INFLUENCE OF PROVISION OF LOANS ON PRODUCTIVITY OF BUSINESS IN

UASIN GISHU COUNTY.

A CASE STUDY OF AGRICULTURAL FINANCE CORPORATION, ELDORET

BRANCH.

BY

NAME: OKWIRI DICKSON

INDEX NO.:

SUPERVISOR: MR. DAVID ONYIMBO

A REPORT SUBMITTED TO KENYA NATIONAL EXAMINATION COUNCIL IN

PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF A
DIPLOMA IN ACCOUNTANCY

EXAM CENTER: ELDORET POLYTECHNIC

EXAM SERIES: NOVEMBER 2012

1
 DECLARATION
STUDENT:

I OKWIRI DICKSON declare that this report is my original work and has not been presented
for or a diploma in any other institution No part of this work should be reproduced without
written permission from either the author or Kenya National Examination Council

NAME: OKWIRI DICKSON

Signature ……………… Date…………..…….

Declaration by supervisor
This report has been submitted for examination with our approval as the college supervisors.

MR. DAVID ONYIMBO ________________ ________________

Supervisor Signature Date

DEDICATION

i
To my sisters and brothers, you have always encouraged me never to give up academically
despite all the difficulties and challenges that come my way.

To my friends, the encouragement you gave me in life during my course study added a lot of
value to my achievement in academics, as it changed the bad situations to better; this
modified my perception towards real life

ACKNOWLEDGEMENT
I hereby acknowledge the almighty father for the good health and strength that he has given
unto me and my family members. Thanks Lord for the quick recovery after the terrible
accident.

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I also acknowledge the college for allowing me to carry on my studies in their college.

TABLE OF CONTENTS

DECLARATION..............................................................................................................................i

APPROVAL........................................................................................Error! Bookmark not defined.

DEDICATION.................................................................................................................................ii

iii
 ACKNOWLEDGEMENT.............................................................................................................iii

DEFINATION OF TERMS:.........................................................................................................vii

LIST OF TABLES........................................................................................................................viii

ABBREVIATIONS AND ACRONYMS:......................................................................................ix

ABSTRACT......................................................................................................................................x

CHAPTER ONE....................................................................................................................................2

1.0 INTRODUCTION...............................................................................................................2

1.1 Overview.....................................................................................................................................2

1.2 Background of the study...........................................................................................................2

1.3 Statement of the problem..........................................................................................................2

1.4.0 Objectives of the study...........................................................................................................3

1.4.1 General objectives................................................................................................................3

1.4.2 Specific objectives................................................................................................................3

1.5 Research questions:...................................................................................................................3

1.6 Significance of the study:..........................................................................................................3

1.7 Scope of the study......................................................................................................................4

1.8 Theoretical Framework.............................................................................................................4

1.9 The conceptual framework.......................................................................................................4

CHAPTER TWO...................................................................................................................................6

2.0 LITERATURE REVIEW..........................................................................................................6

2.1 Introduction to literature review...............................................................................................6

2.2.0 Previous studies done in the area..........................................................................................6

2.3.0 Independent variables............................................................................................................6

2.3.1 Loan provision......................................................................................................................6

2.3.2 Interest charges.....................................................................................................................7

2.3.3 Min/Max amount of loan given to Business..........................................................................8

2.3.4 Time frame for repayment of the loan...................................................................................9

2.4. DEPENDENT VARIABLE.....................................................................................................10

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 2.4.1 Business productivity..........................................................................................................10

CHAPTER THREE.............................................................................................................................11

3.0 RESEARCH DESIGN AND METHODOLOGY..................................................................11

3.1 Overview...................................................................................................................................11

3.2 Research area...........................................................................................................................11

3.3 Research Design.......................................................................................................................11

3.4 Target Population.....................................................................................................................11

3.5 Sample Design..........................................................................................................................11

3.5.1 Questionnaire sample design..............................................................................................12

3.6 Data collection methods...........................................................................................................12

3.6.1 Development of research instruments.................................................................................12

3.7 Data analysis and presentation techniques............................................................................13

3.8 Assumptions and limitations...................................................................................................13

3.9 Validity and reliability of research instruments.....................................................................13

3.9.1. Validity..............................................................................................................................13

3.9.2 Reliability............................................................................................................................13

3.10. Ethical Considerations..........................................................................................................13

3.10.1 Permission to conduct the research...................................................................................14

3.10.2 Informed consent..............................................................................................................14

3.10.3 Confidentiality and anonymity..........................................................................................14

CHAPTER FOUR...............................................................................................................................15

4.0 DATA ANALYSIS AND PRESENTATION OF RESULTS...................................................15

4.1. OVERVIEW............................................................................................................................15

4.2.0 Background of the respondents...........................................................................................15

4.3 Data analysis and presentation procedure.............................................................................15

4.4.5 Reason for applying for the AFC loans:-.............................................................................18

4.4.7 Minimum /Max amount of loan..........................................................................................19

4.4.9 Factors considered before the issuance of the loan:-...........................................................20

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 4.5 Summary..................................................................................................................................23

CHAPTER FIVE.................................................................................................................................24

5.0 SUMMARY, CONCLUSION AND RECOMMENDATIONS..............................................24

5.1 OVERVIEW.............................................................................................................................24

5.2 SUMMARY OF MAJOR FINDINGS....................................................................................24

5.3 ANSWER TO RESEARCH QUESTIONS.............................................................................25

5.4 CONLUSION...........................................................................................................................25

5.5 RECOMMENDATIONS.........................................................................................................26

5.6 SUGGESTION FOR FURTHER STUDIES..........................................................................26

APPENDIX 1......................................................................................................................................28

REFERENCES:...................................................................................................................................28

APPENDIX II......................................................................................................................................29

B. COM RESEARCH.........................................................................Error! Bookmark not defined.

APPENDIX III........................................................................................Error! Bookmark not defined.

