Abstract:
Farm credit offered by AFC is an important tool in poverty alleviation through creation of
working opportunities for beneficiaries. The facility improves the economic and social
status through poverty alleviation, employment creation and income generation for low
income farmers with limited opportunities. Through this facility, the government mainly
targets to improve the livelihood and food sufficiency among the rural populace.
However, loan repayment is faced by high levels of default among the beneficiaries
which hinders goal achievement. This study was done to examine the borrower and the
lender dynamics that influence default among smallholder farmers in Machakos County
in order to analyze farmers‟ debt servicing capacity.
To achieve this objective primary data were gathered through a survey using data from
100 farmers. Systematic random sampling technique was used to pick 100 clients who
were selected from the county database of 701 farmers notwithstanding their repayment
status. The selected farmers supplied data via administering a structured questionnaire.
Descriptive statistics and a binary logistic model were employed for determining and
analyzing default factors. The results of the binary logistic regression analysis showed
variables to be either positively or negatively related to default. Four factors which were
found to be statistically significant at 5% level are age, experience in farming, credit use
and politics. Age and politics were found to be negatively related while experience was
positively related to compliance in debt servicing. These factors are important and should
be considered when designing a sustainable credit model.
The study recommends that the success of future lending in AFC lies in targeting to
disburse loans to young but experienced farmers; lenders should train their loan
beneficiaries and offer them adequate amount of loan and reasonable timeliness. The
government should encourage enterprises diversification and pave way for technology
improvement through a well-articulated agricultural extension program. Conclusively, the
direction of influence of these determinants should serve as a guide, in efficient
disbursement of farm loans in the future.
