The relationship between financial deepening and performance of smallholder farmers in Homa Bay County Kenya

Abstract

Theory and evidence show that financial sector deepening has some positive impact on performance and widens access to financial services for the SHF. However the subject of the relationship between financial deepening and performance of SHF has not been fully explained thus empirical evidence, presents varied positions. This study aimed at establishing the relationship between financial deepening and performance of SHF in Homa Bay County, Kenya. The research focused on 2011/2012 & 2012/2013 period because records for previous periods were not easily accessible. In this research, performance of SHF was the dependent variable while the independent variables were various aspects of financial deepening, namely; Farmers Assets, Deposits to Cooperatives, Share Capital and Loans given to farmers. The study used the multiple regression model regressing Performance of SHF against Assets, Deposits, Loans and Share Capital. The analysis was done at 95% confidence level. The significance of the constant term of the regression and the coefficient of each of the independent variables was tested using t-tests while the significance of the whole regression was measured using the F-test. The degree to which the variation in independent variables explained the variation in GDP growth was measured by the coefficient of determination. The research established that the performance of farmers would still grow by 2,155.92 Kes independent of Assets, Loans, Share Capital and Deposits. However, from the model, SHFs’ average Assets, Loans, Share Capital and Deposits were not statistically significant in determining performance of SHF. It was indicated that a 1% rise in Share Capital would result in 1.74% drop in Performance of SHF if all the other variables remain constant and that increasing Deposits by 1% would lead to 1.71% drop in Performance of SHF if all other variables remain constant. It also indicated that 1% rise in Loans would lead to 0.96% rise in Performance of SHF if all other variables remain constant and that 1% rise in private credit would drive 1.03% rise in Performance of SHF if all other variables remain constant. However, coefficient of determination indicated that only 65% of variation in Smallholder Farmers Performance was well explained by Assets, Loans, Share Capital and Deposits. It is, therefore, recommended that strategies to enhance financial deepening be put in place as a mechanism of stimulating performance of SHF in Homa Bay County.