What small scale farmers can do to access credit from banks

Anthony Mbithi, the Head of Agribusiness Unit at Family Bank of Kenya. [Gardy Chacha, Standard]

Small-scale farmers account for over 70 per cent of agricultural production in Kenya. Despite this, they face challenges accessing credit from financial institutions.

Anthony Mbithi, the Head of the Agribusiness Unit at Family Bank of Kenya, advised farmers to formalise their enterprises to make it easy for them to access credit.

"To start with, formalize your business. Most small-scale farmers don't keep records. Some don't even have bank accounts," Mbithi said.

"Banks cannot extend credit facilities in the absence of critical data. You need to demonstrate that you have cash flow; which can inform us to give you a credit facility," he added.

He advised farmers to commercialise their ventures and employ good agricultural practices to improve productivity.

"This means they will produce enough for home use and for the market. Whatever income they make from selling produce should be saved - possibly in a bank," he said.

"This creates data flow on how the farmer makes and utilizes money. Such information makes it easy for the bank to offer you a facility," he added.

Mbithi was speaking on the sidelines of the AgriFin Learning Event (ALE): a conference that is bringing together stakeholders in agriculture to discuss tech solutions that can improve productivity by small-scale farmers.

He advised farmers to take up available training opportunities so that they can start operating formally.

"Financial Institutions like Family Bank are experts in financial solutions [only]. Yet, small-scale farmers require more than that. They need training," he said.

"Banks have many programs where they teach farmers financial literacy. There is also training on agronomy: training on best practices that can improve yield," he added.

ALE conference focused on a discussion on financing farmers, something the chief convener, Mercy Corps AgriFin, acknowledged is important to improve the livelihoods of small-scale farmers.

"Financing farmers is critical. It's one of the things that we can collaborate on to improve the productivity and profitability of smallholder farmers," said Mercy Corps AgriFin Program Manager Sieka Gatabaki.

Grace Njoroge of Mercy Corps AgriFin, lamented that small-scale farmers receive less than optimal financing.

"In sub-Saharan Africa, less than 10 per cent of funding goes to smallholder farmers. This is way less than optimal," Ms Njoroge said.

"Further, less than 5 per cent of commercial bank financing is flowing to smallholder farmers. Yet, such financing is critical to increase resilience; in the face of climate change," she added.

Njoroge blamed the situation on the decision by small-scale farmers to operate outside the formal financial systems.

The meeting, which is the seventh ALE, is themed "Resilient, Inclusive, and Sustainable Food Systems: Enhancing Collaboration to Scale Digital Solutions."

"Collaboration is the centrepiece of affording smallholder producers credit. As a bank, on our own, we can't do it. We have to partner with partners who work directly with the farmers, for the funding model to be successful," said Mbithi.

Since most small-scale farmers do not have official financial records, he said banks can utilize alternative data - acreage, number of livestock, Mpesa transactions, previous (and expected) yields, locality, and so on, to determine suitability for credit.

Often, organizations that work closely with the farmers, for instance, cooperatives, are able to provide this alternative data to the financial institutions.

So far, Mercy Corps AgriFin has reached at least 300,000 with Digital Financial Services (DFS) such as savings, credit, loans, payments and insurance services.

Currently in its fourth phase, the program aims to reach five million smallholder farmers across Kenya, Tanzania, Uganda, Ethiopia, and Nigeria living on less than USD2 per day.

The ALE conference has been running from November 7 to 9 at Safari Park Hotel, Nairobi.