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

This paper aims to evaluate the economic impact of group-based credit programs on smallholder farmers productive performance and poverty reduction in Kenya. It uses propensity score matching and endogenous switching regime methods on 2007 data from a sample of 600 smallholder farmers drawn from two agricultural regions in Kenya.Study findings reveal significant impacts of group-based credit with income gains in the range of 300 and 480 Euros as well as significant effects on output via purchased inputs. Constraints to the program include:

• Low literacy levels prevalent among a majority of rural farm households;
• Significant influence of gender, with female-headed households dominating in membership and lack of participation from male-headed households;
• Poor rural road infrastructure;
• Lack of cohesion as the group grows in membership, resulting in group management problems.

Mobilizing more groups, particularly women groups would help in improving information asymmetry and resolving collateral problems. Improvement of rural road infrastructure would have multiple impacts of access to credit, labor and product markets. Finally, poverty reduction can be achieved through stimulating an efficient agricultural sector through credit provision, education intervention and promotion of wealth creation.