Factors Influencing the Use of Warehouse Receipts as a Financial Instrument in Kenya

Abstract

If agriculture is to contribute to the development of the economy, and farmers are not to be left behind, then agriculture needs a proper credit system. Postharvest credit in the form of warehouse receipt finance has proved to be a critical component for agriculture sector growth in emerging economies. Efficient warehouse receipt finance allows farmers to avoid selling directly after harvest, when prices are depressed. It encourages storage by reducing the cost and by increasing liquidity in entire commodity chains, which in turn reduces price volatility. By giving farmers access to a new financing tool, it enhances their ability and incentives to invest in production. This study assess whether Warehouse Receipt System has made any contribution in improving smallholder farmers’ access to financial services. In methodology a survey research to explore the existing status of the variables at a given point. In this study, the researcher preferred to carry out survey to find the principal components affects on warehouse receipt system. The study used cross sectional design for in total 100 where 80 smallholder farmers and 20 warehouses . Quantitative and qualitative techniques were used to analyze the data. The motives that were used to influence smallholder farmers to join WRS included price, access to credit and access to market. The results of the study suggest that the use of warehouse receipt as financial instrument has impact of the factors such as awareness of the benefits of the WRS , availability of licensed & supervised public warehouses, availability of financial packages and Government policies. The study reveals that the farmers avail the loan against their crop but the awareness of the benefits of the warehouse receipts and activity in informal financial market limits the use of the warehouse receipt as financial instruments. It is hoped that this paper will encourage all those interested in agricultural development in Kenya to improve the conditions for and use of warehouse receipt finance , and that it will assist them in doing so.