GROUP DYNAMICS AND UTILIZATION OF FORMAL FINANCIAL SERVICES AMONG SMALLHOLDER FARMERS IN KENYA

Abstract

Formal financial services as they enable citizens of a country to derive substantial benefits through access to and utilization of formal financial services which basically translates to being financial included. However, significant proportions of smallholder farmers inAfrica continue to be without access to formal financial services. Organization of smallholder farmers into groups is largely viewed as instrumental for overcoming high transaction costs and other market failures and could improve utilization of formal financial services in developing countries such as Kenya. However, establishment of smallholder groups for farmers has not always translated to success, making it imperative to establish the settings under which such collective action can be more beneficial to the farmers. Therefore, the present study examined the influence of group dynamics on utilization for formal financial services among smallholder farmers in Kenya. The study targeted a cross-section of smallholder farmers from three counties in Kenya: Nakuru, Busia and Kirinyaga Counties. A study sample size of 496 smallholder farmers was selected using convenience sampling technique. Data was collected using questionnaire copies and data collection sheet. Quantitative data analysis comprising both descriptive and inferential statistical methods was used with the aid of SPSS software. The findings revealed that membership to groups and group services encouraged the smallholder farmers to use financial services. Therefore, the study recommends restructuring of the groups to enable them facilitate group guarantee of loans to members so as to enable them obtain credit and bulk inputs for their farms.