TIME BUDGET..................................................................................Error! Bookmark not defined.

APPENDIX IV....................................................................................................................................31

COST BUDGET.............................................................................................................................31

APPENDIX V......................................................................................Error! Bookmark not defined.

LETTER OF INTRODUCTION.......................................................Error! Bookmark not defined.

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 DEFINATION OF TERMS:

LOAN: This is an arrangement in which a lender gives money or property to a business, and
the borrower agrees to return the property or repay the money, usually along the
interest at some future point in time for repaying a loan

SECURED LOAN: This is a type of a loan which the borrower pledges some asset e.g. car
or property as a collateral for the loan which then becomes a secured
debt owed to the creditor who gives the loan. The debt is thus secured
against the collateral in the event of default by the borrowers. Incase of
default, the creditor takes or possesses the collateral to regain some or
the entire amount originally lent to the borrower.

COLLATERAL: This is a borrower’s pledge of specific property to secure repayment of a

loan. This serves as protection for a lender against a borrowers default.

PRINCIPAL: This is the amount of money the borrower receives from the lender.

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 LIST OF TABLES
TABLE 1.9 CONCEPTUAL FRAMEWORKS.....................................................................................5
2.3.2.0 TABLE SHOWING INTEREST RATES FOR VARIOUS FINANCIAL INSTITUTIONS...................8
TABLE 4.4.1 AFC- ELDORET BRANCH LOAN BENEFICIARIES AGE DISTRIBUTION...................16
TABLE 4.4.2 ANALYSIS OF RECEIVED QUESTIONNAIRES...........................................................16
TABLE 4.4.3 OTHER ACTIVITIES DONE APART FROM FARMING.................................................17
TABLE. 4.4.6 BUSINESS OPINIONS AS TO INTEREST RATE CHARGES.........................................19
TABLE 4.4.8 LOAN REPAYMENT TIME FRAME:-........................................................................20
TABLE 4.4.9 WHERE DO BUSINESS SELL THEIR PRODUCE TO...................................................21
TABLE 4.4.10 HOW DO YOU RATE THE MANAGEMENT OF A.F.C LOANS?.................................22

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 ABBREVIATIONS AND ACRONYMS:

AFC-Agriculture Finance Corporation.

U.G – Uasin Gishu.

S.L –Secured Loan.

Min/Max – Minimum and Maximum.

KWFT- Kenya Women Finance Trust.

KCB – Kenya Commercial Bank.

V.P – Vice President.

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 ABSTRACT.
Agriculture in Kenya is a priority sector for accelerating economic growth. Accordingly, the
Government gives Ksh 5,000,000 credit to Business through AFC. The main objectives of
this project is to transform the existing state and providing farming into individual farming
units by providing the individual Business with enabling conditions to operate independently
in a dynamic and competitive market economy.

The purpose of this study was to analyze the influence of provision of loans on Business
productivity. The specific objectives for this study was to investigate the effect of interest
charges on Business profits, to investigate the effect of short time frame for loan repayment
on Business productivity, to investigate the factors considered in the issuance of loans to the
Business and to find out the minimum/maximum loan given to the Business.

x
The study was undertaken in U.G county, Kenya. It narrowed down to the loanees of AFC.
The target population included 200 beneficiaries of the AFC loans. The members were
reached through systematic sampling, since the list of loanees was acquired and the odd-
numbered members for example 1st,3rd,5th,…….199th were picked for study. This was done to
meet the 50% of the whole population. The study was based on the “monetary circuit theory”.
The data collection involved questionnaires and interviews, data analysis was done using
descriptive statistical techniques for example percentages. The study was conducted during
the period beginning May-Dec 2011. This study was of great help to the AFC credit managers
since they were able to know the effect of loan issuance on Businessmen productivity.

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 CHAPTER ONE

INTRODUCTION

1.1 Overview
This chapter discusses the background of the study, problem statement, objectives of the study ,
research questions, significance of the study, research questions, scope of the study, the
theoretical and conceptual framework.

1.2 Background of the study

According to the government budget read by the finance minister on June 2011, Agriculture was
treated as the backbone for survival of the nation, therefore great emphasis was given to the
AFC’s so as to empower the Business for them to move from cooperative to individual
production whereby each and every financially disabled farmer is being given loan. The main
target being to increase the Businessmen productivity and hence eradicate hunger and poverty in
the nation. The government gives loans to the individual Business through AFC’s so as to
encourage individual farming which is assumed to be more profitable since the profit is being
enjoyed by the individual unlike in co-operative farming whereby the profit is shared amongst
many. The AFC tries to encourage the Business to have a positive attitude towards loans hence
encourage them to take the loans through various marketing strategies e.g use of bill boards,
posters and advertising using the media. The AFC loans also attracts more Business due to its
lower interest rate charges as compared to other financial institutions. This has lead to the greater
awareness of the AFC loans. This is clearly seen through the increased number of the AFC
branches which targets to be easily accessible by the Business. For example the new Ziwa AFC
branch.

1.3 Statement of the problem

Since agriculture in Kenya is a priority sector for accelerating economic growth, there is need to
closely analyze the management of loans given to the Business through the AFC’s since
mismanagement will lead to increased level of poverty in the county due to reduced production
levels. The Kenyan government ensures that they allocate enough capital to the agricultural
sector-AFC and the interest rates are being subsidized so as to encourage the Business who are
2
financially disabled to move from cooperative to individual farming which is termed to be the
most profitable since whole the profits are being enjoyed by one individual farmer.

