Nearly none of the loan facilities available to farmers in Kenya is convenient. Majority of farmers who take agricultural loans have a bad experience to tell.
Muturi Njoroge is a dairy farmer in Ruiru, Kiambu County. He has taken loan after loan to improve his farming prospects. The loans, he says, have inconvenienced him more than they have helped.
“There are no favourable loans to undertake agriculture. What are available are commercial loans disguised as agricultural loans. They don’t put into consideration the risks involved in farming – climate change, seasons, possibility of bad harvest,” he says.
The latest in a long list of Mutruri’s loans was acquired last November.
“I needed the money to plant hay. The weather conditions were perfect at that time. But the loan was approved and issued more than two months later. I was running out of time but I still went ahead and did my hay,” Muturi recalls.
Five months into the project he realised what a fatal mistake he had committed. The El-Nino rains that had been predicted towards the end of the year swept away his hay and with it his hopes of repaying the loan as agreed upon with the bank.
In the last one month Muturi received a demand letter from his lender seeking that he pays up all the arears up to June, 2016. “The bank has refused to acknowledge that agriculture runs on seasons. There are good seasons when the harvest is bumper and bad seasons when the farmer gets very little or nothing at all. When the later happens and the farmer has a loan to repay he will need more time, hoping for the bumper harvest in the coming seasons, to enable him clear his debt,” opines Muturi.
Muturi’s fate is one that Gitonga Maina, another dairy farmer, understands so well.
Gitonga, from Githunguri, took a loan from a bank to increase his herd. And that is exactly what he did. He was required to pay back the loan (worth Sh2 million) monthly over a period of two years. For about seven months his cows were producing enough milk to cater for the monthly remittances. Things changed when his milk production capacity plummeted and revenue fell short.
He says: “I found myself in a tricky situation. I couldn’t pay the required amounts. I defaulted and eventually received a demand letter last February. I am still grappling with it and trying my best but the business is yet to bounce back to where it was.”
If it were not for a commercial venture she had on the side, Leah Kiptoo, a strawberry farmer from Elgeyo-Marakwet would have had a spat with the bank just like Muturi and Gitonga.
“I couldn’t get a special product that was tailored to my strawberry farming,” she confesses. “I had no option but to take what was available: a business loan with 18.5 per cent interest rate attached to it.”
Leah took the loan to develop her strawberry farm. The money would end up wasted when strong winds uprooted and flung her greenhouse over.
“To be honest after the wind destroyed the greenhouse I lost the capability to make money from the crop. What saved me is a business I run on the side,” she states.
Recently Leah stumbled upon a loan facility – meant for farmers – that attracts 11 per cent interest, which she says is better than her previous loan. She hopes to use it to start afresh with a new greenhouse.
In Muturi’s opinion, our financial institutions ought to have specialists who understand farming; to invoke sense in the formulation of agricultural loans. It beggars belief that our banks mean well when they offer farmers loan, Muturi points out. “Loans are crippling agribusinesses. They are pulling down farmers instead of building them up. What we need are facilities that will look at agriculture holistically and loosen the terms and conditions set on such loans,” he says.
On his part, Gitonga is concerned that loan interest rates for farmers are too high. He also believes that the loans could be attractive if the repayment period is stretched considerably. Such improvements would probably spur farming. If they do then youthful farming prospects like Eric Kimwatan may not have to revert to ‘other means’ to get capital for agricultural ventures.
“I needed a loan myself to upgrade my poultry and dairy farm. I knocked at several banks and I couldn’t find any loans that had favourable terms and conditions. I realised that the loans the banks were proposing for me had similar terms as business loans. I gave up and sought for cash elsewhere,” he recalls.
According to Kimwatan, banks lack the capacity and the expertise to handle farmers. On their website, the Co-operative bank outlines eligibility for their Vuna Kilimo Biashara loan, which states – among other things – that the applicant must have been in crop production for a minimum 2 crop seasons, immediately preceding the current one. The farmer should also have insurance over death or permanent disability with a sum assured that equals the loan amount. Also, the farmer has to hold an account with the bank through which all farming sales proceeds will be channeled.
It is such terms that Eric fears locks out farmers who are otherwise serious about going into farming with a long term aim of making profits.
Smart Harvest tried to reach Cooperative bank, Equity bank and Kenya Women Finance Trust via the phone but officials we spoke to said they are not allowed to speak to the media about such loans.