ANALYSIS OF FACTORS AFFECTING CREDIT ACCESSIBILITY BY

SMALL SCALE MAIZE FARMERS IN SHINYALU SUB-COUNTY,

KAKAMEGA COUNTY
 viii) ABSTRACT

Access to credit plays a critical role in the establishment and management of small-scale
farming, meeting financial obligation reflects a healthy productivity and continuity. However,
farmers encounter many challenges prompting financial accessibility. The study seeks to
determine factors affecting credit accessibility by small-scale farmers in Shinyalu sub-county in
Kakamega County. Farmers in Kakamega are involved in sugarcane growing, intercropping of
maize and beans where they obtain their means of livelihood. In particular, the study sought to
determine the effect of interest rates on borrowing, the effect of level of education on credit
accessibility and the demand for collateral by financial institution. This study will apply
descriptive survey design and simple random sampling technique to select the sample size using
the farmers.

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 I. INTRODUCTION

 STATEMENT OF THE PROBLEM

Credit input increases the level of production to the small scale farmers by enabling them to
expand their production and the use of sophisticated farm machinery and equipment. But this is
not the case in Shinyalu constituency where farmers have limited access to these agricultural
credit inputs. Production has been poor over the years and even most land are left uncultivated
due lack of finance. The farmers rarely use enough fertilizers, quality seeds for planting and even
others do not carry out top dressing to their crop. In addition, the cost of ploughing farm has
always been high during the peak period when every farmer is set to prepare his or her land for
planting. Lack of access to credit and capital has led to a situation of lands being left fallow and
underexploited.

Kakamega county smallholder farmers cannot easily access the multi-million shilling ploughing
equipment purchased by the county government in 2015. Farmers were required to apply for the
services through sub-county agricultural officers who would in turn vet and clear them after
paying Sh. 2000 per acre as ploughing charges which most of farmers could not have. Following
the outbreak of fall army worm in the year 2017, most of the smallholder farmers experienced 50
percent lose caused by the pest to their crops. The farmers could not access credit inputs such as
pesticides, recommended seeds and fertilizers which could have reduced the loss.

Major agricultural lending institution in the region is the Kakamega Agricultural Finance
Corporation (AFC), Equity Bank foundation and the cooperative bank. The AFC mandate is to
assist develop agriculture, agricultural industries and other persons engaging in agricultural
activities. In order to request for a loan, farmers are required to have business plan for
agricultural activity to undertake, the title deed for the project farm, personal contribution and the
bank statement or a copy of pay slip. Most farmers in Shinyalu are women who carry out the
farm practice and hardly have the knowledge on farm plan, need of pay slip and other
requirements. These makes farming in the area lack behind in technology, mechanization and
also commercialization is a big problem.

Difficulties among maize growers to access credit calls for an evaluation of the underlying
causes hence, raising the following question; in what ways does level of education affect credit
accessibility by small-scale farmers, how does demand for collateral by financial institution
affect farmers’ credit accessibility, and how do interest rates influence credit accessibility by
small-scale farmers?

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 II. OBJECTIVES OF THE STUDY

 GENERAL OBJECTIVES
To determine the factors affecting credit accessibility to small-scale maize farmers

 SPECIFIC OBJECTIVES/ INDEPENDED VARIABLES

1) To evaluate how education level affect credit accessibility to small-scale maize farmers.

2) To determine the effect of demand for collateral on credit accessibility

3) To evaluate the effect of interest rates on credit accessibility by small-scale farmers

 SCOPE OF THE STUDY

The study covers the small scale farmers irrespective of the agricultural activities carried on the
farm. It also covers the agricultural credit institutions in Kakamega County particularly Shinyalu
sub-county with an area of 44540km2. The study identifies the factors affecting credit
accessibility in Shinyalu constituency and gives the recommendation to mitigate the problem.

 DEMAND AND SUPPLY THEORY

A French economist Walras (1834-1910) first raised demand theory as a fundamental principle
of microeconomics. The theory is an analysis of the relationship between the demand for goods
or services and prices, which examines purchasing decisions of consumers and subsequent
impact of prices on commodity demanded. According to Walras (1834-1910), price of a
commodity influences its demand. Later up-coming economists criticized this theory as shallow.
However, they used it as a base to develop the law of demand, stated by many economists as an
inverse relationship exists between the price of a commodity and the quantity demanded of the
product. That is, when the price of some commodities goes up, the quantity we consume of these
commodities goes down and vice versa, other things held equal (Saleemi, 2000; Mudida, 2003).

