Socio-Economic Factors and Utilization of Formal Financial Services among smallholder Farmers in Kenya.

Abstract

The main aim of this research was to establish the effect of socio-economic factors on utilization of formal financial services among smallholder farmers in Kenya. Farmers in low-income counties encounter a number of challenges among them limited access to finance. Financing agriculture, therefore, becomes a critical service to enable the full realization of the sector’s potential. In Kenya, the advent of innovative banking models through commercial banks such as Equity bank have seen a higher proportion of the rural population who were previously unreached being reached by financial services. That said, the subscription to formal financial services by small holder farmers is still low and many of them either shy away from formal financial institutions or are simply ineligible for the services due to lack of a banking profile with the institutions. Cross-sectional survey research design was adopted. The target population for this study were smallholder farmers from Nakuru, Busia and Kirinyaga Counties in Kenya. The study sample was determined using simple random sampling. The sample size was 560 smallholder farmers. The questionnaire and secondary information were the key instruments for data collection. Quantitative data was analysed using multiple linear regression equations with the aid of SPSS software. The study established that the socio-economic factors significantly affected utilization of formal financial services by the smallholder farmers in the country. Policy Makers should therefore, encourage small holder farmers by way of incentives to disclose their annual income so as to improve their chances of accessing formal financial services that can expand their enterprises.