Access to Formal and in-formal Credit by Rural Households in Kisumu District

Abstract

The study was aimed al determining factors that influence accessibility to formal credit by the rural households, i.e. farmers, fishermen and the small and micro entrepreneurs in Kisumu district. So as to establish the empirical evidence on the link between credit use and poverty alleviation, the study attempted to make an assessment of the impact of crcdit on income. Using survey data as well as secondary information this study also reviewed the operational mechanism of the existing formal and informal credit arrangements in Kisumu district with the view to assess their performance in serving microenterprise sector with particular reference to smallholder rural farmers and fishermen. The study aimed at providing useful information to aid the decision making process for the enhancement of access to credit by the majority of rural small-scale producers and entrepreneurs. In collecting the primary data, questionnaires were administered to an estimated 200 randomly selected rural households in some villages of Kisumu district. The analysis was done using ST ATA 7 computer software. Cross tabulation, regressions and t-tcsts were also done, to determine factors that influence an individual's ability to obtain a loan from formal or in-formal financial institutions. Study results show that there was inadequate flow of credit to farming and fishing sub-sectors in Kisumu. The existing formal banks namely, Kenya Commercial Bank. National Bank of Kenya, Barclays Bank, Standard Chartered Bank and Cooperative Bank of Kenya provided a minimal percentage of credit to the agriculture and micro-enterprise sector. (iv) Government institutions and donor-funded development projects extended piecemeal credit services that were made available to farmers and small entrepreneurs. Available evidence shows that services rendered by these sources were inadequate, at best targeted to specific groups and to promotion of specific technologies. Generally, the performance of most of these micro credit programmes was not encouraging. Poor loan recovery is also a big constraint to most of these schemes. The empirical evidence indicates that age. gender, education, income levels affect access to credit by fanners and small scale entrepreneurs. The results suggest that there is need to address key factors that inhibit access to credit by small farmers and entrepreneurs in order to alleviate poverty in kisumu district