1.4.0 Objectives of the study

1.4.1 General objectives

To investigate the influence of loan provision on Business productivity.

1.4.2 Specific objectives

a) To find out the effect of interest charges on Business profits.

b) To investigate the effect of time frame for loan repayment on Businessmen productivity.

c) To investigate the factors considered in the issuance of loans to the Business.

d) To find out the min/max loan given to the Business.

1.5 Research questions:

a) What is the value of interest rates and does the interest charges affects the Businessmen
profitability?

b) Does the loan repayment time frame affect the productivity?

c) What are the factors that need to be considered before the issuance of loan to Business?

d) What is the minimum and maximum amount of the loan to be given to an individual
farmer?

1.6 Significance of the study:

This study was aimed at identifying the influence of loan provision on the Business productivity.
The study helped the government in the poverty eradication program which will be achieved
through provision of loans to the individual Business so as to enable them to run their
agricultural activities well, unlike in cooperative unions whereby decision- making process is
delayed hence lowering the level of production.

3
Also the AFC management staff used the study in predicting the minimum/maximum loan to be
given to an individual so as to avoid under or over estimating the loan to be given to the farmer.

1.7 Scope of the study

This study was basically concerned with the influence of loan provisions on the Businessmen
productivity in U.G County. It was carried out in Eldoret Town in U.G county between May 2011
and December 2011 (seven months) using the systematic sampling design and a sample of 100
AFC loan beneficiaries from different parts of the county were interviewed. Data was being
collected using questionnaires.

1.8 Theoretical Framework

This study was guided by the theory of “money circuit” advanced by Augusto Graziani
(Graziani, 1989). The theory postulates that money is created endogenously by the banking
sector rather than exogenously by Central Bank lending. It was adopted for this study because
the AFC lends money to Business hence creating the money since it’s lending rates is rather
lower as compared to that of the central bank. Also many middle and lower level Business can
acquire the loans easily from AFC as compared to Central Bank, hence AFC aids in money
creation. The AFC acquires money from the central bank and gives it to the Business, who pays
back the principal amount and the interest charges hence creation of money since the principal
amount has now increased by the 14% which is the interest rate charges.

1.9 The conceptual framework.

As there were many factors that were considered before the farmer receives the AFC loans, it
was easier to narrow the analysis to the following variables:

Loan provision, interest rates charges, min/max amount of loan given and time for loan
repayment on the Businessmen productivity.

Table 1.9 conceptual frameworks.

Loan payment

4
Interest rate

Min/max amount of loan

Repayment time

Business productivity

Independent variables Dependent variables

The table above illustrated the main areas of focus among the many other possible factors that
would lead to increase or decrease in productivity of the Business. Questionnaires were designed
specifically to elicit how the above factors were related to Business productivity and as to which
ones among them were of major concern to the Business in their day to day work experience in
U.G County.

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 CHAPTER TWO

LITERATURE REVIEW

2.1 Introduction to literature review.

This chapter discusses the literature related to the influence of loan provisions on Businessmen
productivity. It particularly focuses on the effect of loan provision on Business output, the effect
of interest charges on Business profits and the effect of loan repayment time frame on Business
productivity. These are considered the pillars of the study because the beneficiaries of the AFC
loan Business have the capability to produce more also the interest charges and loan repayment
time frame have an effect on Businessmen profits.

2.2.0 Previous studies done in the area.

Nothing much can be traced as to any researchers that have been done in AFC concerning the
influence of loans on Business productivity, though as a subject management of loans has been a
topical issue and substantial research papers are bound in our Colleges and Universities. Many of
our today’s newspaper. (The County Weekly, Monday July 18-Sunday 24,2011) in Narok County
where the V.P auctioned the ancestral land, which had been used as a surety by Joseph Murumbi
for an AFC loan some years ago.

2.3.0 Independent variables

2.3.1 Loan provision.

According to the money circuit theory, money is created endogenously by the banking sector
rather than exogenously by central bank lending, the AFC lends money to the Business so as to
boost the productivity of Business, this is achieved since with provision of loans, the financially
disabled Business can now farm independently, unlike cooperative farming. Independent farming
is highly encouraged because decision making is fast as there’s no consultation needed also the
profits are being enjoyed in whole by an individual. The higher profits are used by the farmer to
repay back the principal amount plus the interest charges and also a bit of it is used in improving
the living standards.

6
There are other institutions that lend money for example KWFT, Faulu Kenya and banking
sectors but Business prefer the loans from AFC than from the other institutions. This is so
because incase of an occurrence of a drought which causes destruction to the crop, the AFC
officers assesses the crops and extends the duration for loan repayment, this allows the farmer to
repay the loan next year unlike in the banking sector where the contract doesn’t consider natural
calamities.

During the 2007-2008 post election violence that caused a lot of losses suffered by the Business
as a result of their harvest being set into fire, the AFC loan beneficiaries were being considered
by the Government since they enjoyed extended loan repayment time frame and interest free
loans since they had to repay only the principal amount. These reasons add advantages on loans
received from AFC unlike other financial institutions. The AFC management team also should
ensure that the beneficiaries of the AFC loan must get an insurance cover for the loan which
must indemnify the Business incase of an occurrence of a loss. In many occasions, the Business
pay a risk insurance premium of 2% of the loan but the insurance company incase of a loss
doesn’t cover up the loss so as to indemnify the loanees. This can be clearly seen when the
loanees of the AFC after 2007 post election violence were only considered by extending the loan
repayment time frame but the insurance company didn’t indemnify them.

