Government unable to meet demand for Agricultural loans

George Kubai, Agricultural Finance Corporation Managing Director. [Courtesy]

There has been a high demand for agricultural loans but only a few people can access it, it has emerged.

George Kubai, Managing Director for the Agricultural Finance Corporation (AFC) said the deficit is caused by resource constraints.

He explains the corporation cannot raise the agricultural credit demand for the country is over Sh40 billion annually, indicating a significant funding gap which hinders the productivity and profitability of the sector.

"The Corporation receives loan applications totalling over Sh15 billion annually, but is only able to avail about Sh4 billion due to resource constraints," he says.

He adds this resulted in value chain actors facing the additional challenges of inadequate financing, poor infrastructure, climate change, post-harvest losses, and market inefficiencies.

Kubai was speaking when AFC hosted its inaugural investors' engagement conference in Nairobi.

The meeting was held under the theme 'Agricultural Transformation through Financial Inclusion and Innovation.'

It aims at bringing together the corporation's key partners to address the challenges facing the agricultural sector and explore innovative ways to bridge the funding gap.

Kubai explains, "AFC has the mandate to provide affordable credit to the agricultural sector which it undertakes through its branch network spread across the country."

Kubai said that to address the funding challenges, AFC has collaborated with AGRA and FSD Kenya, to sustainably impact the agri-finance space.

This partnership has seen the development of transformative business models aimed at effectively channelling agricultural capital and risk tools to value chain actors in the agricultural sector.

These new business models are derived from AFC's medium-term strategy, its transformation agenda, and the government's Bottom-up Transformation Agenda (BETA).

The models include Wholesale lending, Credit Guarantee, Warehouse Receipt and Mechanization.

Through these lending models, "AFC expects to positively impact over Sh2.6million agri-players, with a special focus on women, youth, smallholders and agri-MSMEs.

However, this will require an estimated financing of at least Sh100 billion in the next 5 years to be actualized," he explains.

These models have been developed at a critical time, going by the huge investment needed in the agricultural sector to support its recovery from the Covid-19 pandemic and the ravaging drought.

He adds, "I am pleased to report that in the past 5 years alone, we have disbursed over Sh20 billion to actors in the agriculture sector including MSMEs, women and youth, providing them with sustainable support needed to grow and expand."

Kubai further said: "It is worth noting that the wholesale lending model, which was developed through the support of AGRA, IFAD and the National Treasury, has been tested with eight SACCOs borrowing over Sh1 billion with less than 1 per cent Non-Performing Loans."

Board Chairman, John Mruttu said that the intervention aligns with the Corporation's strategic direction, which aims at adopting innovative approaches to serving a larger percentage of agri-players.

He said that the models aim to offer some solutions for the mobilization of financial resources for agricultural development in the country.

"The Corporation has a realistic aspiration to reach out to excluded segments including the youth, women and people of the Islamic faith," Mruttu said.