Banks urged to fund smallholder farmers

Treasury Cabinet Secretary Henry Rotich. (Photo: File/Standard)

Treasury Cabinet Secretary Henry Rotich has advised banks to tailor suitable products for farmers and explore other collateral apart from land.

Rotich said the unwillingness by banks to lend farmers money, because of high risk associated with farming, is killing the country's agricultural sector.

The CS said it is high time financial institutions acknowledged that farmers are not necessarily homogeneous in their practice.

"It is important to identify various small holder sub-segments and assess their needs and constraints before designing solutions and products," he said.

He advised banks to help reduce the risk in agricultural finance through information that can assist in credit risk assessment and finding good collateral.

"There is also room for agricultural insurance and price hedging through commodity exchanges or value chains," Mr Rotich told a meeting on establishing African agriculture risk sharing and financing mechanism.

The CS dismissed the banks' narrative of lack of liquidity, saying even if they lend, they not only do so in small portions compared to the sector's Gross Domestic Product (GDP) but also at exorbitant interest rates.

"Worse still, the little lending available tends to be informal and short term," he said.

This is despite agriculture contributing about 40 per cent of the Government revenue. It also accounts for 24 per cent of Kenya's Sh6 trillion ($60 billion) GDP directly.

But Rotich said banks are not to blame after all: "The transaction costs of reaching farmers' remote rural populations are high."

Also, the higher perceptions of non-repayment due to production, price and market risks in agriculture are equally discouraging.

"It is also true that our banks lack knowledge in how to manage transaction costs, specific risks and how to market financial services to farmers," he said.

The meeting was attended by Central Bank Governors from African countries and officials from the African Development Bank (AfDB).

"The cost of agricultural transformation is enormous. Africa alone needs Sh3 trillion on an annual basis to implement the transformation," said AfDB Senior Vice President Frannie Leautier.