Determinants of microfinance credit uptake and the amount of credit by smallholder dairy cattle farmers in Maara sub-county, Tharaka Nithi County, Kenya

Abstract

Microfinance institutions play a crucial role in enhancing the production and productivity of smallholder farmers by providing them with the necessary financial resources. However, the adoption and utilization of microfinance credit in the Maara sub-county fall short of their potential benefits. Despite various credit service providers, not all smallholder dairy cattle farmers in this region have been able to capitalize on these services. Several factors contribute to the low uptake of microfinance credit among smallholder dairy farmers, including inadequate financial literacy, absence of collateral, high transaction costs, and insufficient infrastructure. Acknowledging that these factors are dynamic and can vary across different regions is and essential. Therefore, a comprehensive understanding of the dynamics influencing microfinance credit adoption and utilization in the Maara sub-county is lacking. This study examined microfinance credit uptake from two angles: the factors affecting its adoption and the determinants of credit size once accessed. Recognizing the interdependence of these choices, the study employed the Heckman selection model. Results indicated that factors such as years of schooling, household size, organization membership, access to extension services, and collateral availability significantly (p < 0.01) influenced microfinance credit uptake. Furthermore, schooling years, household size, and daily milk production per cow emerged as the most impactful credit size determinants (p < 0.05). The study suggests that promoting organization membership among smallholder dairy cattle farmers could enhance access to microfinance credit facilities, thereby ensuring sustainable milk production. By addressing the identified factors, the Maara sub-county could unlock the potential of microfinance credit to benefit its agricultural sector.