KENYA – The Agriculture Finance Corporation (AFC) has partnered with Financial Service Deepening (FSD) Kenya and the Alliance for Green Revolution in Africa (AGRA) to create an Sh100 billion (US$ 750M) fund aimed at boosting lending to farmers in the next five years.
The announcement was made by George Kubai, the AFC managing director during AFC’s inaugural investors’ engagement conference themed ‘Agricultural Transformation through Financial Inclusion and Innovation’ in Nairobi.
Speaking during the meeting, Kubai revealed that agricultural credit demand for the country is over Sh40 billion (US$ 300M) annually, indicating a significant funding gap that hinders the productivity and profitability of the sector.
Kubai revealed that the corporation receives loan applications totaling over Sh15 billion annually but is only able to avail about Sh4 billion due to resource constraints, hence a huge funding gap in the sector.
He adds, this results in value chain actors facing the additional challenges of inadequate financing, poor infrastructure, climate change, post-harvest losses, and market inefficiencies.
The Agricultural Finance Corporation (AFC) is a leading Government credit institution in Kenya mandated to provide credit for agricultural development.
The institution gives loans to farmers at a 10 percent interest rate, making it one of the cheapest in the market.
The investment comes at a time when Kenya has been experiencing an acute food shortage due to drought and disruption of global grain supply chains by geopolitical issues leading to huge bills on imports to meet the local demand.
The US$750M funding model, therefore, is envisioned to slash imports of food, increase local output and spur economic growth in the sector that has over the years been underfunded.
The agency said that in the last five years, it has disbursed loans worth Sh20 billion to farmers and it is optimistic that the new model will positively impact 2.6 million agricultural sector players with a special focus on women, youth, and MSMEs.
The funding, therefore, has earmarked four financing models including wholesale lending, warehouse receipt financing, mechanization, and agriculture credit guarantee financing.
Focus on the warehouse Receipt System (WRS) model
The agency revealed that the warehouse receipt model will serve as an alternative collateral mechanism that will enable producers to access credit backed by the warehouse receipt.
Recently, the Ministry of Trade partnered with the International Finance Corporation (IFC) and the Kingdom of the Netherlands to launch a US$2.3M warehouse receipt system project aimed at reducing post-harvest losses in the country.
Later, Global commodity trader Cargill announced that it is seeking certification as a warehouse receipt operator, becoming the first foreign multinational to put in the request after the Kenyan Parliament passed the Warehouse Receipt System (WRS) Act.
According to the Ministry of Agriculture, by enhancing access to certified safe and quality storage facilities under licensed professional warehouse operators, the ministry hopes to reduce post-harvest losses in the country.
The ministry revealed that the country loses approximately 30 percent of its crop produce to post-harvest mishandling, a catalyst to prolonged poverty, driving more people into extreme poverty.
In addition, AFC said that the mechanization model will allow small-scale farmers to access machines such as tractors to scale up acreage under production.