Financing options for Kenya's smallholder farmers

Few years ago, banks and other financial institutions would never have touched agriculture in their financing considering it a high risk sector. But a growing number of farmers investing in new age and mechanized agriculture and new impressive profit margins from the sector has seen the financial institutions scrambling to get the farmer's attention with farmer tailored financial institutions.

This has increased uptake of agriculture among young people who have invested in greenhouses and modern irrigation techniques.

Maize, wheat or rice farming is a risky affair, what with the unpredictable weather, spiraling cost of input and fluctuating producer prices.

Unlike dairy farming, cereals and other crops are affected more easily by weather changes, which increase their cost of production and farmers' uncertainty over their investment.

Yet even with the risks involved, several banks and financial institutions have ventured into cereal growing through financing and insuring the crop from perpetual risks.
Through a loan facility known as Nafaka Product, Faulu Kenya provides funds to cereal farmers across the country, mitigating the anticipated losses during the production. The institution also finances tomatoes and potatoes.

The funding ranges between Sh3,000 and Sh300,000 for first time farmers. The loan takes all aspects of production from buying of seeds to planting, spraying and harvesting.
Repayment period is between six and eight months depending on region. To mitigate risks, the loan has a two percent insurance rate from APA Insurance company.
In response to rapid growth in dairy farming, financial institutions have invested in the whole value chain from production, processing and marketing.
Faulu Kenya's Ufugaji Bora scheme gives loans of upto Sh200,000 repayable in 18 months.

Family Bank, like Faulu Kenya, also has a loan facility for dairy farmers.  At Family bank, farmers interested in financial help from the bank must be members of an organized marketing channel like a sacco or companies like New Kenya Cooperative Creameries (KCC)M Brookside or Buzeka. Milk is delivered through the agent and money delivered through the bank accounts.

A farmer can access a minimum loan of Sh5,000 and a maximum of Sh5million with a repayment period of 24 months for Sh250,000 and below and 48months for between Sh250,000 and Sh500,000. Anything above this clears in six months.

From Cooperative Bank of Kenya, Maziwa Loan is available to individual farmers, Saccos and their members who deliver milk to the new KCC.
The loan can be used to purchase farm inputs, farm machinery and related investments intended to enhance productivity in the dairy industry.
For tea farmers, KCB offers mavuno loan. This is a personal loan scheme for the small scale farmer. The loan is tailored to suit the farmer's tea bonus payments and life assurance cover.

To qualify, one should have maintained an account with the bank for the last three months and provide evidence of having delivered tea to a factory.
The amount borrowed can be upto 70 percent of the value of tea deliveries. Top up loans are also available.

Chase bank has a series of loan facilities tailored towards different farmers. Mkulima Booster facility is designed for small scale mixed farmers; with a low minimum amount to borrow at low interest rates who can borrow up to Sh1million with competitive rates.
Mkulima hodari is geared towardsd large scale farmers with a minimum borrowing of Sh1million. The farmer also get a dedicated Loan Officer to guide them through the period their your facility.

CFC stanbic bank has an Agricultural Production Loan, a short-term credit suitable for grain farmers that allows them to pay for agricultural input costs. Loans are provided to individual farmers, groups and legal entities in the agricultural sector, including commercial farmers and agri-businesses.

Though government says there has been heightened interest by financing institutions to fund farmers, it still insist there is still room to grow the financing and move it from the current Sh4billion to the recommended Sh130billion every year.

Written by Bob Koigi for African Laughter

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