Livingston and Ord (1994) argued that the amount an individual wishes to buy of a
commodity depends on several factors. Firstly is his/her taste or preference, which may be
influenced by factors such as age, sex, education, or religion. Secondly, the amount an individual
buys may depend on the price of the commodity. Therefore, if the goods are very expensive, the
buying power is reduced and vice versa. In the credit market, this consideration is on implicit
and explicit costs of credit, which are added costs to farmers and have to be considered when
making a decision to borrow or not to borrow and from which source. Thirdly, Livingston and
Ord (1994) explained that amount bought is affected by availability of other goods. This applies
more to close substitutes like in this case, consideration of borrowing credit from commercial
formal institutions, formal government subsidized institutions, or from informal credit markets.
If formal markets prove expensive, borrowers are likely to turn to informal markets. The
opposite will apply if the informal markets are expensive. Lastly, Livingston and Ord(1994)
pointed out that the size of a household’s income affects the amount it buys of a
commodity. If the income increases, they will be able to buy more. This argument holds only for

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necessity goods such as credit borrowing to finance farm operations, otherwise it will not apply
to inferior goods.

III. OPERATIONAL DEFINITIONS

 INDEPENDENT VARIABLE
These are variables, which controls the characteristics of dependent variable. For example in the
figure above, education level, interest rates and the collaterals are the independent variables.
They affect the characteristics of the constant variable. They are also variables derived outside
the model

 DEPENDENT VARIABLE
This is a variable characterized by influence of independent variables or the variable determined
within an equation. The independent variable for this is study credit.

IV. LIMITATIONS OF THE STUDY

i) Poor infrastructure in Shinyalu, which includes roads, and communication, which
made it difficult to reach on every farmer identified.
ii) ii) Farmers were uncooperative to give the feedback

 DATA ANALYSIS
Data will be analyzed using descriptive statistics using frequency distribution to measure and
compare results. Information is to be presented using percentages, tables, and chats. Statistical
Packages for social Sciences Software (SPSS) will be used to conduct statistical analysis of the
data. Bar graphs and percentages will be used to analyze section A of the questionnaire, which
covers demographic information of the respondents. To assess the determinants of access to
credit covered in section B, regression analysis will be used;

y=a+b 1 x 1+ b2 x 2 +b 3 x 3

Where y is the dependent variable denoting access to credit,” a” is a constant, b 1 , b2 , b3are the
coefficients for the independent variables x 1, x 2and x 3respectively. X 1 , x 2 , x 3are independent
variables i.e. x 1(collaterals) x 2(interest rates) and x 3(education level). The x variables will be
measured and be obtained from section B of the questionnaire

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 V. METHODOLOGY
This chapter focuses on the methodology that will be employed to carry out the study,
determining the sample size and the sampling procedure.

 RESEARCH DESIGN
This research will adopt a descriptive survey design. Descriptive research portrays an accurate
profile of persons, events, or situation. Surveys allow the collection of larger amount of data
from a sizeable population in a highly economical way. It allows one to collect quantitative data,
which can be analyzed quantitatively using descriptive and inferential statistics (Saunders et al,
2009). Therefore, the descriptive survey will be deemed the best strategy to fulfill the objectives
of the study.

 RESEARCH AREA
The research will be conducted in Shinyalu constituency on the small-scale farmers of maize
growers. Shinyalu constituency has six wards namely Isukha North, Isukha South, Isukha
Central, Isukha East in which the study will take place. The map in the figure bellow shows the
area of Shinyalu sub-county.

 TARGET POPULATION
In research, target population is the entire set of units for which the survey data is to be used to
make inferences. Target population here is 50 people.

 SAMPLE SIZE AND SAMPLING PROCEDURES

Simple random sampling will be used to generate sample size required for the study. The method
is preferred because it ensures an equal representation of the population in the sample size for the
study (Mugenda, 1999). The study will also use purposive sampling design technique to select
the sample size across the six wards in Shinyalu sub-county. The study will concentrate on a
sample size of 50 farmers who had applied for the loan services, number reached at using
statistical formula illustrated below;

( z 2 p .q )
n= 2
d

Where;

n=desired sample size

2
z =the statistical normal deviation at 0.5 significance level

p=the proportion in the target population estimated to have characteristics being measured.

