How 'un-bankable' farmers are finally accessing credit

They visited a few creditors - including some banks - but were turned down. "We were un-bankable: no one was willing to 'risk' their money with us," Wachira says.

This has been the story of small-scale farmers: men and women who farm on pieces of land below 3 acres, and mostly on a subsistence basis.

Despite accounting for over 70 per cent of agricultural production and about 75 per cent of food demand in Kenya, small scale farmers are finding it hard to access credit to go about farming.

"They are viewed as a big risk by creditors because they largely operate outside the formal financial systems, which impairs creditors' trust.

"They don't produce in large quantities - amounts that would make business sense to creditors - unlike large scale producers.

"At the same time, majority of small scale farmers in Kenya practice rain-fed agriculture. In the age of climate change, production is not assured, and this scares creditors.

"Even so, assuming that the farmer goes on to realize a bumper harvest, they do not have control over market prices.

"With perishable goods, they might opt to sell at a loss and would not be able to service a loan," explains Esther Kariuki, a banker with Cooperative Bank of Kenya (Co-op Bank).

Wangeci Kinyua farms rice on 4 acres in the Mwea rice irrigation scheme. [Gardy Chacha, Standard]

Rice is also taken up by King's Commodities Company - who package and sell various brands.

The bank has engaged Simplifine (an approved off-taker for KFC - the international restaurant chain) who take up potatoes from the farmers.

Thika Cloth Mills and Rivatex East Africa are always on the ready to absorb produce from cotton farmers.

The end-to-end credit structure makes Co-op bank the nerve center of connectivity between small-scale farmers, input manufacturers, equipment makers, service providers, and buyers.

All buyers pay societies through accounts held with the bank - at which point the credit facility is serviced via a check-off system.

The only potential challenges to the repayment of the loans would be: one, moral hazard where a farmer misuses inputs or fails to deliver produce to the society. Two, crop failure that might result from unpredictable weather.

"We mitigate against these by training and capacity building the society; to hold its farmers accountable and walking with them throughout the crop cycle," says Kariuki.

"When a farmer fails to deliver yet they have been supplied with inputs we summon them. In some cases, we de-register them off the society. However, this happens rarely.

"We also hold training for them to learn about benefits of integrity and financial management, so that they make prudent decisions with the inputs they pick from the society," says Wachira.

When there is a total crop failure, the bank has a secret card up the sleeve: insurance.

"We insure the farmers through CIC Insurance; who pay the bank in the unlikely event there is total crop failure," Kariuki says.

In the 2021/2022 financial year, the bank disbursed over Sh10 billion to small scale farmers for primary food production.

The farmers, if the level at which they are servicing the loans is anything to go by, are loving this new way of financing projects.