Impact of Microfinance Services on Small Scale Farmers ' Welfare in Rwanda: A Case Study of Nyamagabe District

Abstract

Microfinance services accessibility has been seen as strategy for breaking the vicious cycle of poverty in the rural areas of developing countries, particularly in Sub-Saharan Africa. This study analyzed the impact of microfinance services on small scale farmers’ welfare in Nyamagabe District, Rwanda. The primary data were collected from a stratified multistage sample of 240 households located in three sectors of Nyamagabe District, namely Gasaka, Kibirizi and Tare. Data were collected using structured questionnaires that were administered to the sample of households’ heads via person-interviews. Both groups shared the same socio-economic and physiographic environment and hence assumed to have similar economic status before participating in microfinance services. Analysis of data was carried out using descriptive statistics and Probit Model. A probit regression model is used to examine the factors influencing participation among small scale farmer’s beneficiaries of microfinance. The results from descriptive statistics show that 48 percent of the household heads had participated in microfinance services while 52 percent of the household heads had not participated in microfinance institutions. The results from Probit analysis revealed that age, household size, main occupation, distance, annual interest rate, and saving had a significant impact on welfare of small scale farmers’ participating in microfinance services. The study concludes that microfinance institutions have enhanced the living standard of small scale farmers in Rwanda. The study recommends that the extension of credits or financial services to small scale farmers is seen as an effective strategy to increase income and agricultural productivity.