TITLE:
Filling the Niche—A Synthesis of Financial Inclusion among Smallholder Farmers in Africa, the Case for Kenya
AUTHORS:
George Owuor
KEYWORDS:
Smallholder Farmers, Financial Inclusion, Collective Liability
JOURNAL NAME:
Modern Economy,
Vol.12 No.12,
December
22,
2021
ABSTRACT: This paper makes a synthesis
of empirical studies carried out in parts of Africa, and in Kenya to derive
lessons on financial inclusion among smallholder farmers in rural and peri-urban areas.
The derived lessons point at a steadily growing expansion of financial services
to rural/peri-urban poor traditionally characterised by high idiosyncratic risks and huge
information asymmetry. This category of households seems to have made the
African continent sustain itself in the midst of financial crisis in 2008/09
when the rest of the world including the Asian tigers and the American
capitalists faced serious setbacks in their financial sector growth. During
this period, Africa experienced steady growth that started in 2000 at below 3%
and peaked at about 4.8% by 2009-2015. The contribution of the transformation of the financial sector
experienced in Kenya is one of the reasons for this growth. The paper
elucidates the key determinants of access to the reformed financial services by
the rural poor, access to targeted training on financial services
beyond the formal education, participation of female-headed households in
collective frameworks and creditworthiness as exhibited by multiple borrowing
points. The impact of such inclusion is exhibited by significant changes in
purchasing power of households through income and diversified investment in
farm assets. In all these successes, ICT through mobile money transfer played a
significant role, as exhibited in studies across the region. Despite the
successes, the key challenges include high fungibility of targeted funding,
showing a need to provide an array of financial services to the poor including
credit for consumption, school fees, medical cover and emergency loans found
among the savings and credit cooperatives. Also, the inequality and raising the
poorest of the poor is still a challenge, one reason being the instrumental
role of ICT through mobile money transfer system which some of the poorest
farmers have no access to. Mobile banking services such as M-Shwari product is something that extension
personnel could take as part of their advice to small farmers in accessing
short-term loans and as means of savings funds between USD 1 - 100. These kinds of funds are useful in particular
in bridging financial gaps along the agribusiness value chains. The funds can be
borrowed to transport produce to the market, and make payments in time to
enable farmers to capitalise on their input purchases. On participation of smallholder farmers in mobile
banking type, and in particular saving and immediate credit service is still limited. This is an area for immediate
uptake by all stakeholders including policymakers and the financial
sector.