The Factors that Affect Accessibility to Credit Services by Small Scale Sugarcane Farmers in Kenya: A Case of Bungoma County, Kenya

Abstract

This study examined the factors that affect accessibility to credit services by small scale sugarcane farmers in Bungoma County. The main objective of this study was to assess the role of the institutional lending policies of formal credit institutions in determining the access to and use of credit facilities by small-scale entrepreneurs in rural Kenya. The study was guided by the following specific objectives: (i) to analyze the main features of the lending policies of formal credit institutions that determine the access to and use of credit by small-scale sugar cane farmers in Kenya; too assess the factors that determine the participation of small-scale sugar cane farmers in credit markets and their choice of credit sources in Kenya; to evaluate the factors considered by formal credit institutions in formulating their credit policy to meet the needs of small scale sugarcane farmers in Kenya. The samples comprised of the 10 commercial banks that extend credit to SMEs were considered for this study. The target respondents were the credit managers. The procedures that  was used in collecting data is through  interviewer administered questionnaires and distribution of self administered questionnaires that is dropping and picking questionnaires from respondents at their most convenient time and personally collected them from respondents once completed. Data collected was analyzed by use of descriptive statistics such as percentages, mean scores and standard deviations. Statistical Package for Social Sciences (SPSS) was used as an aid in the analysis since it reduces lots of data into simpler summary. It concluded that informal credit sources provide easier access to their credit facilities for small and micro enterprises. Another important conclusion for improving access to credit that emerges from this study is that given the wide and established branch network of commercial banks, improving their lending terms and conditions in favor of small-scale enterprises would significantly facilitate the accessibility of small-scale enterprises to credit. Given the relatively abundant financial resources of the formal institutions compared with informal credit sources, there is need for policy measures to increase access of SMEs to formal credit. This can be achieved through the establishment of credit insurance schemes protecting the financial institutions against default risks, which result in credit rationing. The formal financial institutions should also be encouraged to diversify their loan portfolios so as to be able to cater for the different financial needs of SMEs. There is also need to expand the capacity of informal credit sources to enable them to increase their potential to lend to SMEs. Since formal institutions are mainly concerned with default problems and loan administration costs, linking their operations with those of informal lenders can help to ensure that they reach more potential borrowers. This is because informal lenders have their own insurance mechanisms, which guarantee loan repayment, yet they lack adequate financial resources to enable them to expand their coverage. SMEs also must be profitable in order to grow and be able to attract more external finance. It is therefore necessary to provide a policy environment that affords the necessary incentives for enterprise growth.

Keywords: Accessibility to credit services, Small scale sugarcane farmers, Small and Micro Enterprises, Credit Institutions, Rotating savings and credit associations