Institute for Development Studies, University of Nairobi

The broad concern of the paper is the nature and extent of institution building as a critical factor in realising the apparently elusive goal of sustainable rural development. The evolution of official smallholder credit is therefore analysed from the pre independence to post-independence period highlighting the various perspectives that have significant implications for the institutionalisation of rural smallholder credit. Rural peasants were at first, especially during the colonial period, not considered economic men and no thought was understandably given to credit needs of smallholder farmers. However with the view to impending political independence in Kenya agricultural modernisation embraced the African farmers and official smallholder credit emerged. The granting of smallholder credit continued in this new form well into the post independence period. The thrust of the argument in this paper is that smallholder credit institutions emerging out of government initiatives have neither addressed themselves to the actual local problems of production by smallholder farmers nor have they created a broad-based suitable framework to accommodate overall credit needs of this particular group of rural households. A major failing underlined in this analysis is overemphasis on public bureaucratic and technical production issues at the expense of the more critical socio-economic dimensions of rural development. A significant implication emphasised is negative consequences for institution-building that can lead to sustainable rural development. This is a background paper to ongoing analysis of data collected under a research titled "Borrowing and Lending among Kenyan Smallholders: 'Informal' Credit and its Relations to 'Formal' Credit," funded by the Social Science Research Council (SSRC) New York.