2.3.2 Interest charges.

The interest charges is the amount charged on principal amount over a period of time.

Different banking and non-banking institution have different interest rates. The non-banking
corporations for example AFC, Faulu Kenya and KWFT charges lower interest as compared with
the banking institution.

2.3.2.0 Table showing interest rates for various financial institutions

7
Financial institution Interest rates

AFC 14.0%

KWFT 14.2%

Faulu Kenya 14.5%

KCB 16%

Barclays 16.5%

According to the table above, it is clearly seen that AFC gives loans at the lowest interest rate
and Barclays gives the loan at the highest interest rate. This is a perfect illustration as to why
most Business prefer AFC loans than the other institutions.

The interest charges reduce the Businessmen profits hence the Business are very much concerned
with the lower interest rate charges so as to maximize their profits.

According to the “monetary circuit theory” the financial or lending institutions creates money
inform of interest charges charged on the principal amount.

2.3.3 Min/Max amount of loan given to Business

The AFC doesn’t have a specific amount of minimum or maximum amount of loan but it
depends on the value of the collateral the farmer presents. Mostly many Business give title deeds
as collateral. The AFC approximates the current value of the land and gives the farmer a
relatively lower amount of loan so as to ensure that the Business repay the loans. In U.G county
the AFC values one acre of land at Kshs 150,000 hence the farmer with 10 acres of land and has
provided a title deed of the same gets Kshs 1,500,000. This shows that the higher the value of the
collateral provided, then the higher the loan to be given and vice versa.

In any case where the loanee defaults to repay back the loan, then the AFC has powers to auction
the collateral so as to repay back the principal amount plus the interest charges.

According to the county weekly Monday July 18-Sunday 24, 2011.In Narok County where the
V.P auctioned the ancestral land. Joseph Murumbi had used it as a surety for an AFC loan some
years ago.

8
According to the beneficiaries of the loans, the AFC should give a rather huge amount of loans
so as to accelerate fast growth in the agricultural sector and allow for diversification so as to
minimize the risk, for example the Business argues that given greater amount of loans, they will
deal with both crop and livestock farming so as to minimize the loss incase one of them fails to
produce due to the harsh climatic conditions. The Business have various ambitions which will
minimize the losses for example some prefer green house and irrigation farming so as to curb the
harsh climatic conditions but the limiting factor is the lack of enough capital. The AFC should
accelerate the Businessmen productivity by increasing the amount of loans so as to enable them
to diversify their operations hence increasing the profits.

2.3.4 Time frame for repayment of the loan.

This is the duration in which the loanee has to pay back the principal amount and the interest
charges. The time period for repayment of the loan is very important to the Business. Different
farming practices for example livestock, crop and fish farming requires different loan repayment
time frame. For livestock Business, the time frame have to be not less than five years since
rearing a dairy cow takes a longer time, one year time frame should be for crop Business since
the crops are harvested annually. In cases of irrigational processes the time frame has to be
relatively longer since some irrigated crops for example fruits takes about 2-4 years to mature.
The green house Business should be considered mostly by extending the loan repayment time
frame since the project takes a longer time before the products are ready for sale.

The fish Business must be considered by the AFC by giving them a longer time frame since
starting fish farming is being encouraged mostly by the government hence the Business should
be considered by increasing the loan’s time frame. Due to the Government creation of fish
markets then the financially disabled fish Business should get the loans from AFC and carry on
their practices in large scale so as to maximize their profits which will lead to improved living
standards. The Kenyan government should be flexible in terms of loan repayment time frame
since in the incidence of drought and violence e.g post election violence which causes a lot of
destruction to crops in the fields, crop yields in stores and property. The government has to
extend the loan repayment time frame or pay back the loans for the Business. But in various
cases, we have seen the AFC auctioning the surety incase of default to meet the signed time
frame for repayment even though the farmer suffered loss due to drought or violences. In 2007
9
after the post election violence, the Kenyan government favoured the loanees, but the extended
time frame was rather short as it gave them an extended time frame of one year which was not
fair to many Business.

2.4. DEPENDENT VARIABLE

2.4.1 Business productivity.

The Businessmen productivity is the amount of output a farmer produces after some time
duration. The higher the productivity the higher the profit margin and vice versa. It is through the
output that the farmer repays back the principal amount and the interest charges on the loan
given. The net output is now termed as the Businessmen profit, which is used to improve the
living standards.

Productivity depends mostly on the size of the farm or the activity level and the diversification of
the activities. Business who planted 1000 acres have a higher productivity than a farmer planting
one acre of maize or wheat. This is due to the benefit of economies of scale. This is the reason
why the financially disabled Business are being encouraged to acquire loans so as to enjoy the
economies of scale.

Business diversification also increases productivity since incase of one activity out of various
activities fails or operates in a loss, then the farmer can still enjoy the profits from the other
operations due to the availability of AFC loans, the Government encourages the Business to
engage themselves in a large number of operations (diversification) so as to control the risk. The
Government encourages this by subsidizing the interest charges as compared with the banks
interest charges. The AFC’s interest rate is 14.0% (12.0% interest rate on the loan and 2.0% for
insurance policy). While the bank’s rate is 16%.

10
 CHAPTER THREE

RESEARCH DESIGN AND METHODOLOGY

3.1 Overview.
This chapter reviews the procedures which were adopted in the inquiry. Moreover it describes
the research area, research design, target population, sampling design and procedures, data
research instruments, data analysis and ethical considerations.

