Determinants of lending to small-scale farmers by microfinance institution in Uganda. A case study of Mbarara District Farmers Association

Abstract

The study was conducted in Mbarara districts and the number of respondents was 160. This study aimed at examining the impact of micro finance institutions on poverty reduction among smallholder farmers. The paper focused on SACCOS’ beneficiaries to know whether the credit provided have helped them to move out of poverty and the extent to which that has been done. This is because many have hailed microfinance as an effective means of assisting the” poor people” especially farmers by providing them with credit facilities to start economic enterprises as well as improving their livelihoods. However, there are many concerns related to the role of micro finance institutions (MFIs) in poverty reduction. The findings in this study revealed that the micro credits have impacted the activities and lives of beneficiaries in several positive ways as follows; owning valuable assets, household expenditure on basic needs, incomes from farm and off-farm activities, and house ownership, toilets and utilities. The most prominent problems faced by many smallholder farmers in Uganda to join SACCOS in the study areas were mentioned as low income of household, lack of knowledge, being tied to other financial institutions and constitutional problems. In this study it is argued that the government ought to set favorable environment through subsidizing the SACCOS, and educating the community on financial and operations guidelines of SACCOS. The study concluded that SACCOS play a significant role in improving the conditions of smallholder farmers. This in because they not only help the smallholder farmers accessing financial services and invest in income generating activities but also, they enable such individuals to solve fundamental problems in their families. Furthermore, the study recommends that SACCOS need to provide a range of services that cater for needs borrowers who want to serve.