The Influence Of Flexible Loans On Poverty Reduction Among Smallholder Farmers In Machakos County, Kenya

Abstract

Poverty remains a major prevailing feature among many communities in Kenya with ever increasing economic and social effects in the country. The study’s main objective was to evaluate the influence of flexible loans on poverty reduction among smallholder farmers in Machakos County, Kenya. The study’s specific objectives were to assess the influence of loan rescheduling, flexible credit limits, flexible terms of credit and flexible repayments on poverty reduction among smallholder farmers in Machakos County, Kenya. The asset scarcity theory, structural poverty theory and expected utility theory anchored the study. The study applied a descriptive cross-sectional survey design where structured questionnaires were utilized to collect quantitative data from households of Muthetheni ward, Mwala Subcounty, Machakos County. The study adopted random cluster sampling to select households that had taken an agricultural loan from microfinance institutions or development finance institutions in the preceding two years. The questionnaire was pre-tested on a sample of farmers and changes were made before the final study. The questionnaire was also examined for both reliability and validity. The collected data was analysed using descriptive and inferential analyses in order to respond to the research questions and test the hypotheses. Statistical package for social sciences (SPSS) was utilized for the study. The results of the analysis were presented in figures and tables. The study findings indicated that loan rescheduling, loan refinancing and flexible repayments option had a significant positive influence on poverty reduction among smallholder farmers in Machakos County, Kenya. The findings however, indicated that flexible credit limits had no significant influence on poverty reduction among smallholder farmers in Machakos County, Kenya. The study recommends to microfinance and development finance institutions to offer a variety of flexible loan products to smallholder farmers that suit the farmer’s needs and characteristics. Regarding loan rescheduling, micro lenders should seek to balance between assisting the farmers to repay the loan and the risk inherent in any rescheduled loan. Lastly, the study recommends to national government, county governments and other non-governmental organizations to form funds that will be able to offer flexible repayment options that meet the needs of farmers who have intermittent and seasonal cashflows.