Digital financial services insights and loan repayment in microfinance institutions: A study of small scale dairy farmers in Nakuru Municipality, Kenya.

Abstract

The challenge of agricultural finance is to securely provide cost-effective financing to rural smallholder farmers with minimum risk of fraud and maximum accountability and transparency. Mobile money payments by farmers can provide the transactional volume economics for creating an ecosystem that can be subsequently leveraged on branchless banking distribution channel for mobile banking credit, savings and micro insurance products. Mobile money is simple, convenient, affordable and disruptively innovative. This study sought to fill the gap in the literature on financial inclusion insights by analysing the contribution of digital financial services among small scale dairy farmers in Nakuru County, Kenya. The study sample comprised of 165 dairy farmers borrowers from Micro Kenya, Focus group participants and key informants who were loan officers in MFIs, where purposive sampling methods was employed. Data was collected through questionnaire, focus groups, and key informant interviews and both qualitative and quantitative methods were used to analyse the data. The study findings made an attempt at predicting current and latent demand for the digital financial products through improve rural livelihoods of small scale dairy farmers by expanding and strengthening social networks; cut down travel costs; increase temporal accessibility; and amplify efficiency of activities. The study findings indicate that mobile phones have significantly changed the way rural businesses are being conducted. In addition to Chama‘s and banks, friends and family, as well as hiding places, remain common avenues for money storage for the dairy farmers, especially for temporary storage. M-Shwari is the best known value-added digital financial service in the Kenyan market. It is also a well-liked product, with nine in 10 farmers saying they will continue using it and will recommend it to other people with new products like KCB-Mpesa and Equitel yet to take root and be used by the small scale dairy farmers. The bulk of current users say they use digital finance to help them manage short-term ups and down in cash flow as well as to save for short-term goals .It is concluded that digital finance can contribute in improving livelihoods by providing rural households with fast and easy modes of payment, thereby increasing their ability to access livelihood assets, undertake diverse livelihoods strategies, and overcome their vulnerabilities.