A section of women farmers belonging to small-scale farmers forum in Kenya picking cow-pea leaves for market. Photo Credit: Zablon Oyugi

Hits and misses by Kenya’s State agricultural financier

By Murimi Gitari

Access to financial services in rural areas where many agricultural production activities take place has been a challenge for many stallholder farmers who are the major food producers in Kenya, denting the quest for food security and poverty reduction. A study on Rural Financial Services in Kenya by Betty Kibaara for Egerton University’s Tegemeo Institute, in the late 1990s found that most mainstream commercial banks closed down the rural branches in order to cut costs and improve profits.

Since then, states the study, a number of non-traditional financial institutions have emerged to fill the gap created by the mainstream banks which locked out the low-income and irregular earners, a majority of them small-scale food growers in the rural areas. The government has in the recent past also taken an active role in promoting an efficient, sustainable and widely accessible financial systems to aid agricultural activities in rural and periurban set ups. Formed in 1963 as a subsidiary of the then Land and Agricultural Bank, Agriculture Finance Corporation (AFC), a development finance institution (DFI) wholly owned by the government, has been offering financial support to farmers and agro-enterprises since it was incorporated as a fully fledged financial institution in 1969.

AFC has been providing loans, as well as managerial and technical assistance to loan beneficiaries.

AFC’s beneficiaries

AFC Managing Director George Kubai the institution has been arranging programmes nationwide to involve beneficiaries, assess their progress and gather their feedback on enhancing service delivery. “The aim of these programmes is to directly observe how farmers are fostering investment in agriculture and to collect feedback from beneficiaries on ways the corporation can improve its services,” said Mr Kubai during a recent visit and engagement forum with AFC loan beneficiaries in the Mboghoni and Timbila areas of Taita Taveta County.

Stephen Kemboi Chumo, an experienced farmer and businessman in Uasin Gishu County’s Kesses Division, has benefited from many of the AFC loans, including seasonal loans, land purchase loans, machinery loans, and dairy loans. Accessing these loans, notes AFC, has helped Mr Chumo grow from a smallscale farmer to, now, a successful large-scale farmer practising in dairy farming, and commercial maize, and wheat production.

This is in addition to operating a company called Maraba Investments alongside his wife. Maraba Investments focuses on agro-chemicals and farm inputs, an indication of Mr Chumo’s diversified involvement in the agricultural sector. Today, through his businesses, he is able to provide farmers in the region with access to essential agricultural supplies, contributing to the overall development of the farming community. “Mr Stephen Kemboi Chumo’s journey showcases the importance of hard work, determination, and strategic partnerships in achieving success in the agricultural industry,” said AFC in a statement. In 2021 at the peak of Covid-19, AFC extended Ksh1 billion loan to women farmers as it sought to empower womenled enterprises.

This was in line with AFC’s Women Affirmative Access Window programme it started in 2020 to drive financial inclusion in agricultural finance. The money, part of Ksh3 billion that AFC intends to loan women, was disbursed over nine months. But women accounted for only 25 per cent of the total AFC loans portfolio of Sh8.7 billion as of 2021 despite their loans being much more productive than those of their male counters. Kirika Farm, in Endebeess Division, Chorlim Location, Trans Nzoia County is another key beneficiary of the financial support by AFC.

The farm engages in diverse agricultural pursuits, encompassing 300 acres of seed maize cultivation, 10 acres devoted to sorghum, 30 acres allocated for seed beans and flower production, 20 acres dedicated to tree cultivation and coffee farming, alongside eight acres utiliseed for horticultural production of cabbage and four acres designated for French beans. It obtained a horticultural development loan from AFC, which facilitated the acquisition of crucial infrastructure including pipe networks, drip irrigation kits, machinery, equipment, and tools. Moreover, the loan supported the procurement of inputs and the construction of a water reservoir. That is to sample a few.

According to a 2013 parliamentary report of the National Assembly on the Response to a Statement by the Departmental Committee Agriculture, Livestock and Cooperatives on the Status of AFC Loans Issued to Farmers in the Lower Eastern Region, AFC disbursed Ksh13.93 billion between 2004 and 2013 to finance 60,225 farmers and agroentrepreneurs to undertake various projects.

The projects include the off-take of 67,000 head of cows between 2006 and 2013, thus saving pastoral communities from losing these animals to drought.

Generally, the AFC loans’ processing begins within 5-10 days depending on the type of loan applied for and the specific details required and provided for such loans, as specified on the corporation service charter.

AFC available loans

Loans available under AFC include; maachinery, agribusiness, livestock and fisheries development and cash crop loans. Others are a horticulture and floriculture development loan, water development loan, seasonal crop credit and school based loan. Farmers can also get cheap or soft loans through Warehouse Receipt System Council (WRSC), where farmers use produce they have stored as collateral to access loans at the National Cereals and Produce Board (NCPB), Commodities Fund (ComFund) and Coffee Cherry Advance Revolving Fund (CCARF).

AFC misses

It has not been smooth sailing for AFC though. The institution has tended to give more preference to large scale farmers at the expense of the majority small-scale farmers. A 1989/90 study on small-scale farmers in the Central Rift Area by J.N. Mbata for African Review of Money Finance and Banking revealed that only 20 per cent of the total amount of credit granted to the farmers in the area went to small-scale farmers.

The findings mirrored those of a 1997 survey by Tegemeo Institute that showed that 99 percent of loans which were advanced in two of the nine regions (86 percent in the Rift Valley and 13 percent in the Central Highlands) went to large farms averaging 19 acres compared to an average farm size of 4.3 acres in the whole sample. In addition, it was observed that the complicated procedures in loan application, approval and disbursement have contributed to the inefficient utilisation of the credit extended to the farmers while the high rate of default among the farmers as a result of the lax collection procedures by AFC that seriously affected the liquidity and performance of the corporation.

Still on default, a review of loan portfolio records provided for audit review revealed that AFC management had classified loans totaling Ksh3,068,757,220 as nonperforming representing 31 percent of Ksh9,892,054,000 as at June 30, 2022, according to a report of AuditorGeneral Nancy Gathungu.

“However, only loan balances amounting to Sh830,573,976 held in 2,457 accounts with arrears amounting to Sh829,695,138 were transferred to the debt recovery unit for specialised attention during the year under review,” said the report in part.

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