An Assessment of Government Credit in Poverty Reduction: a Case Study of Vihiga District

Abstract

This study assessed the Government of Kenya micro-credit programme in poverty reduction. The focus was on the Government revolving loan fund administered by the Poverty Eradication Commission. Vihiga District was considered as a case study. The study aimed at examining the factors that determine access to credit by the poor, and whether the fund is adequate in meeting the demand for credit by the poor. The study also assessed if the credit was genuinely invested in income generating activities and its impact on the levels of income, employment and improving the welfare of the poor. The findings from the study were that; the lending requirements by the banks and financial non governmental organizations were stringent and often locked out the poor from accessing credit. The poor cannot afford higher collateral values, have low level of education and majority was not in gainful employment in the formal sector while the minorities who are employed earn meager wage/salary. This has resulted to the banks and financial non governmental organizations to restrict the loans they offer to them. Access to credit by the poor show gender disparities, females hardly borrow from the commercial lending institutions due to lack of collateral usually land which is owned by their spouses. The study also found loan diversion of PEC revolving loans to be insignificant yet there was no security required. The other findings were; that PEC revolving fund targets the poor and vulnerable 'groups in society among them women. The PEC loans are however inadequate to cause major impact on employment, income, and profits. The study concludes that given the affordability of PEC loans and proper targeting of the poor the funds should be increased in over to reach many poor people. Intensive training of the poor borrowers on basic business skills and record keeping should precede lending. Frequent follow ups on the borrowers' investment and loan repayments should be enhanced to promote success of the scheme.