Determinants of smallholder farmers’ participation in microfinance markets in Huye district, southern province, Rwanda

Abstract

Microfinance markets play a significant role in enhancing socio-economic development of developing countries. In Rwanda, access to microfinance in financing agriculture is very important for future development. Despite this development, smallholder farmers still have limited access to institutional financial services. This study assessed factors that affect smallholder farmers’ participation in microfinance markets in three sectors of Maraba, Mukura and Ngoma in Huye district in Southern province of Rwanda. Primary data were collected using questionnaires and personal interviews. A total of 300 respondents were selected using a simple random sampling technique from participants and non-participants in microfinance markets. Data collected were analyzed through descriptive statistics and Probit regression model. Results from descriptive statistics revealed that major sources of income were farming and business activities. Findings revealed also that each household had an average of about five members with standard deviation of 1.901 and mean value of household land size of 1.87 ha with standards deviation of 0.758. Findings from Probit analysis revealed that household size, education, total annual income, cooperative membership, and household savings had a positive and significant effect on smallholder farmers’ participation in microfinance markets. Distance from microfinance institutions negatively influenced participation in microfinance markets. Households that were located far from to the microfinance institutions were less likely to participate in microfinance markets compared to those nearer to the institutions. This study recommends microfinance institutions in Rwanda to expand their financial systems to enable smallholder farmers access affordable agricultural finance. Further, there is need for microfinance institutions to create more awareness programs to help smallholder farmers get key information related to microfinance services. This is expected to influence smallholder farmers’ willingness to apply for microcredits for agricultural development. This will in the long-run help the smallholder farmers to adopt new practices and technologies thus increasing their agricultural production.