Econometric Modelling of Rural Farm Household Credit Allocation in Kakamega County, Kenya

Abstract

This research was financed by African Economics Research consortium (AERC) and Egerton University

Abstract

Enhanced household access to credit is essential in boosting the performance of small and medium enterprises in developing nations. Despite the role played by micro-finance in enhancing access to credit among poor rural households, there is dearth information on factors determining credit allocation. This study sought to fill the gap by investigating determinants of household allocation of credit accessed to different enterprises. Stratified multiple sampling approaches were used to select 179 smallholder farmers in Kakamega County. The study used semi-structured questionnaires to collect data which was then analysed using Seemingly Unrelated Regression Model (SUR). The results revealed that; gender of household head, land ownership and role played by an individual in socio-economic group were positive and significant determinants of credit allocation on farm enterprises. Moreover, access to training and ownership of off-farm enterprises were negative and significant. Concerning allocation of credit obtained on off-farm non-agriculture enterprises, off-farm income was positive and significant while membership and role played in group was negative and significant.  On the other hand, age of household head, ownership of off-farm enterprise and off-farm income were positive and significant determinants of household allocation of credit on off-farm agriculture related enterprises. However, access to training and land ownership were negative and significant. The study recommends the adoption of policy measures aimed at encouraging farmers to diversify their income through engaging in sustainable off-farm activities. It also  points  out  the  need  to  empower  women in order  to enable  them to own  productive assets.

DOI: 10.7176/JESD/11-4-20

Publication date: February 29^th 2020