Micro Finance Services And Small Farmers Income: Empirical Evidence From Rural Rwanda

Abstract

Microfinance institutions (MFIs) can be an important tool for socio-economic development due the role they play towards the development of the Rwandan economy. Therefore, with rural poverty running at around 90 percent, the role of MFIs in advancing microcredit for agricultural and rural development in Rwanda cannot be overemphasized. However, making microfinance services available is limited by inadequate savings, credit and insurance facilities in the country. Despite the important role that microfinance services can play in poverty reduction, little is known about their contribution to the income of small farmers in Nyamagabe District the study areas. This study sought to analyze the effects of microfinance services on small farmers’ income. Primary data were collected from randomly selected sample of 240 respondents from three sectors of Nyamagabe District namely Gasaka, Kibirizi and Tare using structured questionnaires. The study employed descriptive statistics and Propensity Score Matching Approach to analyze the data. The results revealed that age, education and main occupation of household heads have a positive and statistically significant effect on small farmers’ income and distance from homestead and off-farm income have a negative significant effect on the income of small farmers. The study also found that the small farmers who had participated in microfinance services had increased considerably their annual total income. The study thus recommends that the use of microfinance services should be promoted by the Government of Rwanda in order to provide an instrument for extending credit for the best strategy to promote activities designed to reduce poverty.