EFFECTS OF FINANCIAL RESOURCE MOBILIZATION OF AINABKOI RURAL
SAVINGS AND CREDIT CO-OPERATIVE SOCIETY LTD ON THE INCOME OF
SMALL SCALE DAIRY FARMERS IN AINABKOI DIVISION
1.1 Background of the study
Financial resource mobilization is one of the major determinants of growth in every sector of an
economy. Kenya is not an exception to this. Agriculture sector being the backbone of the Kenyan
economy plays a very important role in achieving the much needed economic growth.
Agriculture, mainly the dairy sector has been the mainstay for SSDF in the rural area. Dairy
farming if well managed generates good income for farmers and will enable them make savings
hence enhancing FRM. FRM in the rural areas can only be made possible through rural financial
institutions, one being the rural savings and credit co-operatives.
Economic wealth that is generated in exchange for an individual's performance of agreed upon
activities or through investing capital is said to be income according to Haig-Simons, (2013).
Income is consumed to fuel day-to-day expenditures. He went ahead to say that in businesses,
income can refer to a company's remaining revenues after all expenses and taxes have been paid.
Income is the consumption and savings opportunity gained by an entity within a specified
timeframe, which is generally expressed in monetary terms. Usage of the term "income" is very
far from uniformity and it is always ambiguous when used without proper definition. So, in this
study, income will be used to mean the amount generated from sales of dairy produce which in
our case is milk. It will be used to describe the relative price of a unit of milk sold upon
provision of the farmer with more capital to invest. It will also be used to denote the loans that
famers are given.
Financial resource mobilization refers to inputs used in the process, or activity of production, in
this study, it will mean the loans that the R SACCOs can give farmers in terms of funds. FRM
on the other hand refers to process of soliciting for resources to use in the process or activity of
production. A resource is not an end in itself; however, they play an important role in the
production process. This means that all the loans that the R SACCOs can give to farmers to
improve their dairy animals and hence their production and income from sale of milk. Through
FRM, SSDF get the resources which can be used as part of capital that they will invest in their
dairy business. The capital accumulation will eventually lead to investments hence improve
income generation. Chrystal, (2005).
Dairy exports in developed countries have increased in value by 43% between 1998 and 2001.
Informal market traders handle over 80% of milk consumed in developing countries. Two thirds
of total world milk is produced by Brazil, India, Pakistan, Poland, Russian Federation, USA, and
15 EU member states. Developing countries produce one third of total world milk production in
2000 (216 million metric tones) and it is increasing. Various animals including buffalos, cows,
camel, sheep and goats produce milk. Total world milk production is dominated by cow’s milk
followed by buffalo, goat and sheep in small scale dairy. Most of developed countries like the
United States, New Zealand and Britain produce milk in large scale. Most of the farmers in these
countries practice large scale dairy farming, (Mwankemwa 2004). In this countries SSDF are
assisted by SACCOs to mobilize resources to enhance the viability of their dairy farming.
The livestock sector plays a vital role in the economies of many developing countries. It
provides food or more specifically animal protein in human diets, income, employment and
possibly foreign exchange. For low-income producers, livestock also serves as a store of wealth;
provide draught power, and organic fertilizer for crop production as well as means of transport.
Milk provides relatively quick returns for small-scale livestock keepers. It is a balanced
nutritious food and is a key element in household food security. Smallholders produce the vast
majority of milk in developing countries where demand is expected to increase by 25% by 2025,
(Mwankemwa 2004). However most of the dairy farmers in Sub-Saharan Africa face severe
constant drought, the most notable of the drought is the one that was experience in Zambia 1980
where over 2 million cattle were lost and many herdsmen were left with nothing on their
cowsheds. (Chapoto, 2011)
The dairy sector currently accounts for eight percent (8%) of Kenya’s GDP. With 1.5 million
smallholder farmers producing milk, dairy has the potential to greatly contribute to economic
growth and job creation. With technical assistance provided by USAID, Kenya’s financial
institutions are gradually starting to lend into the sector, supporting needs of farmers and
entrepreneurs once excluded from commercial finance. However poor performances have been
recorded in the industry, Katwa, (2009). In addressing the problem of poor productivity and lack
of capital by small scale dairy farmers, the government of Kenya has been encouraging farmers
to start Savings and Credit Co-operative Societies (SACCOs), encouraging financial institutions
offering micro-credits to farmers under less tough conditions (i.e group lending schemes).
Therefore, SACCOs, one of the several types of co-operatives are unique, legal, member-based
Financial Institutions (FIs) and unlike many other Micro-Finance Institutions, SACCO owners
are also the users of the service that the SACCOs offer. The SACCOs have gained popularity as
accelerators of development in the entire country and they cut across all sectors of the Kenyan
economy, (Koech et al 2009).
