Can Group Based Credit Uphold Smallholder Farmers Productivity and Reduce Poverty in Africa? Empirical Evidence from Kenya

With access to formal credit proving almost impossible to smallholder farmers, group based lending is steadily becoming popular in Africa. However, little is documented on the role of such programmes. In this paper, we employ propensity score matching and endogenous switching regime methods on a sample of 600 smallholder farmers drawn from two agricultural regions in Kenya in 2007. The goal of the survey was to evaluate the economic impact of group based credit programmes on smallholder farmers’ productive performance and poverty reduction in Kenya. Our findings reveal gains with significant impacts of group based credit on incomes in the range of 300 and 480 euros as well as via purchased inputs, with participation in such credit programmes significantly constrained by low literacy levels prevalent among a majority of rural farm households, influence of gender, with female headed households dominating in membership and little participation on the part of male headed households, poor rural access road infrastructure and constraints in group management resulting from lack of cohesion as the group grows in membership. These factors form the key recommendations for policy intervention to achieve sustainability of group based informal lending among farm households in Africa and other similar developing nations.