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Abstract
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.