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q=1-p

q- Proportion of the sample population in the study area

The z statistics at one level of significance is 1.282 since there is no estimate available for the
proportion in the target population that is assumed to have the characteristics of interest (p). 50%
will be used as recommended by Fisher et al (1983). Therefore, (p) will be 0.5. The level of
significance, d will be 0.05. Therefore, the sample size (n) will be calculated as

2
1.96 × 0.5× 0.5
nn= 2
0.05

=384 farmers

 CLUSTER SAMPLING
The population was farther clustered into groups of 6 farmers and randomly selected to give a
sample of 64 farmers which could be flexible to deal with considering the available resources
and time constraint.

 RESEARCH INSTRUMENTATIONS
The research will utilize both primary data and secondary data. Primary data will be collected
using questionnaires that will be distributed through drop and pick format. The secondary data
will be obtained from the financial institutions files about the trends in farmers borrowing.

VI. DATA PRESENTATION AND RESEARCH FINDINGS

 INTRODUCTION
This chapter is specifically concerned with presenting, analyzing and discussing in details the
findings of this study gathered from small scale maize farmers from Shinyalu sub-county in
Kakamega County. The questionnaires that were distributed to farmers were 64 and out of the
total only 62.5% percent were returned with only 37.5 % having failed to comply. Thus the
results were extracted from 40 farmers.

 THE DEMOGRAPHIC FACTORS OF THE RESPONDENT

 Age of the respondent

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 Table 1 the age the age
Frequenc Percent Valid Cumulative
y Percent Percent
below 30 years 16 40.0 40.0 40.0
between 31-50
12 30.0 30.0 70.0
Valid years
above 51 years 12 30.0 30.0 100.0
Total 40 100.0 100.0

From the data collected from the field, it’s evident that it is the youths below 30 years who
applied for loans from the financial institutions at 40.0 percent compared to the adults between
31-50 years and above 51 years at 30.0 percent each. This implies that it is the youth seeking for
employment while working on the farm for the earnings. The adults above 31 years most of them
seem to have secured employment and do not associate much with application for credit

facilities.

Figure 2 showing the age of respondent

 Gender of the farmer

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 Table 2 the gender the gender
Frequenc Percent Valid Cumulative
y Percent Percent
male 28 70.0 70.0 70.0
Valid female 12 30.0 30.0 100.0
Total 40 100.0 100.0
The data collected from the questionnaires issued found that the number of male respondents
who applied for credit facilities from financial institutions in Shinyalu were 70.0 percent
compared to female who applied for credit at 30.0 percent as shown in the table 5.

Figure 3 showing the gender of respondent

 Size of the land of the farmer.

Table 3size of farm in acres

the size of farm in acres
Frequenc Percent Valid Cumulative
y Percent Percent
below 10 30 75.0 75.0 75.0
between 10-
Valid 10 25.0 25.0 100.0
15
Total 40 100.0 100.0

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The study found out that most farmers had land below 10 acres at 75.0 percent and only 25.0
percent of farmers have land between 10-15 acres.

Figure 4 showing the size of farm of the respondent

 FACTORS AFFECTING CREDIT ACCESSIBILITY SMALL SCALE MAIZE

FARMERS IN SHINYALU SUB-COUNTY.

 Education level of the farmer

Table 4 how education is considered
how education is considered
Frequency Percent Valid Cumulative
Percent Percent
Valid primary level 18 45.0 45.0 45.0
secondary 7 17.5 17.5 62.5
level

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 Post secondary
15 37.5 37.5 100.0
level
Total 40 100.0 100.0
Higher levels of education imply better technical knowledge, know-how and farming skills, more
information on credit markets and facilities and familiarity with bureaucratic procedures. It was
evident that educated farmers who had post-secondary education accessed agricultural credit
than those with secondary education at 37.5 percent, and 17.5 percent respectively as shown in
table 1 above. But a better education level a farmer has implies better understanding of
employing superior techniques that can improve productivity, hence repaying credit promptly.
While farmers who have higher level of education do not associate themselves so much with
agricultural credit, since most of them are in employment or engage in productive businesses that
enable them to raise capital for farming. Also financial institutions considers this group to have
good sources of income hence are not prioritized in loan approvals. The other groups of farmers
with primary level of education have limited information on credit market and are risk averse. As
a result financial institutions try to improve their production through more loan allocation to
them thus having a greater percentage of 45.0.
Figure 5

