Factors Influencing the Use of Property Titles as Security for Lending in Rural Kenya: A Case Study of Kivani Location, Machakos County

Abstract

The development of the world's economies, especially in emerging countries, depends significantly on land. Despite being a crucial tool for obtaining loans, the use of land as collateral is relatively low in rural Kenya. This has largely been attributed to lack of formal ownership documents attributable to poor titling, which has subsequently hindered investments and development in these areas. The research gap, therefore, lies in the need to understand and address the reasons behind the low uptake of land as collateral in rural Kenya, despite its potential as a valuable asset and its significant role in rural livelihoods and development. This study set out to establish factors influencing the use of property titles as loan security in a rural setting using Machakos County as a case study. Employing a descriptive research design, the study targeted 724 households in Kivani and 30 financial institution officers. Data was collected using questionnaires and topical discussions, achieving response rates of 96% and 100%, respectively. Findings reveal that 67 percent of respondents have never used land titles as collateral. Several factors were identified: social relations, lending conditions, and loan pricing. Social relations factors included communal land ownership, land succession problems, cultural norms, and sentimental attachment to land. Lending conditions encompassed land valuation processes, borrower creditworthiness requirements, collateral quality, and the need for family consent. Loan pricing factors involve the costs and fees associated with credit financing. The study recommends increasing awareness of individual land ownership, exploring alternative collateral options, establishing insurance markets for collateral assets, and improving loan evaluation processes to better support rural residents. These measures aim to enhance access to financing, thereby promoting rural development