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Flexible loans and access to agricultural credit for smallholder farmers in Kenya

Flexible loans and access to agricultural credit for smallholder farmers in Kenya The purpose of this paper is to determine the level of flexibility in loan products offered to smallholder farmers in Siaya County in Kenya and to examine the effect of flexibility on access to credit.Design/methodology/approachThe paper uses primary survey data from a sample of smallholder farmers in Siaya County in Kenya who had borrowed from various lending institutions within the study area. The paper develops an index variable of loan flexibility using multiple correspondence analysis (MCA) technique. The model is estimated using both OLS and truncated regression analyses. Access to credit is measured as the amount of loan borrowed by each farmer.FindingsThe authors find that the level of flexibility of loans offered to farmers is low. Furthermore, the authors find that the level of flexibility is not significantly correlated to access to credit. Further analysis using individual components of flexible loans show that refinancing and lines of credit are more likely to improve access to credit when farmers are more educated and wealthier, respectively. The age of a farmer, the type of lender, the type of loan, education and household wealth are the main determinants of access to credit.Originality/valueThe paper adds to the debate on access to credit by showing that theoretically, while loan flexibility should lead to higher credit access, this is not a key determinant of access to credit in this context. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Agricultural Finance Review Emerald Publishing

Flexible loans and access to agricultural credit for smallholder farmers in Kenya

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Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
0002-1466
DOI
10.1108/afr-05-2020-0072
Publisher site
See Article on Publisher Site

Abstract

The purpose of this paper is to determine the level of flexibility in loan products offered to smallholder farmers in Siaya County in Kenya and to examine the effect of flexibility on access to credit.Design/methodology/approachThe paper uses primary survey data from a sample of smallholder farmers in Siaya County in Kenya who had borrowed from various lending institutions within the study area. The paper develops an index variable of loan flexibility using multiple correspondence analysis (MCA) technique. The model is estimated using both OLS and truncated regression analyses. Access to credit is measured as the amount of loan borrowed by each farmer.FindingsThe authors find that the level of flexibility of loans offered to farmers is low. Furthermore, the authors find that the level of flexibility is not significantly correlated to access to credit. Further analysis using individual components of flexible loans show that refinancing and lines of credit are more likely to improve access to credit when farmers are more educated and wealthier, respectively. The age of a farmer, the type of lender, the type of loan, education and household wealth are the main determinants of access to credit.Originality/valueThe paper adds to the debate on access to credit by showing that theoretically, while loan flexibility should lead to higher credit access, this is not a key determinant of access to credit in this context.

Journal

Agricultural Finance ReviewEmerald Publishing

Published: Jun 1, 2021

Keywords: Kenya; Multiple correspondence analysis; Access to credit; Flexible loan; In-kind credit; Siaya County

References