Is Micro-finance Achieving its Goal Among Smallholder Farmers in Africa? Empirical Evidence from Kenya Using Propensity Score Matching
This paper examines the role of group-based lending to smallholder farmers in Africa.
Group-based lending is steadily gaining popularity in Africa, where access to formal credit is almost impossible for smallholder farmers. The paper employs propensity score matching to evaluate effects of microfinance credit on borrower's productivity in Kenya. Study findings reveal that:
- Participation in microfinance credit improves household productive incomes by US$200 to US$260 in a single production period;
- Participation in microfinance credit is constrained by low literacy levels, gender differentials in asset endowment, poor road infrastructure, and maintenance of indigenous group structures.
The study revealed that participation in microfinance credit significantly reduced poverty. Factors such as education, exposure to agricultural seminars, female gender, off-farm engagement and access to other sources of credit has positive and significant effect on marginal probability of participating in a microcredit program. The paper states that MFIs can consider issuing different credit products that meet productive as well as consumptive motives.