Financial institutions key in supporting agriculture sector

A group of women uprooting weeds at their sweet potato farm at Kabasis village near Lake Bogoria in Baringo county on August 9, 2023. [Kipsang Joseph, Standard]

For a long time, Kenya's agricultural sector has been directly influencing overall economic performance through its contribution to the gross domestic product (GDP).

Periods of high economic growth rates have been synonymous with increased agricultural growth.

According to a report by audit and advisory firm PWC, the agriculture sector contributes about 30 per cent of the Gross Domestic Product (GDP) and accounts for 80 per cent of national employment, mainly in the rural areas.

In addition, the sector contributes more than 60 per cent of the total export earnings and about 45 per cent of government revenue, while providing for most of the country's food requirements.

The sector is also estimated to have indirect contribution of nearly 27 per cent of GDP through linkages with manufacturing, distribution, and other service-related sectors.

However, insufficient investment in the entire agricultural chain - from farm to market has continued to negatively impact food production, making it difficult to achieve sustainable development goals - one and two that seek to eradicate poverty and hunger.

Without a doubt, farmers and other stakeholders in the agricultural ecosystem often face significant financial challenges that hinder their ability to grow and thrive.

Most farmers, especially smallholder farmers, require financial resources, including access to working capital, product purchase and collection, and new equipment procurement to help them increase their on-farm productivity, and improve their post-harvest and processing methods, as well as agricultural commodity trade and marketing.

Access to financial instruments has a significant impact on farmers' decisions to invest and produce.

Improving access to financing can broaden farmers' investment options and equip them with more effective risk management tools, allowing them to adopt a value chain approach, which would ensure agribusiness transformation.

For a long time, the challenge has been insufficient financial services and products offered by financial institutions.

Admittedly, much progress has been made in the recent past through partnerships between financial institutions and both government and non-governmental organisations and the Ministry of Water, Sanitation and Irrigation

For instance, the National Bank's partnership with the Ministry of Water, Sanitation and Irrigation to support the Farmer-Led Irrigation Development (FLID) programme is a game changer for farmers creating a departure from overreliance on rain-fed agriculture.

Irrigation equipment

Under the partnership, small-scale irrigation farmers are able to access affordable financing and financial solutions to enable them to invest in irrigation equipment, dam liners, and production inputs such as seeds, fertilisers, and pesticides.

Such partnership sometimes goes beyond just affordable financial support to include other valuable benefits including technical support to help farmers access the necessary resources for successful farm production.

For instance, the FLIP programme partnership offers farmers an opportunity to leverage the bank's technology platform that offers support, including information exchange, financial access, equipment and inputs access, produce aggregation, market information, land use and irrigation development details and management dashboards.

Financial institutions need to embrace this type of lending both in policy and in practice to boost the uptake of their products and services by those in the agriculture sector.

Of course, key considerations, including the cost of credit, the flexibility of loan repayments, collateral demands, and application procedures should be tailored to meet the needs of small holders' farmers

At the same time, financial institutions in Kenya should also introduce intensified investments into select value chains, scale up value addition and market linkages with agribusiness off-takers and small and medium enterprises.

For example, in 2021, the World Bank approved a $2 50 million (Sh38 billion) International Development Association (IDA) credit for a new National Agricultural Value Chain Development Project (NAVCDP), aimed at increasing market participation and value addition for 500,000 small-scale farmers in Kenya.

The farmers are engaged in nine value chains including dairy, poultry, fruits (banana, mango, and avocado), vegetables (tomato and potato), coffee, cotton, cashew nut, apiculture, and pyrethrum across 26 counties.

Such interventions will deepen investments around productivity enhancement, community-led farmer extension, water management and data-driven value chain services.

Consequently, it benefits other value chain actors at various levels such as extension workers, aggregators, logistics support providers and SMEs operating within the value chain.

We all agree that food security brings the benefits of increased financial stability, and a more easily fed family empowers vulnerable and marginalised groups.

As such, financial institutions and other stakeholders should come together to ensure that we grow a sustainable agricultural ecosystem.

- The writer is the Director, Corporate Banking at National Bank of Kenya