3.2 Research area.

This study targeted all AFC loan beneficiaries in U.G county totaling to 200 Business. The
sample size was derived at by using sampling techniques that ensures that each beneficiary got a
chance of participating in the study. (Mugenda & Mugenda, 1990)

3.3 Research Design

This research was explanatory and analytical in nature. The data was collected and information
generated from the target population using, questionnaires, observations and interviews. The
questions were approached from many angles with the aim of ensuring maximum cooperation
from the target population

3.4 Target Population.

Population means the total number of items in a specific field of inquiry for example the total
number of AFC loan beneficiaries in Uasin Gishu County.

The target population included 200 beneficiaries of AFC loans in U.G County. These Business
were reached using systematic sampling, this was done to ensure that each beneficiary have a fair
chance of being picked.

3.5 Sample Design

Sample is a representative group from the population on which investigations or inquiries are
performed. The results obtained are therefore used to generalize the entire population.

Since the total population was not very large it was possible to draw the samples easily using
systematic sampling techniques since the AFC credit manager provided a list of loan
11
beneficiaries hence systematic sampling techniques served a great purpose since each and every
loaned has same and equal chance of being drawn into the sample.

3.5.1 Questionnaire sample design.

A hundred questionnaires covering 50% of the total population of two hundred Business were
sent to gauge the response of the target population. The questionnaires were such that each cadre
of Business would have an equal chance of being included as the main population was being
sampled using systematic sampling technique. The questionnaires were used since the study was
concerned with variables that would not be directly observed e.g individual views and opinions
which varied from one to the other.

3.6 Data collection methods.

Data was collected by use of questionnaire that contained both open ended and closed questions.
Interviews were also be conducted. The questionnaires were posted to the AFC’s loanees in U.G
County. Secondary literature review was also done to supplement the primary data collected so
that the theoretical underpinnings were being compared with the empirical evidence.

3.6.1 Development of research instruments.

The researcher used questionnaires and interviews as the main tool for collecting data. The
selection of these tools was guided by the nature of data that was being collected, the time
available as well as by the objectives of the study. The overall aim of this study was to examine
the influence of AFC loan provisions on Businessmen productivity in U.G. The researcher was
mainly concerned with views, opinions and perceptions of beneficiaries on loan provisions such
data was only best collected by use of questionnaires and interview techniques.

Questionnaires were used since the study was concerned with variables that would not directly
observed such as views, opinions and perception of the respondents. The sample size was also
the ideal tool for collecting data. The target population was also largely literate and would thus
unlikely to have difficulties responding to questionnaire items.

3.7 Data analysis and presentation techniques.

The collected data was then analyzed by both quantitative and qualitative techniques.

12
The data was analyzed by use of tables, charts and other measures such as percentages and those
related to the measures of central tendency such as the mean, mode and median.

3.8 Assumptions and limitations.

The study was concentrated only on the Business in the U.G County, those who acquired AFC
loans and not other Business. Furthermore localization of this study to Business in U.G county
limited it’s generalizability to other Business in different regions in the country.

3.9 Validity and reliability of research instruments.

3.9.1. Validity
Validity refers to the extent to which a concept or measurement is well-founded and corresponds
accurately to the real world. Validity of a measurement tool is considered to be the degree to
which the tool measures what it claims to measure.

A pilot study was conducted among the sampled population. The purpose was to access the
worthiness of the instruments to generate correct data so that items that were discovered to be
inappropriate in answering the research questions and attaining the research objectives were
modified to improve the quality and the appropriateness of the instruments or were discarded.

3.9.2 Reliability.
Reliability refers to the consistency that an instrument demonstrate when applied repeatedly
under similar conditions (kerlinger, 1983). The reliability of the research instrument were
established by the research before analysis and consequent presentation. This was achieved by
comparing the pilot and the final data collected.

3.10. Ethical Considerations

These are principles under which the researcher bounded himself with in conducting his research
(Schulze,2002) in this study, the researcher followed the following research ethics.

13
3.10.1 Permission to conduct the research.
“In order to conduct at an institution approval for conducting the research will be obtained before
data is collected” (Mc Millan & Schumacher,1993). In this study ,the researcher first sought
permission from AFC Eldoret Branch before collecting data in the organization.

3.10.2 Informed consent

Participants were given enough information about the study before collection of data.
(schulze,2002). In this study, the participants were given adequate information on the aims of the
study, the procedures that were followed, the possible advantages for the participants, the
credibility of the research and the way in which the results were used. This enabled the
participants to make an informed decision on whether they would want to participate in the
research or not. There were no form of deception that was used so as to ensure that participants
would take part in the research.(De Vos etal,1999)

3.10.3 Confidentiality and anonymity.

A researcher was responsible at all times and was vigilant, mindful and sensitive to human
dignity (Gay, 1996). This is supported by Mc Millan and Schmacher (1997) who stressed that the
information on participants would be regarded as confidential unless otherwise agreed on
through informed consent.

In this study participant’s confidentialities would not be compromised, since their names were
not used in the collection of data, no private information was divulged as the right to
confidentiality of the participants was respected. (Huysamen, 1994) for this reason no concealed
media was used. Only the researcher had access to names and data to ensure the confidentiality
of the participants. The findings were therefore presented anonymously.

14
 CHAPTER FOUR.

4.0 DATA ANALYSIS AND PRESENTATION OF RESULTS.

4.1. OVERVIEW
This chapter reports on the data gathered from the respondents who took part in this research.
The data analyzed narrows down to the answering of the research questions in order to be able to
achieve the stated objectives. It deals with the background of the study, data analysis and
presentation procedure and the summary.

