Financial institutions and farming systems characterisation in the southern province (Amajyepfo) of Rwanda

One of most prominent interventions that governments world over and especially in Africa have adopted is the enhancement of agricultural finance systems, the provision of agricultural credit to farmers, and creation of policy environments that promote the smooth operation of financial institutions, with an aim of increasing access to credit among smallholder farmers. The crosscutting aspect among all the de-risking ventures is that for their effective implementation, the intended beneficiaries and the finance institutions have to be profiled (characterized). This is because financial institutions’ and farming systems of smallholder farmers are heterogeneous. Nonrecognition of that heterogeneity by governments when coming up with policies for agriculture derisking and hence development has often resulted into the ineffectiveness of such policies. Farming systems have to be characterized, in order to maximize the impact and/or effect of any value chain de-risking interventions in the agricultural sector, which are meant to improve productivity. Given that most interventions are finance related, finance institution characterization’s consequently become paramount as well. This study was done with an aim of characterizing finance institutions and farming systems in the southern province of Rwanda. A multistage sampling procedure was used, in which sampling was done for the at district level (Stage 1), sector level (Stage 2), cell level (stage 3), village level (stage 4) and household level (stage 5). The study used structured interviews to collect the data from the sampled smallholder farmers. Characterization of specifically farming systems was done using the analytical methods; principal component analysis (PCA) and cluster analysis (CA). Institutional characterization was done descriptively. Partitioning of the dendogram resulted into five clusters which were taken as most representative of farm households in the southern province. What makes cluster I (27% of households) different from other farm household clusters in Southern province is its discriminative power based on household farm labor, farm household in this cluster use hired labor as opposed to family labor on their farms. Cluster II (14%) consists of households that use chemical inputs on their farms, practice crop rotation, and more of terrace agriculture. Cluster III (29% of the farm households) differs mainly by the nature of chemical inputs they use on the farm, with most using organic fertilizer. The majority of them however own the pieces of land they use, are male and use hired labor. Cluster IV (19%) consists of more female headed households, with small farm land sizes, usually practice monocropping, and rely more on family labor on the farm. Cluster V (21% of farm households) consists of farm household with large land sizes, have very small household sizes, little use biological in puts, and little use of terrace cultivation. Farming systems in the southern province are highly heterogeneous, and thus any future de-risking interventions that are especially monetary have to take that heterogeneity into consideration. Due to possibly low access to credit, majority of the farm households in the southern One of most prominent interventions that governments world over and especially in Africa have adopted is the enhancement of agricultural finance systems, the provision of agricultural credit to farmers, and creation of policy environments that promote the smooth operation of financial institutions, with an aim of increasing access to credit among smallholder farmers. The crosscutting aspect among all the de-risking ventures is that for their effective implementation, the intended beneficiaries and the finance institutions have to be profiled (characterized). This is because financial institutions’ and farming systems of smallholder farmers are heterogeneous. Nonrecognition of that heterogeneity by governments when coming up with policies for agriculture derisking and hence development has often resulted into the ineffectiveness of such policies. Farming systems have to be characterized, in order to maximize the impact and/or effect of any value chain de-risking interventions in the agricultural sector, which are meant to improve productivity. Given that most interventions are finance related, finance institution characterization’s consequently become paramount as well. This study was done with an aim of characterizing finance institutions and farming systems in the southern province of Rwanda. A multistage sampling procedure was used, in which sampling was done for the at district level (Stage 1), sector level (Stage 2), cell level (stage 3), village level (stage 4) and household level (stage 5). The study used structured interviews to collect the data from the sampled smallholder farmers. Characterization of specifically farming systems was done using the analytical methods; principal component analysis (PCA) and cluster analysis (CA). Institutional characterization was done descriptively. Partitioning of the dendogram resulted into five clusters which were taken as most representative of farm households in the southern province. What makes cluster I (27% of households) different from other farm household clusters in Southern province is its discriminative power based on household farm labor, farm household in this cluster use hired labor as opposed to family labor on their farms. Cluster II (14%) consists of households that use chemical inputs on their farms, practice crop rotation, and more of terrace agriculture. Cluster III (29% of the farm households) differs mainly by the nature of chemical inputs they use on the farm, with most using organic fertilizer. The majority of them however own the pieces of land they use, are male and use hired labor. Cluster IV (19%) consists of more female headed households, with small farm land sizes, usually practice monocropping, and rely more on family labor on the farm. Cluster V (21% of farm households) consists of farm household with large land sizes, have very small household sizes, little use biological in puts, and little use of terrace cultivation. Farming systems in the southern province are highly heterogeneous, and thus any future de-risking interventions that are especially monetary have to take that heterogeneity into consideration. Due to possibly low access to credit, majority of the farm households in the southern province are not using modern farming systems, and use few inputs on their farms, yet they could possibly do more on their farms since many own the farm lands they cultivate. Government finance institutions which could offer easier access to credit for those farmers are spread thin in the province, yet the widely spread privately owned ones require collateral in the form of land titles that some do not own, although the interest rates are seemingly low.