Kenya

Abstract

Smallholder dairy farmers face challenges such as low milk prices and rising production costs, which reduce their dairy income and exacerbate capital constraints. Sufficient credit can alleviate these constraints, but formal lending institutions are adamant about lending to smallholder farmers. In that context, alternative sources of credit, such as mobile loans, may be beneficial. Mobile loans are instant and unsecured loans accessed through mobile phones. However, knowledge on how mobile loans benefit smallholder dairy farmers is unavailable. The study aimed to achieve three main objectives. Firstly, it conducted an assessment of the knowledge, attitudes, and practices of smallholder dairy farmers towards mobile loans, employing factor analysis and descriptive statistics to discern underlying patterns. Secondly, it identified key factors influencing both the adoption and the intensity of adoption of mobile loans among these farmers, utilizing a double hurdle model to account for decision-making processes. Lastly, the study investigated the adoption impact of mobile loans on dairy productivity, employing a full information maximum likelihood endogenous switching regression model (ESR) to uncover causal relationships. The study was conducted in Githunguri Sub-County, Kiambu County, Kenya. It utilized 2019 survey data collected from a sample of 210 smallholder dairy farming households who were selected through a multistage sampling technique with simple random sampling. The findings indicated that 46.7% of the farmers had borrowed mobile loans. The results from the factor analysis revealed that there are significant differences in knowledge and attitudes between borrowers and non-borrowers of mobile loans. There were significant differences in scores of financial literacy and the ability to observe the terms and conditions of mobile loans across the sociodemographic characteristics of borrowers. Results from the double-hurdle regression model revealed that knowledge of the qualification criteria for mobile loans, perceived ease of use, ownership of a smartphone, the

interest rate of non-mobile loans, access to mass media, and group membership had a significant influence on the adoption of mobile loans. In addition, perceived ease of use, owning a smartphone, level of experience using mobile loans, an active bank account, and years of schooling had a significant and positive influence on the intensity of adoption of mobile loans. Results from the ESR model reveal that the adoption of mobile loans increased dairy productivity among smallholder farmers by 0.442 liters per cow per day, which translates to KES 16,698.75 in additional annual income per household. Borrowers experienced significant yield benefits even after adjusting for potential confounding variables. There is a need for agricultural policymakers to train farmers on how to borrow mobile loans and the importance of financial discipline to optimize the benefits. To achieve this, policymakers can leverage existing farmers' groups to effectively disseminate training. Additionally, agricultural policymakers should harness various media platforms (TV, radio, and newspapers) to educate farmers about leveraging mobile loans for dairy production