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 Figure 5 small scale maize farmers access to credit by level of education

 Interest rate.
Table 5 interest rate determinants
interest rate determinants
Frequency Percent Valid Cumulative
Percent Percent
Low 21 52.5 52.5 52.5
Medium 13 32.5 32.5 85.0
High 6 15.0 15.0 100.0
Total 40 100.0 100.0
The number of people applied for loan when the interest rate is low is higher than when the
interest rate is high. The interest rate from most of the financial institution in Shinyalu sub-
county range from 15 to 25 percent to small scale farmers. This shows why the number of
applicant is high when the interest is low by 52.5 percent and when its medium and high at 32.5
and 15.0 percent respectively.

Figure 6 small scale maize farmers access to credit by level of interest rate

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  Collateral
Table 6 the level of security considered
the security consideration
Frequency Percent Valid Cumulative
Percent Percent
use of title deed 26 65.0 65.0 65.0
use of
6 15.0 15.0 80.0
machinery
Valid
use of farm
8 20.0 20.0 100.0
crops
Total 40 100.0 100.0
The study shows that most of the farmers use title deed to apply for loan at 65.0 percent
while those who use farm machinery and farm crops for loan application accounting at
15.0 and 20.0 percent respectively. This imply that male farmers who are the head of the
family and owner of the title deed had easier access to credit by use of title deed than
those female respondent who do not own the title deed.

Figure 7, small scale maize farmers access to credit by use of title deed in Shinyalu sub-county.

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VII. TESTING HYPOTHESIS

 REGRESSION OF THE VARIABLES.

Table 7 regression of the variable
Coefficients
Model Unstandardized Standardized t Sig.
Coefficients Coefficients
B Std. Error Beta
(Constant) .365 .309 1.184 .244
how education is
1.216 .188 .799 6.456 .000
considered
1 interest rate
-.023 .210 -.012 -.110 .913
determinants
the security
.182 .191 .106 .951 .348
consideration
a. Dependent Variable: the in maize in kilograms
Y=0.365+0.799 X 1-0.012 X 2 +0.106 X 3

The values 0.799 is the coefficients of how education is considered (x1), -0.012 the coefficient
for interest rate (x2) while 0.106 coefficient for the security (x3). When the level of education
increases this means that farmers have better technical knowledge, know-how and farming skills,
more information on credit markets and facilities and familiarity with bureaucratic procedures.
When the level of interest rate increases, this affects the number of applicants for the credit
negatively. The number reduces while when the interest rate decreases it affects credit
accessibility positively such that it increases the number of applicants. The larger the number of
securities one have the easier it’s to apply for the credit. From the study as the level of securities
increases, it increases the loan accessibility positively.

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4.3.2 Model Summary
Table 8 model summary
Model R R Square Adjusted R Std. Error of
Square the Estimate
a
1 .863 .745 .723 .7339
a. Predictors: (Constant), the security consideration,
interest rate determinants, how education is considered

R=0.8632

R2=0.745

Adjusted R=0.723

VIII. CONCLUSION
The results revealed that majority of the farming households‟ especially female headed
households did not access agricultural credit. Indeed in the sampled households, an
overwhelming male maize farmers‟ access agricultural credit than females. This was seen to be
attributed to a requirement by most financial institutions that collateral presented, for one to be
considered for credit. But since land ownership is passed from father to son then female farmers
would not have collateral (title deed) to present as security when sourcing for credit.

Farmers who were old were revealed by the results to have access to agricultural credit than
young farmers. Age may have been taken by most financial institutions as a proxy for maturity
and subsequently translating it as a high potential in handling of the borrowed loan and prompt
repayment. Also, farmers‟ old age was taken as a measure of length of experience in farming and
sourcing agricultural finances.

