Influence of Collateral Requirements on Financial Performance of Cut Flower Farms in Meru County, Kenya
DOI:
https://doi.org/10.70619/vol6iss8pp18-30-926Keywords:
Collateral requirements, financial performance, cut flower farms, agricultural credit, credit rationing, Meru County, Kenya.Abstract
Cut-flower farms require substantial, continuous financing to sustain production, maintain export-quality standards, and achieve satisfactory financial performance. However, access to formal credit may be constrained when financial institutions impose stringent collateral requirements, conservative asset valuations, and limited acceptance of agricultural and movable assets. This study assessed the influence of collateral requirements on the financial performance of cut-flower farms in Meru County, Kenya. The study was anchored on Credit Rationing Theory. A quantitative approach and descriptive-correlational research design were adopted. The target population comprised 120 managerial and finance-related employees drawn from 20 cut-flower farms within the Timau floriculture cluster. A census approach was employed, and 90 usable questionnaires were returned, representing a response rate of 75.0%. Primary data were collected using a structured questionnaire, while financial and production records provided supplementary information. The reliability coefficient for collateral requirements was .758, while the overall Kaiser–Meyer–Olkin measure was .781 and Bartlett's test of sphericity was statistically significant. Data were analysed using descriptive statistics, Pearson Product Moment Correlation and simple linear regression. Collateral requirements had an aggregate mean of 3.50 (SD = .862), indicating moderately manageable conditions. Collateral requirements had a positive and statistically significant relationship with financial performance (r = .636, p < .001) and explained 40.4% of its variation (R² = .404). The regression coefficient was positive and significant (B = .603, β = .636, t = 7.725, p < .001), resulting in rejection of the null hypothesis. The study concluded that manageable collateral values, suitable collateral types, realistic asset valuation, timely verification and acceptance of flexible forms of security strengthened the financial performance of cut flower farms. Financial institutions should broaden the range of acceptable collateral to include productive agricultural and movable assets and adopt transparent valuation procedures suited to commercial floriculture.
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