New KPCU has received Sh2.7b from Treasury for lending to smallholders
Smallholder coffee farmers will start accessing loans from the Sh3 billion revolving kitty that is part of the measures by the State to revive the industry.
Coffee was once a key foreign exchange earner, but has declined over the years.
The New Kenya Planters’ Cooperative Union (KPCU), which will manage the kitty, said it has already received Sh2.7 billion from the National Treasury as part of the Coffee Cherry Advance Revolving Fund.
It is now waiting for Treasury to gazette the regulations that will operationalise the fund. The regulations are a key requirement under the Public Finance Management Act for the rollout of the funds.
Farmers will get loans at an interest rate of three per cent, much lower than the current lending rates by commercial banks of about 13 per cent, and other government-run revolving kitties that advance credit at an interest of about seven per cent.
New KPCU Chairman Henry Kinyua expects the new regulations to be gazetted within a month.
“We are ready to proceed…we expect the regulations to be gazetted in the coming two to three weeks and once they are in place, we should be able to start disbursing loans to farmers,” he said during a press briefing in Nairobi yesterday.
All smallholder coffee farmers are eligible to access credit from the fund but need to register, Kinyua added. The amount that each can access will depend on the amount of coffee that they produce.
The regulations outline different ways of how farmers can borrow, with New KPCU saying it will initially advance Sh20 per kilo that farmers deliver to their cooperatives.
Later, it will use other modalities of lending prescribed in the subsidiary regulation, where farmers can borrow up to 40 per cent of what their crop would fetch at prevailing market prices, or 40 per cent of the coffee they sold during the previous year.
A farmer’s crop will act as security and the loan recovered once the coffee is sold as a first charge.
New KPCU Director Muthoni Wangai said they were evaluating possibilities of giving a similar lifeline to coffee factories that do not have adequate working capital.
“If the factories do not have working capital, among other things, even they will have a problem because if they go to the financial institution and the interest rates are too high they will have difficulties to repay,” she said.