Smallholder credit repayment in Kenya a case study of Lugari division in Kakamega district

Abstract

Less than a fifth of Kenya's total land is productive agriculturally. Shortages of additional productive agricultural land implies that, productivity and employment on small scale farms which are the bulk of Kenya's arable land can be increased through land use intensification. Land use intensification involves use of improved inputs such as fertilizer and seeds besides improved tillage and husbandry practises. These inputs are not available on the farm and some farmers are not able to purchase them due to their meager income. Provision of agricultural credit is one of the major strategies being used to speed up agricultural development in Kenya's small scale farms sector. One of the setbacks of smallholder credit repayments has been poor loan repayment, The major concern of this study was to find the relative importance of the factors affecting loan repayment performance by smallholder farmers with a major aim of proposing measures that can help in improving the smallholder credit repayment performance. Primary cross-section data collected from a rural area in Kenya was analyzed by ordinary least square (OLS) regression methods. The main findings of the study are that loan diversion, use of purchased farm inputs, farm income (ratio of farm income to loan advanced to farmers), sources of income from farming activities and farmers attitude towards loan repayment have statistically significant influence on loan repayment. The study further found that late Joan issue and inadequate supervision and technical advice on improved farming methods have statistically significant influence on loan diversion. Loan repayment performance by smallholder farmers can be improved through use of agricultural credit on the intended purpose, attaining a high ratio of farm income to loans advanced to farmers, increased use of purchased farm inputs, concentration by farmers .on a few farming activities which contribute highly towards income. changing the altitude of farmer towards loan repayment so that they have the feeling and opinion that loan should be repaid and by providing a ready market for farm produce. In addition to the above stated measure, timely use of loan funds and adequate technical advice and loan supervision can help reduce the proportion of loan funds diverted to other uses.