On the education level, the results showed that educated farmers accessed agricultural credit
more than uneducated ones. Farmers were classified into three groups as those with primary,
secondary and post secondary level of education. The results revealed that majority of farmers
with secondary level of education accessed credit, followed by those with primary level of
education and lastly those with post secondary education. This result may be attributed to the fact

15
that farmers with secondary education have a better technical knowledge, farming skills, more
information on credit markets and familiarity with bureaucratic procedures. On the other hand
those with post secondary education do not associate themselves with agricultural credit since
most of them are employed or engage in other businesses with high rate of return than maize
farming.

 Scope for Further Research

I strongly encourage other researches to study the trend in agricultural credit accessibility in the
same county and in future on other Counties of Kenya.

IX. REFERENCES
 Atieno, R (2001). Formal and informal institutions’ lending policies and access to Credit by
small scale Enterprises in Kenya; an Empirical Assessment, African Economic Research
Constortium, Nairobi
 Anderson, S. and Baland J. M (2002), The Economics of ROSCAS and intra-household
Resources Allocation’’, Quarterly journal of economics CXVII,PP 963-99
 Bigsten, A. Collier P. Deacon S. et al, Credit Constraints in manufacturing Enterprises in
Africa. Journal of African economics 12 (1)104-125
 Ellis, L. F,(1990),’’ Agricultural Policies in Developing Countries’’ School of Department
studies, University of East Angelia, Cambridge University Press
 Government of Kenya (1977), ‘’Strategy for Revitalizing Agriculture’’, Nairobi
 Kashuliza, A.K and Kydd J.G, 1996 Determinant of bank credit access for small holder
farmers in Tanzania. A discriminant analysis application, saving and development 3;285…97
 Kebede, K. 1995 Agricultural credit analysis’’. National Agricultural policy workshop
 Madala, G. (1992),’’Introduction to econometrics’’ 3rd edition Cambridge university press

X. APPENDECES

APPENDIX 1. QUESTIONNAIRE

Section A: Demographic Information

1. What is your age?

Below 30 years [ ]

Between 31- 50 years [ ]

Above 51 year [ ]

2. Gender

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 Male [ ]

Female [ ]

Section B: Study Information

3. How many years have you practiced farming?

Below 5 years [ ]

Between 5-15 [ ]

Over 15 years [ ]

4. What is the size of your farm in acres? (Tick in the box provide)

Below 10 [ ]

Between 10-20 [ ]

More than 20 [ ]

5. What is the estimate income you get from farming monthly?

Below Ksh 5,000 [ ]

Between Ksh 5,501– Ksh 10,000 [ ]

Over Ksh 10,000 [ ]

6. Currently, do you owe any Credit/ loan to any institution?

Yes [ ]

No [ ]

7. i) To what extent are the following measures of security/collaterals for a loan considered?

Measure 1 2 3
Use of title deed

Use of farm machinery

Use of farm crops

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 ii) To what extent are the following measures of education on loan requirements
considered?

Measure 1 2 3

Primary level

Secondary level

Post primary level

ii. To what extent are the following measures used to determine interest on a loan?

Measure 1 2 3
Projects risk level
Type of loan product
Possibility of default

iii) Have you ever applied, what was the reason/s cited for you not qualifying? List them

i) ……………………………………………………………………………
ii) ……………………………………………………………………………
iii) ……………………………………………………………………………

8. If you answered No to question 6 above, please list down the reasons why you have

Never applied for a loan

i) ……………………………………………………………………………
ii) ……………………………………………………………………………
iii) ……………………………………………………………………………

9. What is your source of money for labor, farm inputs, school fees, and other
Investments?

Earnings from farm proceeds [ ]

Credit facilities [ ]

Others [ ]

10. In your own opinion, what do you think are the reasons why it is difficult for farmers to
access loans or credit in commercial banks and other lending institutions?
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 i) …………………………………………………………………………………
ii) ……………………………………………………………………………………
iii) ……………………………………………………………………………………
iv) ……………………………………………………………………………………
v) ……………………………………………………………………………………

11. What do you think should be done by credit providers to encourage farmers apply for credit?
Rank from the most important to the least i.e. 1 being most important and 4 least important

Action Rank

i) Set up rural branches/ agents to bring service near to farmers

ii) Educate farmers on need and benefits of loans

iii) Offer a variety of loan products farmers

iv) Upgrade infrastructure (e.g. communication/roads) in farming

areas

Specify other(s)……………………………………………………………….

THANKS FOR YOUR PARTICIPATION

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