Credit Constraints, Off-Farm Participation and Productivity; Case of Kenyan Rural Sector

Abstract

Abstract:

Credit constraint among small holder farmers still remains one of the impediments to the much needed increase in agricultural productivity in sub-Saharan Africa. Without these constraints, farmers would be able to access the required amount of inputs, when needed, and this would in turn translate to higher yields. Farmers may be credit constrained both from the demand- and supply- side. Applying the direct elicitation approach and using representative data from 6512 households in rural Kenya, we identify credit constrained farmers and assess the effect of being constrained on maize yields. Although we do not find a significant yield differences from being credit unconstrained, the effect of various variables on yields differ significantly across constrained and unconstrained farmers. In addition, there are arguments that farmers diversify their incomes sources to include off-farm activities as a means to overcome credit constraints. However, there is not enough empirical evidence particularly from sub-Saharan Africa to support this argument. Hence we assess the relationship between off-farm participation and being credit constrained. We find that indeed participating in off-farm activities- both salaried employment and self-employment reduces the likelihood of being credit constrained. Hence, policies that facilitate households’ engagement in off-farm activities- either self-employment or salaried employment will be relevant. Similarly, information plays an important for farmers in participating in off-farm activities and also in relaxing credit constraints. Therefore policies strengthening extension services among rural households as well as social networks among farmers are necessary.

Key words: Credit constraint, maize yields, off-farm income, Kenya