4.2.0 Background of the respondents.

This study was carried out in U.G county, the main reason of conducting the research was to find
out the influence of provision of AFC loans on Business productivity, the study focuses on
beneficiaries of AFC loans who were mainly Business, those who were practicing livestock
farming, Agriculture, crop farming and aquaculture (fish farming). The total AFC loan
beneficiaries according to AFC Eldoret branch credit manager were 200 Business who all of
them came from UG county. There were 42 women and 158 men which represented 21% women
and 79% men.

4.2.1 Gender distribution of the AFC loanees.

Gender Frequency Percentage

Male 158 79

Female 42 21

TOTAL 200 100

4.3 Data analysis and presentation procedure

After data was collected, the exercise of data analysis and editing was done so as to correct and
detect errors. Poorly filled questionnaires were eliminated from the final tally, frequencies and
percentages were used to analyze the obtained information which was then summarized and
presented using tables. Based on percentages, a summary was then made.

15
Table 4.4.1 AFC- Eldoret branch loan beneficiaries age distribution.

Age Frequency Percentage

18-29 24 12

30-50 104 52

51-70 60 30

70 and above 12 6

Totals 200 100

The largest number of the AFC loan beneficiaries lied between the ages of 30-50 years with a
total of 104 Business. This represented 52% followed by those in an age bracket of 51-70 years
and the number was 60 Business which represented 30% of the total 200 Business. From the
tabular information shows that out of the 200 beneficiaries in UG county 158 (79%) were male
and 42 (21%) were female. From the above figures it was clearly seen that in the issuance of
AFC loan in Eldoret, AFC branch, gender is not observed but other factors for example
provision of a collateral of which many women doesn’t possess title deeds hence can’t acquire
the loans easily as compared to those who possess the title deeds. This has resulted to lower
percentages of females and higher percentages of males who acquire the AFC loans.

The questionnaires sent were 100 in number and by the end of the dead line of their receipts 62
had been received which represented 62%. The delays were attributed to work prioritization
some AFC loan beneficiaries did not see the need to submit them in time hence they were
received when the researcher had finished the analysis. Some did not see the significance of such
questionnaires, some were shy to fill them, others thought that they were benefiting the

16
researcher hence there was no need to give them priority and some respondents were just
indifferent.

Table 4.4.3 Other activities done apart from farming.

The following were the responses received from the questionnaires and analyzed from them.

Number Percentage

Mechanic/welding 13 21

Office work 42 68

Shop vendors 7 11

Total 62 100

From the table above, majority of the respondents were working in various offices, that meant
that they were educated hence would give correct responses on the research questions which
were geared at finding out if the respondent had known the influence of provision of loans on
Business productivity.

Table 4.4.4 Frequency of acquiring the AFC loan:-

NUMBER %

Once 31 50

Twice 10 16

Three 15 24
17
More than once 6 10

Total 62 100

From the above table, 50% of the respondents acquired the AFC loan once. This confirmed the
equality amongst the Business according to the AFC policy which aims to uplift all the Business
without any bias.

4.4.5 Reason for applying for the AFC loans:-

According to the information displayed by the received questionnaires to the Business that
applied the AFC loans had an intention to enlarge their farm activity or to increase acreage since
the 62 received questionnaire displayed the intention of Business to increase the farm acreage as
a reason as the why they applied for the loan.

This information displayed that Business relied on increased farm acreage so as to enjoy more
profits due to the benefit of the economies of scale which is highly encouraged by the AFC
management through seminars ,newspapers and in the annual journals.

Table. 4.4.6 Business opinions as to interest rate charges

Opinion Number %

Favourable 50 81

Unfavourable 12 19

Total 62 100

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From the table above, 81 % of the respondents term the interest rate charges to be favourable
while 19% as unfavourable. The interest rate charges favours greater percentage of Business
since the government has subsidized the charges this has resulted to the lower rates as compared
to that of other financial institutions. Currently as the country experiences the harsh economic
conditions, several financial institutions have increased their interest rates for example KCB tops
with higher interest rates of 18 %, Barclays 17.5 % from 16 % and 16.5 % respectively. AFC has
maintained it’s 14 % interest rate and this is the reason why most respondents term it as
favourable.

4.4.7 Minimum /Max amount of loan.

The information generated from the questionnaire received from the respondents showed that all
the applicants of the loans were restricted on the amount of loan to be received. The AFC credit
manager assesses the value of the collateral provided by the Business then restricts the applicant.
For example if a farmer provided a title deed as the collateral, the credit manager assesses the
land value, if it is worth KSH 100,000, then the farmer can apply for KSH.50,000 for minimum
and 80,000 for maximum amount.

Table 4.4.8 Loan repayment time frame:-

Number %

One year 31 50

Two years 12 19

Five years 19 31

Over five years 0 0

19
Total 62 100

From the table above , 50 % of the respondents were given one year loan repayment frame , 19
% - two years, 31% - five years and 0% - over five years. The greater percentage of 50 % which
lied on those given one year, was because the Eldoret AFC branch dealt mostly with Business
who planted maize , wheat and beans which are harvested annually , hence the loans are
expected to be repaid annually. The other percentage of 31% which lied on the five years loan
repayment time frame was attributed to the dairy Business since the AFC advises the Business to
diversify their operations, they encourage this by prolonging the loan repayment time frame.

