AN ANALYSIS OF MICROFINANCE SERVICES AND THEIR EFFECTS ON SMALLHOLDER FARMERS' INCOMES IN NYAMAGABE DISTRICT, RWANDA
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Abstract

Microfinance in Rwanda is considered as one of the most important and effective mechanisms in the implementation of the government program to reduce poverty and to increase economic growth. It is based on a financial innovation in rural and poor communities to offset the lack of access and inadequate provision of saving, credit and insurance facilities. However, the effects of microfinance services on smallholder farmers' incomes in .Nyamagabe District are not well documented and little is known about the contribution of microfinance on income of the smallholder fanners. This study sought to examine the contribution of microfinance services to the income of small holders farmers in Nyamagabe District. Descriptive statistics, Logistic model and Propensity Score Matching Model wereused-to analyse the data. Logistic model was used- to-assess thefactors  influencing smallholder farmers' participation in microfinance services and Propensity Score  Matching was used to assess the effects of microfinance services on smallholder farmers'  income. Primary data was randomly collected using structured questionnaire from 240respondents in the 3 sectors of Nyamagabe District namely Gasaka, Kibirizi and Tare. These areas were purposively selected based on the number of microfinance institutions residing in the region and on the high level of food insecurity and low agricultural productivity. The results from Descriptive statistics show that out of the sample of 240 households interviewed; only 117 had participated and 123 respondents had not participated in microfinance services.

 

The results from Logistics model indicate that age of a household head, farm labor participation, total annual assets, savings, annual interest rate and source of income significantly influenced the smallholder farmers' decision to participate in micro finance services. The results from Propensity Score Matching Model show that the households who had participated in microfinance services had increased their total annual income by 258,273.641 Rwandan francs (equivalent to 32,284 Ksh) than non-participants. The findings from the results indicate that the microfinance services had positive effects on smallholder farmers, particularly in households' income and greater increasing in households' yields. The findings from the study allow implications essential for policy makers that would support implementation of effective microfinance services. The study recommended that smallholder farmers should be encouraged to participate in microfinance services and the emphasis should be put on the level of financial intermediation through increase in the credit allocated to agricultural sector. It is however important to note that the allocation of the microfinance services should be changed the livelihood of smallholder farmers in Nyamagabe District.