Extent of Credit Financing By Commercial Banks to Agribusinesses in Kenya

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Publication Date
2014-03-31Author
Benjamin O Ombok, David O Oima, Moses Oginda
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Show full item recordAbstract/ Overview
Financing in the Agribusiness sector has been difficult due to
perceived and unmanaged sectoral risk factors although it contributes to
employment by up to 53% in a majority of poor and developing countries,
60% in South Saharan Africa; and up to 80% to the Kenyan population.
Despite the commercial banks’ application of credit risk mitigation
mechanisms, there is little empirical evidence on the use of the forward
integration credit risk mitigants on the performance of the agribusiness firms.
The purpose of this study was to determine the extent to which the
commercial banks provide credits to agribusiness firms. Specifically the
study sought to ascertain the extent to which the commercial banks grant
credit financing to the agribusiness enterprises in Nyanza region and
determine the agribusiness borrowers’ opinion on commercial banks’
application of forward integration credit risk mitigation mechanisms in
granting credits to them. This study takes a descriptive research design. The
target population comprised 183 agribusiness firms in operation for the
period 2003 to 2012. Stratified random sampling was used to select a sample
size of 45 agribusiness managers. Both primary and secondary data were
used. The study findings reveal that the commercial banks grant an average
of 4.98% credit funding to the agribusiness capital level, 12.40% to owner
equity and 4.38% share of credit extended to the agribusiness sector.
Borrowers’ opinion reveal that the commercial banks highly consider the
credit volume determinants in extending credits to the agribusinesses at a
mean of 2.2372.