Impact of Agricultural Credit on Coffee Productivity: An Analysis of the Perceptions of Smallholder Farmers

Low coffee productivity has been linked to farmers’ limited use of agricultural financing due to credit rationing motivated by moral hazard and information asymmetry. As an intervention, the Kenyan government (GoK) established the Commodity Fund to provide financing to coffee growers to increase coffee productivity, alleviate poverty, and promote economic development. Despite this intervention, credit acceptance remains low; for example, agricultural credit made up only 4.3 percent of total private sector credit in 2016 and 3.62 percent in 2018. This low adoption of agricultural financing raises an important question: does the perception of credit’s influence on coffee output shape the current dismal trend in coffee production? As a result, this study aims to fill a research gap by exploring the impact of agricultural financing on coffee productivity in Kiambu County, Kenya. Primary data was gathered through farmers’ group discussions (FGDs) with twelve farmers’ cooperatives and fifteen key informants from five coffee value chain actors. A subsequent survey of 174 smallholder coffee farmers was conducted. Phenomenological explication and a logistic regression model were used to analyze data from key informants and focus group discussions. According to the study’s findings, farmers perceived agricultural credit as having a positive impact on demand for coffee inputs and returns while having a negative impact on demand for labor and coffee productivity efficiency. As a result, this study recommends that the GoK examine Commodity Fund policies to catalyze credit in order to stimulate increased coffee productivity and economic transformation among coffee producers.