How I secured Sh1.8m loan for my dairy unit

In Kahugu-ini, Gatundu South, nearly every homestead has a cow.

“I bought my first cow in 2005,” Kenneth Munyiri, a dairy farmer from the village, says. “It is almost part of our culture to have a cow.”

Munyiri always wanted to own “a big farm and keep many animals”. The breed he bought was Ayrshire – a prolific milk producer. He was setting foundation for a thriving dairy business.

At the time, he did not have land of his own to establish the farm. This did not deter his ambitions though. “My father let me operate from his compound,” he says.

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The herd began growing. Just over two years ago the cows had increased to eight. Today, Munyiri has more than 20 cows, eleven are producing milk: about 240 litres a day.

One and a half years ago, Munyiri left his father’s homestead to his own one and a half acres. He was able to buy more animals and expand his farming enterprise to include pig farming as well as poultry (layers) farming.

How did this happen? “I got a loan of Sh1.8 million from Co-operative Bank,” he says. “I have received top-ups a few times. This is the money I used to grow to where we are now.”

Which begs the question: How did a young man – with nothing much to his name – get more than a Sh1 million from such a financier?

Farming is fraught with challenges such as unexpected bad weather, diseases, and unstable market forces little wonder financiers avoid it.

Farmers are far from the ideal clients financial institutions are seeking for loan facilities. This is how Munyiri – and other farmers with his luck – are going about it.

1.      Determination: Munyiri calls his enterprise Kenshire Farm. He made a decision to diversify into other forms of agribusinesses and farming.

“I also produce animal feeds – to feed my animals and sell to other farmers,” he says.

Munyiri (pictured) is also a pig farmer (with over 70 swine) and rears layer-chickens. The one and a half acres are clinically partitioned, and animal houses constructed to professional standards.

There is an administration office from where Munyiri and his wife handle management matters. Everything at the farm communicates a professional agribusiness venture aimed at earning revenue.

Esther Kariuki is the Head of the department of agriculture at Cooperative Bank of Kenya. She says for a financial institution, it is important that the farmer applying for the loan demonstrate that they are determined to succeed.

“As a financial institution we do not just want to give farmers loans for the sake of it: we need to have faith that the farmer will repay the loan,” Kariuki says.

Before Munyiri received the loan, the bank sent a team to inspect Kenshire Farm: to analyse it and determine its business modus operandi.

2.      Demonstrate deep knowledge: According to Kariuki, a farmer has to show that they know what they are doing. Luckily for Munyiri, he has a diploma in Animal Health.

He is therefore knowledgeable on animal husbandry and everything livestock farming.

Such a farmer, Kariuki points out, is likely to get things right and make money running the enterprise; significantly raising their chances of receiving the loan.

She says: “If you have no experience with dairy farming we advise you to consider working with someone who already has experience.

“This way you would learn from their mistakes and increase your chances of succeeding. A farmer who has knowledge and experience inspires confidence from the bank.

“We have even partnered with other institutions to provide farmers with skills in farming and financial literacy; just so that they would stand a better chance.”

3.      Availability of farm records: When a farmer approaches a financial institution for a loan, Kariuki says, they would be asked to conduct a feasibility study.

The farmer ought to demonstrate how the farm earns revenue. It would show expenditure and income. It would predict (based on data) how the loan would positively influence the enterprise and therefore positively influence financial flows.

A feasibility study would be impossible if a farmer does not keep records.

“Records are important. Records tell the farmer if the enterprise is making profit or losses. They are absolutely important – and the bank will ask for them – when a farmer is applying for a loan,” Kariuki says.

Munyiri keeps his records in books and on a desktop computer at his office desk.

4.     Have some type of collateral: According to Kariuki, a farmer can get a loan based on their ability to demonstrate that their enterprise is yielding enough profits to cater for running costs.

A more direct way of getting the loan, she says, would be to provide collateral – such as a car logbook or a title deed.

“With these, even if you weren’t a dairy farmer, you would still get the loan because it is secured.”

But in the absence of a collateral, she says, the financial institution would need to find a different type of collateral.

“Co-op Bank for instance has partners who we work with to cover the collateral risks. On this, we have worked with USAid, Agriterra and IFC.”

Collateral, Kariuki says, gives “the farmer motivation – a reason – to run the enterprise as profitably as possible: so that they would be able to repay.”

Collateral can be the cows themselves or even heavy farm equipment such as the automated milking pen or a tractor.

5.      Being a member of a cooperative society: Munyiri is not a member of a cooperative society. He is thus an exception. However, Kariuki says a farmer in a cooperative stands a better chance of getting a loan.

“We have financed many farmers not in a cooperative. However, majority of the farmers we have funded are in cooperatives.

“The good thing about cooperatives is that they already have records of the farmer’s deliveries. As a bank ourselves, we believe in the cooperatives model.

“Sometimes members of the cooperative guarantee each other and therefore it becomes easy for the bank to trust them with loans,” she says.