4.4.9 Factors considered before the issuance of the loan:-

According to the information received from the received questionnaires, all the 62 respondents
had indicated the provision of a collateral as the main factor considered before the issuance of
the AFC loan . This being linked with the lower turnover of women to be able to access the loan
due to the lack of title deeds which is being provided as a collateral. The AFC Credit Manager
terms the provision of a collateral as a main factor to be considered so as to curb the numerous
default cases since most loanees initially were failing to repay back the principal and the interest
charges and the AFC suffered a greater loss. Now henceforth according to the law, the A.F.C has
been given the authority to auction any collateral provided by the loanee incase of any default
arising. This has enabled the A.F.C to recover about 15million as from 1992 to 2010, according
to 2010 annual AFC journal, this is the major reason why the AFC credit manager puts the
provision of a collateral as a surety.

Table 4.4.9 where do Business sell their produce to?

Number %

Crop Business: private firms 24 39

i.e Dola .

20
Government firms. 19 30

Total (crop Business only) 43 69

Dairy Business : KCC 10 17

BROOKSIDE 7 11

ANY OTHER 2 3

Total (dairy Business only) 19 31

TOTAL 62 100

The table above displays that 69% of the respondents were crop Business and 31% were dairy
Business. The lower percentage representing dairy farming was attributed to lack of information
by a greater number of Business to diversify their operations since the strategy was introduced in
2009 after a drought that led to a greater loss suffered mostly by crop Business hence the loanees
couldn’t repay the loan in the year 2008. This forced the government of Kenya to waive all the
interest chargers and the AFC management team thought of securing the Business from risks
through diversification hence they carried out various educational programs to educate Business
on various ways of diversifying their operations and they encouraged them to venture in dairy
farming by extending the loan repayment time frame since the dairy cattle would take about four
to five years to grow and produce.

All the respondents both dairy and crop Business indicated that the AFC managers doesn’t take
back the loans (principal and interest) directly from the various firms where they sell their
produce but they are personally liable to repay the borrowed loan (principal and interest).

Table 4.4.10 how do you rate the management of A.F.C loans?

Number %

Relatively good 5 8

21
Good 37 60

Fair 20 32

Poor - -

Very poor - -

Total 62 100

From the above table, most of the respondents term the management of A.F.C loans to be good,
this is represented by the higher percentage of 60%. According to the credit manager in Eldoret
AFC branch, the management staff gives advises to Business about the management of the loan
and also the AFC Eldoret branch carries on the educational program about the loans in various
seminars so as to ensure that the Business in U.G county views agriculture as a business since
Agriculture is the backbone of the Kenyan economy. The above named programs has majorly
contributed to the good attitude the Business have displayed concerning the management of
A.F.C.

4.5 Summary
In brief, this chapter found out that there were more males than females which represented 79
and 21 percent respectively, that benefit from the AFC loans in UG County. The greater
difference of 58% (79-21 %) was due to the possession of title deeds by the males than the
women , the title deeds acted as a collateral and AFC Eldoret branch manager keenly observed
the presentation of it as a surety hence it was a key factor that was observed before the issuance
of the loan. The loanees were being restricted on the amount of the loan to be given were being
restricted on the amount of loan to be given and depended greatly on the value of the collateral
provided. The time frame for the loan repayment depended mostly on the Business activity
for the crop Business they were given one year and dairy Business were given five years. The
Businessmen productivity and profitability depended mostly on the total acreage such that
Business acquire the loans so as to increase the acreage of the land hence they enjoyed the
economies of scale. The A.F.C interest charges and management was termed to be favorable by
most respondents
22
23
 CHAPTER FIVE

SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1 OVERVIEW
This chapter deals with a number of issues such as the summary of major findings, answers to
research questions, conclusions recommendations and suggestions for further studies.

5.2 SUMMARY OF MAJOR FINDINGS

Arising from the research question put forward greater percentage of respondents lied in the age
bracket of 30-50 years which represented 52% of the total, the males seemed to dominate the list
of all the loanees with 79 % and 21 % represented females. The difference arose due to the
possession of the title deeds by male which acted as a collateral before one is issued with a loan.
The loan provision to the Business is termed generally to be fair since a greater number of the
respondents have acquired the loan once, this shows that AFC loan provision aims to benefit all
the Business in the country.

The interest rate charges of the AFC loans favoured greater number of respondents which was
represented by 81 % and those who were unflavored represented a small percentage of 29 %.

The min/Max amount of the AFC loan to be given depended mostly on the value of the
collateral provided by the loanee hence it was assessed to determine its worth and restrictions on
the amount of the loan to be awarded was given to the farmer.

The loan repayment time frame was based on the type of the activity the farmer does for
example crop Business were given one year and the dairy Business were given five years for
them to repay the loan. Incase of any difficulty or risks e.g. post election violence and drought
the AFC can extend the repayment time frame of the loan.

Finally the respondents displayed that the other financial institution for example Dola , Unga,
Brookside and KCC could not repay back the AFC loans directly but the Business themselves
were responsible and they paid their loans individually.

24
5.3 ANSWER TO RESEARCH QUESTIONS.
All the questions were positively answered, the management of AFC loans and its provision
favoured most Business. It was clearly seen that AFC loan managers targeted each and every
farmer, this was seen as most of the respondents had acquired the loans once. Most of the
respondents have found the AFC loan interest rate charges to be favourable, this was because of
the subsidized rate by the government hence they are the lowest with 14% as compared with
other financial institution. The loan repayment time frame favoured Most Business since it can
be extended incase of any risk accurance. The questions about the Min/Max amount of the AFC
loan was clearly answered since the value of the loan depended greatly on the value of the
collateral provided. Generally the management of AFC loans was rated by a greater percentage
of the respondents to be good.

