An analysis of agricultural credit markets in Vihiga Division of Kakamega District, Kenya

Abstract

This study was carried out in Vihiga Division of Kakamega District in Kenya. The study analysed the Cr~edi t markets facing the smallscale farmers in the The purpose of this study was to examine the the limited use of formal credit in the at~ea desp ite the need for credit to land productivity. In order to accomplish this study both secondary and primary data were collected. The data collected were analysed using descriptive statistics and regression analyses. The results were that the formal credit sources had tight and eligibility criteria cumbersome application and plus The supply of credit was far below the demand for credit. There was incompatibility of loan repayment schedules with the cash generating of entet~pt~ises. pt~edominant. Infcwmal lending wa-5 The farmers experienced high transaction costs. Some farmers were either not aware of the existence of formal credit due to tight and rigid eligibility criteria never applied for formal credit. The that at~i se f r-orn these results are as follows: Fi r~st Ly, the eligibility criteria, loan approval decisions and collection mechanisms should be made consistent with the capabilities of the small scale farmers repay. Thus, where possible repayment period should coincide with marketing of farm produce. Some formal lenders should be integrated with the informal lenders especially the rotating savings and credit associations, so that group collateral rather than land title deed is used. Secondly, unnecessarily cumbersome application and credit delivery procedures should be removed by reviewing. Thirdly, the credit institutions should intensify their supervisory component coupled with technical assistance to create awareness regarding availability of loan facilities and the benefits that accrue to the use of credit. Finally, the formal credit sources should be encouraged to increase agricultural credit supply. The approach here may be government monitoring to reduce the diversion of agricultural credit to other sectors. This can be achieved by the government employing specific technical experts in agricultural credit and deploying these experts in all credit institutions including the Central Bank of Kenya.