Banks cash in on tea farmers’ ignorance

By WAINAINA NDUNG’U

Nyeri County

Small-scale tea farmers are badly exploited by banks and other financial institutions offering them loans, a new study shows.

The study, conducted by researchers at Kimathi University College of Science and Technology in Nyeri, shows that many farmers were unaware of the amount that they should pay back once they take the loans.

Lead researcher Elizabeth Kalunda told a farmers’ workshop at the university last weekend that most of the farmers interviewed during the research in two factories in Nyeri County confessed that they did not know how much they paid back to their lenders.

"While all the farmers knew the amount of loan they had taken, almost all confessed they did not know what they eventually paid back to the financial institutions," said Ms Kalunda. Farmers, she added, need to be enlightened on financial management and loan negotiation skills to stop the exploitation by financial institutions.

According to the researcher, most lenders exploited farmers by failing to disclose hidden charges on their loans, including those for processing fees and loan insurance.

"Most of the farmers confessed to reading but not understanding the loan instruction form," said Kalunda, adding that most of them had reported struggling to pay back the loans because of "high interests."

Family consumption

The study also showed most of the farmers were ignorant with 52 per cent relying on Government for credit information while 40 per cent relied on tea companies. Eight per cent named "other sources."

The study, conducted at Chinga and Iria-ini factories in Nyeri South (Othaya) District, showed that most tea farmers borrowed to finance education of their children. Other needs include family consumption, development projects and repayment of pending loans. Very rarely are the loans for farm financing."While children education is an ideal investment, it is a disappointment that very little resources are going into farm financing," said Kalunda.

She said the study also established that there are currently numerous loan schemes for tea farmers and credit was readily available though at a high cost. On average, most of the farmers who borrowed took loans averaging 13 per cent of their annual tea proceeds and some farmers reported getting more credit than they required. According to the researcher, no defaults on repayments were reported probably because all loans are repaid through a check-off system run by the Kenya Tea Development Agency Limited (KTDA), which processes the farmers’ payments.

The study notes that there is no culture of saving among tea farmers and advises them to increase their savings to cushion themselves from perennial loan taking.

Kalunda said in the absence of adequate savings, farmers would continue to take loans because the average farm size continues to diminish.

She said a curriculum to teach farmers financial management was urgently required to cushion them from expensive credit.