1.2 Statement of the problem
In an ideal situation, SSDF ought to be a highly profitable industry, studies by Coelli, (2005)
indicated that SSDF use relatively lower costs of production as compared to LSDF; hence they
have a bigger profit margin. In a LSDF, feeds, machines and labor are acquired and maintained.
On the other hand, SSDF grows most of the foodstuff used to feed the dairy animals, they do not
require a manager because they manage the farm themselves and lastly, they provide most of the
manual labor on their own. According to the profitability analysis conducted by, Mubi (2013),
every SSDF has to rise to a LSDF within a period of ten to fifteen years. Analysis of dairy
enterprise gross margins shows dairy production is not a walk in the park. The profits in dairying
are derived from sales of milk and of stock. Stock may be heifers or bulls/steers and cull cows.
For this reason, SSDF should have enough of income to sustain their families and save for
further investment on growth of their business.
However, this has never been the case; (Coelli, 2005) notes that SSDF is more competitive and a
powerful tool for reducing poverty, raising nutrition levels and improving the livelihoods of rural
people in many developing countries. Rising milk demand, which is growing by about 15 million
tons per year in developing countries, provides a chance for SSDF to raise their milk production,
increase the nutritional status of their households and create jobs. The dairy sector in Kenya
contributes 14 percent of agricultural Gross Domestic Product (GDP) and 4 percent of overall
GDP, and is growing by 5 percent or more each year. F During the periods of drought, scrawny-
looking cattle and other livestock pick over the dry scrub at the roadsides in search of food, at
this time milk production is at its lowest ebb. Milk production plummets along with harvests and
start of rains. For many SSDF during draught milk production is as lean as their cattle. In many
parts of rural Kenya farmers habitually graze their cattle along the roadsides. But in order to
increase milk production they need better fed animals. Concentrates and other commercial feeds
should be used instead of roadside grazing, but these famers lack the capacity to provide for the
same for lack of adequate finance.
The Dairy Sector Competitiveness Program has worked with the Government of Kenya to help
produce a National Dairy Master Plan, which sets a target of 7 percent annual rate of growth in
the sector especially in dry areas such as the Western and Rift Valley Provinces. They are
working to ensured that almost every corner of this country has at least one R SACCO. However
we cannot tell to what extent the R SACCOs are instrumental to its members in FRM. This is
because improved credit access by individual SSDF will lead to capital accumulation,
investment, hence improved milk production and higher per capita income among the SSDF and
households. Therefore, the study is intended to assess whether AR SACCO has had any effect as
a result of FRM from SSDF in AD, (Coelli, 2005).
1.3 Purpose of the study.
The purpose of the study was to establish the effects of FRM by AR SACCO, on productivity of
dairy farming in AD. The study focused on how FRM can help in improving the amount of
income the farmer may realize in form of profits.
1.4 Research objectives
The following were the objectives that the study sought to establish by the end of the research.
1. To determine the effects of personal savings of SSDF on FRM by AR SACCO in AD.
2. To find out the effects of default rates of SSDF on FRM by AR SACCO in AD.
3. To assess the effects of guarantors of SSDF on FRM by AR SACCO in AD.
4. To evaluate the effects of membership of SSDF on FRM by AR SACCO in AD.
1.5 Research Questions
The research questions to be answered were as follows;
1. To what extent personal savings in AR SACCO, affect FRM for SSDF in AD.
2. To what extent default rates of SSDF affect FRM by AR SACCO in AD.
3. Extent to which guarantors of SSDF affect FRM by AR SACCO in AD.
4. To what extent membership of SSDF affect FRM by AR SACCO in AD.
1.6 Significance of the Study.
This study was important to the SSDF of AD because they will use the information gathered to
establish the importance of joining R SACCOs, and accessing credit facilities in the R SACCOs.
It also shades light to them on how membership and loans from R SACCOs will help them
improve on the income from their small scale dairy farms.
It was particularly important to AR SACCO on dairy farmer’s funds mobilization. Although
some effort has been put into understanding of Kenya’s funds mobilization Kabatalya, (2005),
none has particularly focused on membership of small scale dairy farmers to AR SACCO. For
this reason, the study was particularly important to the organization since it assisted in
understanding the need to mobilize resources for the SSDF. The study was especially significant
to the government of Kenya because it added onto scanty information about funds mobilization
particularly by R SACCOs. The study was also significant at this time because there is a strong
push by the government through Vision 2030 on the economic pillar to deliver financial services
through community based and locally owned organizations. A key objective is to support
communities to establish a nationwide infrastructure of R SACCOs to enable communities to
access financial services, like savings, credit, money transfers and so forth. Hence the study
guided policy makers in particular and the government in general to spearhead the formation,
restructuring, strengthening and development of R SACCOs from an informed view point. It
also inspired other scholars to undertake a study on funds mobilization on other financial
institutions such as commercial banks, SACCOs and MFIs particularly on how such mobilization
of funds can contribute to income generation by an individual.
