Determine the impact of forward integration credit risk mitigation mechanisms on profit of agribusiness in Nyanza region Kenya

Commercial Banks apply Forward Integration Credit Risk Mitigation Mechanisms (FICRMMs) to promote credit access, security and productivity for various sectors. Credits make a significant portion in business’ capital structure and performance; and are notably the main business product for the Commercial Banks. The agribusiness sector contributes 53% employment in developing countries, and over 80% in Kenya, while commercial banks’ credits to the sector has registered decreasing trends between 2005 and 2014; ranging from 6.8% to 3.9% of the entire commercial banks credit portfolio. Whereas the agribusiness sector has immense investment potential as credit demand hub, the decreasing investment to the sector requires attention. This paper seeks to determine the effect of the Forward Integration Credit Risk Mitigation Mechanisms (FICRMMs) on profits, return on equity and capital growth of the agribusiness entrepreneurs in the Nyanza region. Using Ordinary Least Square (OLS) Single period Regression analysis, the study results established an R2 of 0.439 to profit, 0.571 for return on equity, 0.531 to capital growth, implying that FICRMMs account for 44% of profits, 57% of ROE and 53% of capital growth, all significant at p<0.05. The lagged VAR results provides R2 of 0.735 for profit, 0.813 for return on equity and 0.651 for capital growth; all significant at p<0.05, revealing that over time, the explained variable is affected by its own lagged evolution and the lags of other endogenous variables, thereby accounting for 73.5% of profits, 81.3% of ROE and 65.1% of capital growth. Hence H0(1-5): r=0 are rejected and H1(1-5): r≠0 are accepted. In conclusion, FICRMMs are significant for agribusiness performance both at single and lagged period, although credits to the sector are low. It is recommended that sensitivity analysis of the variables be done, establish implementation level of FICRMMs, improve information system, and restructure the mitigation parameters. These results may help in