Influence of microfinance participation and socio-economic factors on dairy commercialization: The case of smallholder farmers in Bomet County, Kenya

Abstract

Dairy commercialization is constrained by several factors including lack of funds. Access to financial services such as credit and savings were identified as important instruments to curb these financial challenges. Microfinance institutions (MFIs) have been found to play a critical role amongst smallholder farmers in enhancing their access to finance. This study sought to investigate factors influencing credit access and the extent of credit access and how microfinance participation and socio economic factors influences dairy farming performance amongst smallholder farmers in contributing towards dairy farming commercialization. MFIs were found to positively influence commercialization. This study was conducted in Sotik sub-county, Bomet County and a multistage sampling method used to obtain the sample of 150 dairy farmers for interview using structured questionnaires. Descriptive statistics was used to characterize socio-economic attributes of the smallholder dairy farmers. Heckman-two stage model was used to determine the factors that influenced credit access and the extent of credit access among smallholder dairy farmers. Tobit model was used to determine the influence of microfinance participation and socio-economic factors on smallholder dairy farming commercialization. Seven factors; gender, age, household size, occupation, distance, off farm income and output level were found to significantly influence the farmers’ access to credit. The extent of commercialization of milk by smallholder farmers was significantly determined by membership to groups, off-farm income, gender, age, years of education, household size, years of experience, microfinance institution access, access to credit, applicable interest rates and acquisition of savings account. This study recommends that farmers be encouraged to engage in off farm employment that buffers household income and make them more credit worthy for greater extent of credit access, farmers should also be trained on the importance of collective action through farmer groups.