SOCIO-ECONOMIC FACTORS AND ACCESS TO FINANCIAL SERVICES BY RICE FARMERS IN KENYA’S NATIONAL IRRIGATION SCHEMES: THE MODERATING ROLE OF FINANCIAL LITERACY

Abstract

Access to financial services is widely recognized as a vital driver of agricultural growth, poverty alleviation, and rural economic development. In Kenya, the agricultural sector plays a significant role in employment and national income; however, smallholder farmers—especially those involved in rice production within national irrigation schemes—continue to face persistent challenges in accessing financial support. Despite the growth of microfinance institutions, commercial banks, and government credit programs, many rice farmers remain excluded from formal financial systems due to demographic barriers, income fluctuation, lack of collateral, and limited access to financial information. This exclusion hampers productivity, investment, and resilience in the rice subsector, which is essential for national food security and rural livelihoods. In light of this, the study aimed to explore the socio-economic factors affecting access to financial services among rice farmers in Kenya’s national irrigation schemes. The study was guided by five objectives: to assess how demographic traits, income levels, farm characteristics, and access to information and networks influence financial access, and to investigate how financial literacy moderates these relationships. The research was based on Financial Inclusion Theory, Social Capital Theory, Asymmetric Information Theory, and Trade-Off Theory, which collectively shed light on the behavioral, social, structural, and economic factors influencing financial access. Grounded in a positivist philosophy, the study employed a descriptive and correlational research design involving 13,350 rice farmers across major irrigation schemes. A pilot test with 39 respondents at Perkerra Irrigation Scheme was conducted to evaluate the reliability and validity of the research tools. Data were collected using structured questionnaires and analyzed using descriptive statistics, correlations, and multiple regression. The results showed that all four socio-economic factors significantly affected access to financial services. Demographic characteristics had the most substantial impact (R² = 0.507, β = 0.224, p < 0.05), followed by income level (R² = 0.407, β = 0.398, p < 0.05), farm traits (R² = 0.192, β = 0.289, p < 0.05), and access to information and networks (R² = 0.052, β = 0.106, p < 0.05). Additionally, the study found that financial literacy significantly moderated these relationships, enhancing the overall influence of socio-economic factors on financial access. These findings confirm that farmers’ demographic profiles, income stability, farm productivity, and informational networks collectively determine their engagement with formal financial institutions. The study concluded that increasing financial inclusion among rice farmers requires a comprehensive strategy that addresses both individual and systemic barriers. Policymakers should develop gender-sensitive and youth-inclusive financial frameworks, support income stabilization through insurance and value-added initiatives, and invest in rural infrastructure and digital financial ecosystems. Financial institutions should create adaptable, farmer-friendly loan products and explore innovative collateral mechanisms suitable for smallholders. Development agencies are recommended to strengthen financial literacy and capacity-building programs to improve farmers’ financial decision-making skills. Future research should explore digital financial technologies and conduct comparative studies across agricultural value chains and regions to better understand the dynamics of financial inclusion in Kenya’s rural economy.