5.4 CONLUSION
From the findings above, it was evident that a greater number of respondents were favoured by
the management of AFC loans since it’s provision targeted to benefit each and every farmer. The
AFC loans encouraged more Business to acquire the loans through their lower interest rate
charges, seminars and journals. The lower interest rate charges favoured most of the Business.
The Kenyan government also favoured the beneficiaries of the AFC loans by extending the loan
repayment timeframe incase of any occurrence of a risk that befall the Business for example
drought and Post election violence. The above few advantages have encouraged most Business
to acquire the AFC loans so as to increase the production level and benefit from the
economies of scale .

The provision of a collateral was the main factor that was considered before the AFC loans were
being awarded to the Business, this has reduced the default rate hence it is treated as a priority by
the loans manager in AFC Eldoret Branch.

25
5.5 RECOMMENDATIONS
The Kenyan government through the AFC should encourage the financially disabled Business by
lowering the interest rate charges and educating the Business through journals and seminars. The
above benefits have enabled the Business in U.G county to view Agriculture as a business
unlike in the past years whereby the Business did farming so as to fed their stomachs. AFC
Eldoret branch should encourage more women to acquire the loans since it was clearly seen that
a smaller percentage of women as compared with men have benefited from the AFC loans the
empowerment of females can only be done by the government as acting as a surety for the loans
acquired by the women since it was seen that the factor causing the gender imbalance is the
absence of title deeds by the women. The saying that “ empowering a woman is empowering
the family and the whole nation” can be achieved through the consideration of gender balance in
the awarding of the AFC loans.

Extension services for example A.I (Artificial insemination) and educational procedures should
also be provided by the AFC so as to boost the dairy Business production and to educate the
Business on the management of loans through diversification programs respectively.

The youth in the age bracket of 18-29 years should also be encouraged to participate in
Agriculture since they are stronger and can produce more given the starting capital, so the AFC
management should come up with several means of providing loans to the youth who have
attained the age of 18 years and even below.

5.6 SUGGESTION FOR FURTHER STUDIES

Since agribusiness depends on other government ministries for example Roads, Finance and
Health, the Kenya government through its research agencies should carry out a thorough research
on various ways to increase productivity for the Business for example research on various crop
and livestock pests and diseases and its control measures so as to control the negative impacts on
the Business production as a result of animal death and low crop production.

A through research should also be done on the influence of poor infrastructure for example poor
road network and lack of health facilities. The poor road network has been termed as the major

26
cause of losses in the tea, wheat and maize farms because during the rainy season the farm
produce can’t reach the processing industries hence greater loss is suffered by the Business due
to this delays . Also lack of health facilities in the rural areas have costed the Business a greater
amount of their profits in terms of travelling cost so as to access the health facilities

The Kenyan government should carry out an elicit research so as to find the solution for the
above problems affecting the Business profits.

27
 APPENDIX 1

REFERENCES:
Bennet Rogers (1990) Management. Pitman Publishing London 3rd Edition.

Berry (1966) How to write a research paper. Oxford pergamon press.

Fredrick W. Taylor (1911) Principles of Scientific Management, New York, Harper and Brothers.

Hardwick P. Khan B and Langmead J, An Introduction to modern Economics, Fourth Edition

(Essex: Heinemann, 1994)

Garreth, Joan F. (1995). Banks and Their Customers. Dobbs Ferry, N.Y: oceana publications.

Joseph I. Massie (2000) Essentials of Management. Prentice Hall, India.

Kothari, C.R (2003)Research Methodology (2nd Edition) New Delhi: Washwa Prakasham.

Livingstone I. and Ord H.W, Economics for Eastern Africa (Nairobi: Heinemann,1980)

Mugenda, D.M and Mugenda, A.G (1999) Research Methods: Quantitative and Qualitative
approaches. Nairobi Acts Press.

Sullivan, Arthur; Steven M. Sheffrin (2003).Economics: Principles in action. Upper saddle river,
New. Jersey 07458; pearson prentice Hall.

Wikipedia. The free encyclopedia.

28
 APPENDIX II
Questionnaire

Please choose the most suitable answers in the questions, where choices are given. For those
questions where answers are not given, feel free to answer them the way you like. The researcher
will be very grateful for the responses that the researcher expects to receive from you.

1. Your age bracket.

18-29

30-50

50-70

70 and above

2. Gender

Male

Female

3. Apart from farming, what other activity do you do?

………………………………………………………..

4 i) is this your first time you have acquired the AFC loan?

Yes

No

ii) If NO, how many other times have you benefited from the loan?

Twice

Thrice

29
 More than thrice

5 What forced you to apply for the AFC loans?

Lack of enough capital for farming.

So as to enlarge activity or to increase farm acreage

So as to diversify the operations for example to engage in apiculture.

6 Do you find the interest charges?

i) Favourable

ii) Unfavourable

7 i) Were you restricted in the minimum or maximum amount of the loan?

i) Yes

ii) No

ii) If YES, what was the restricted minimum and maximum amount of the loan to be given.

Ksh …………….. For minimum amount.

Ksh ……………….. For maximum amount.

8. What was the agreed time frame for repayment of the loan?

i) One year

ii) Two years

iii) Five years

iv) Over five years

9 What are the factors that need to be considered before the issuance of loan

30
 APPENDIX IV

COST BUDGET.

Cost (in Kshs)

S/ No Activity Shs Cts

1 stationery 1,800 00

2 printing 5,000 00

3 Internet browsing 3,000 00

4 photocopying 3,000 00

5 Telephone expenses 4,000 00

6 travelling 10,000 00

7 Facilitation and administration research 7,000 00

instruments

8 Report binding 2,000 00

9 contingency 12,000 00

TOTAL 47,800 00

31