1.7 Basic assumptions
In the study, it was assumed that AR SACCO facilitates financial resource mobilization to its
members by offering credit facilities to members. This was held and it facilitated the study in the
region.
It was also assumed that the farmers keep records of their dairy farm produce and that they were
willing to share the information with the researcher because this is where the past performance in
the industry was derived from. This was so, as it was observed that most of the farmers provided
records for the study.
It was also assumed that the members of AR SACCO were willing to fill questionnaires during
the study. This was to ease the process of obtaining the information. This was so as the members
filled the questionnaires as expected.
1.8 Limitation of the study
There were several limitations that were expected, to begin with was the accessibility of the area.
The roads leading to Ainabkoi division were largely muddy and are impassable during the rainy
season. The researcher therefore planned and did the data collection during the dry period.
The area of study had rough terrain and poor roads and there the researcher used the appropriate
vehicle when touring the place to avoid unnecessary in convinces.
Access to information was another major challenge since computer services and libraries were
far away from the area of study and a lot of time was spent in collecting data. The researcher had
to carry a laptop and a modem to use whenever it was necessary or there was need to research on
anything in the secondary data.
1.9 Delimitation of the study.
This study was limited to;
Farmers having not more than ten dairy cattle who fall under the category of small scale dairy
farmers .the study was also delimited to registered members of Ainabkoi Rural SACCO; these
are the legally registered members of the SACCO who by the time of the research, had fully
completed the registration requirements and are also residents of Ainabkoi division only were
studied; those people who reside within the boundaries of the division were considered as
residence of the division
1.11 Definition of significant terms
Dairy farmers is used in this research to mean targeted population that
is producing milk as a means of living
Effects is used in this research to mean changes expected in Ainabkoi
division as a result of improved financial resource mobilization
Members are used in this research to mean share holders and those who have
completed membership fees payment into the rural SACCO.
Funds mobilization is used in this research to mean those strategies that are treasured
in saving for development and future consumption.(High marginal
propensity to save).
Saving amount that is generated today and set aside so that it will be
consumed in future.
Rural SACCO Financial services provider- type of a co-operative institution
in the rural area.
REFERENCES.
Adedayo, (2005). ‘Dairy Sub-sector in Zambia: How can it be productive?’ Times of Zambia
29th July. Accessed on 14th March
Adera, 2005) . Assessing Community Health Programs: Participant's Manual And
Workbook.Uk: Teaching Aids At Low Cost. Journals And Publications
Ajibade, (2002). .A history Of The Uganda Cooperative Movement 1913-1988.Kampala:Uganda
Cooperative Alliance Ltd.
Bandiera, (2006). Integrated Development in Uganda: Kampala: Desk Top Publishing Division
Africa Development Series No.2 Vol .1.
Chambers, (2003) Adoption of innovations and best management practices among dairy farmers
in the Eastern Mediterranean region of Turkey’, Journal of Animal and Veterinary
Advances10(2):
Chamwada, (2012). Kampala: Uganda Institute of Saccosers.Vol.2.Issue 1, March.
Chapoto, (2011) How Joint Farming may solve Contradictions between Technological Level
and Farm structure in Norwegian Dairy Production’
Chrystal, (2005). Apractical Guide for undergraduate and postgraduate students. London:
Macmillan Press Ltd.
Coelli, (2005). ‘Social Networks and Technology Adoption in Northern Mozambique’, The
Economic Journal 116(514): 869-902.
De Soto, 2009. Central Statistics Office, (2006) Living Conditions Monitoring Survey. Lusaka,
Zambia: CSO.
Dwivedi (2006) Analysis of Variance Interpretation The social construction of analytical
systems: New directions in the analysis and research technology : 83-103.
FAO, (2010). ‘The Social Construction of Technological Systems: New Directions in the
Sociology and History of Technology’, MIT Press, Cambridge, MA.
Francis, (2010) , New Research methodology techniques Desk Top Publishing Division Africa
Development Series No.2 Vol .1.
Friedman, (2007). .Mobilising Household savings through Rural Financial markets. Ohio state
University: University of Chicago Press.
Haig-Simons, (2013). .Basic Econometrics 4thEdition.NewDelhi: Tata McGraw Hill.
Henry Simons. (2007) .Applying international best practices to South Africa's SACCOs:
Holmes, (2001). ‘An Analysis of Smallholder Farmers’ Willingness to Adopt Dairy Performance
Recording in Malawi’, Livestock Research for Rural Development 18(5).
IADP, (2007) Human Development through Credit Unions: Guide for Credit Union Promoters.
