Relationship Between Agricultural Credit Financing And Financial Performance: A Case Of Small Scale Farmers In Kiria Division In Muranga County

Abstract

Limited credit and high interest rates often appear as an impediment to agricultural development, inhibiting the acquisition of capital necessary for modern agriculture. The problems of adverse selection, moral hazard and other market imperfections may cause the effective transaction costs to be so high, as to limit trade in or lead to the demise of those markets. It is the perception of this seemingly market failure that often results in pressure for government intervention. The purpose of the study was to determine the relationship between agricultural credit finance and financial performance with reference to small scale farmers in Kiria Division, Murang‟a County. This research study adopted a descriptive approach. The population of the study consisted of 150 small scale farmers in the selected villages in Kiria Division, Murang‟a County who obtain agricultural credit for various financial institutions including Equity bank, Cooperative bank, K-rep bank, AFC and KWFT bank. The data was collected using questionnaire from 50 farmers about their financial performance before and after taking the credit from financial institutions such as banks in 2012. Quantitative data collected using questionnaires was analyzed by the use of descriptive statistics using SPSS. The study used simple linear regression to analyze the relationship between agricultural credit financing and financial performance. The study found that agricultural credit finance had the highest effect on performance followed by family size while farm size had the least effect. The study concludes that credit is an important instrument that enables farmers to acquire commands over the use of working capital, fixed capital and consumption goods. Timely availability of credit enables farmers to purchase the required inputs and machinery for carrying out farm operations. The study concludes that agricultural credit is an integral part of the process of modernization of agriculture and commercialization of the rural economy. The introduction of easy and cheap credit is the quickest way for boosting agricultural production. the study recommends that the government of Kenya needs to recognize it6s role in the creation and maintenance of a financial infrastructure that supports agricultural credit financing. The government may also provide seed capital for or temporary subsidies to strengthen small scale farmers.