Nairobi, Kenya. Acosca.
Ijere, (1992). ‘The Social Construction of Technology: Structural Considerations’, Science,
Technology & Human Values 27(1): 28-52.
KARI, (2011). ‘Farmers’ Stepwise Adoption of Technological Packages: Evidence from the
Kenyan Cooperatives’, Cooperative Journal of Agricultural Economics: 519-527.
Katwa, (2009) ‘Dynamic Pathways into and out of Poverty: A case of Smallholder Farmers in
Kenya’, FSRP Working Paper No. 56
Ketty, (2011).Supporting Smes Development &The Role Of Micro Finance In Africa
Kothari, (2004) Sample Research Design and method s Research Teaching Aids At Low Cost.
Journals And Publications Nairobi University press 2001
Kupoluyi (2003), ‘Factors Affecting Adoption of Improved Maize Seeds and use of Inorganic
Fertilizer for Maize Production in the Intermediate and Lowland Zones of Tanzania’,
Journal of Agricultural and Applied Economics 32(1): 35-48.
Kyamulesire, (2008). ‘Milking the Region? South African Capital and Zambia’s Dairy Industry’,
African Sociological Review 12(2): 55-66
Mauri (2008), Micro-Finance Hand Book: An Institutional and Financial Perspective.
Washington D.C, World Saccos.
Mbugua, (2009). ‘Society in the Making: The Study of Technology as a Tool for Sociological
Analysis’, The social construction of technological systems: New directions in the
sociology and history of technology : 83-103.
Msemakweli, L., (2004). ‘Future of Livestock Industries in East and Southern Africa’,
proceedings of the Workshop Held at Soysambu Ranch, Kenya, 20-23 July
1992.International Livestock Centre for Africa (ILCA), Kenya
Mshaweji, (2012).Uganda Cooperative Alliance Today. Kampala:Uca/Crfs Unit
Mubi (2013), ‘Smallholder Dairy Systems in the Kenya Highlands: Cattle Population Dynamics
Under Increasing Intensification’, Livestock Production Science 82(2-3): 211-221.
Mugenda and Mugenda, (2003), Research and methodology Kenya Agricultural Research
Institute Accessed 12th April 2004 Kenyatta University Press. Nairobi NBI 122/11
Musinguzi,( 2000). The New Approach To Cooperative Development. Kampala: Uca/Crfs Unit.
Mwangi (2000). Savings habits, Needs and Priorities in Rural Kenya Usa: Usaid.
Mwangi, (2000). The East African Capital Markets Journal April 25, 2005.
Mwankemwa 2004). Cooperatives: Past, Present and Future. Kampala: Uganda Cooperative
Alliance Ltd. References
Mwesigye, R.Mwesigye, F., 2003.Cooperatives Take off in Ntungamo District. The New Vision,
Vol.18 No.50.
Ntungamo District Ngo Forum. , 1997.Directory Of Civil Society Organisation In Ntungamo
District.
Nurkse, 2003),An Introduction To Positive Economics, 8th Edition. Oxford: Oxford University
Press.
Ofuoku et al., (2009)‘The increasing Importance of Quality Assurance to Smallholder Dairy
Farmers in East and West Africa:
Olatona, (2007) ‘Agricultural Technology Adoption and Poverty reduction: A propensity score
matching analysis for rural Bangladesh’, Food Policy 32 : 372-393, Elsevier
Olawepo, (2003). ‘Adoption of dairy technologies: Lessons learnt from Case Study in Western
Kenya’, Kenya Agricultural Research Institute Accessed 12th April 2011
Olayemi, (2001) Personal Finance, USA: Irwin Homewood.
Orodho (2004) Correlation, coding and sample design techniques Increasing Intensification’
analysis and research Science 82(2-3): 211-221.
Patton (2011) research design and their methodology US statistical Research Institute Accessed
12th April 2011 Nevada USA. Published dissertation, South Africa: De Mont fort
University.
Ramesh, (2010) ‘Demythologizing Planned Intervention: An Actor Perspective’, Sociologia
Ruralis 29(3‐4): 226-249.
Shanner, (2012);‘Understanding Technology Pathways among Vegetable Farmers: A Theoretical
Framework and Research Agenda’, The World Vegetable Centre
Speed, (2010). A mannual on Credit and Savings For The Poor of Developing Countries:
Developing Guidelines N0.1.Uk.Oxfam. A Report On Status Of Rural Savings And
Credit Cooperatives In Kenya, 1998. International Cooperative Alliance.
The Micro Finance Saccoser, 2001. Kampala: Uganda Institute of Saccosers.Vol.1.Issue 3,
December.
The Micro Finance Saccoser, 2003. Kampala: Uganda Institute of Saccosers.Vol.3.Issue 1,
March.
