Cynthia Makena has cut a niche for herself, supplying pigs to high end restaurants in Nairobi.
She started small. From rearing pigs which she supplied to eateries until she realised her business was bigger than her humble pig farm in Thika.
That’s when she started buying and reselling pigs to meet the huge orders. But the challenge was capital.
“Market was no longer an issue. In fact, I was receiving more orders than my little farm could supply. But I didn’t have enough capital,” says Makena.
She approached a bank where she was given an overdraft without collateral.
Do you have collateral?
Today, Makena is able to meet demand. She plans to take a Sh1.5 million loan for expansion.
“There are institutions with favourable packages for farmers. But I wouldn’t advise anyone to take a loan blindly. Have a clear purpose for every coin you take. Never take more than what you need,” says Ms Makena.
She advises those trying their hand at agribusiness to keep off loans and consider other options.
“I think agribusiness is the riskiest business. Before you take a loan, ensure that you have been in the game for a good while to analyse how your market behaves. That way you will know whether or not you will be able to repay it without struggling,” she adds.
Do you have other options?
Cheptoo Kibet who sells milk in Nakuru has grown his venture from three cows to more than 80. Before he started his milk business, he used to save with Transnational Bank. When it was time for expansion, he approached them for a Sh1 million loan.
“The bank helped me to buy pasteurising machines and cooling facilities for the milk. I needed the machines to meet the required quality standards in the business,” says Mr Kibet.
Avoid too many loans
But he admits to making mistakes while he applied for loans blindly.
“I have taken too many loans and invested in buying land. So far, I have 37 acres of land that I bought using loans, some which I am still repaying. Land if left idle is a terrible investment. If you take a loan, make sure what you invest in will at least be able to repay the loan,” says Mr Kibet.
He adds: “I would never advise anyone starting in agriculture to rush to the banks. Go at a pace you can afford. If possible, do little things here and there, make savings and start off from your pockets,” he says.
Can you repay?
Charles Oloo, a local manufacturer in Siaya also says agribusiness loans are convenient for people who have other ventures on the side. Oloo has built a business and a name for himself in Siaya by making value added products from cassava.
He started small, armed with a mill and a few kilos of dried cassavas he bought from farmers. Then, he made ugali and porridge flour by milling the dried cassavas together with maize, sorghum, ground nuts and amaranth. He started this in 2011.
In May last year, he caught the attention of Self Help Africa, an agriculture based charity organisation looking to support local manufacturers adding value to cassava. Through Rafiki Microfinance bank, the organisation gave Oloo a Sh2 million loan that he was expected to pay after a two months grace period.
He says the loan package includes training and market linkages.
Today, Oloo buys some 500 kilos of dry cassava from farmers in Siaya and Busia. He says this side hustle will help him repay the loan at the end of the grace period.
Do you qualify
“Soon, I will have to start repaying the loan even though my value addition business on cassavas hasn’t picked up well. But I have more than seven value added products on the shelves and they are moving so well. From that, I will be able to pay my loan,” he says.
Oloo is supposed to pay Sh50,000 every month for five years to clear the loan that attracts an annual 11 per cent interest.
He says loans are an important aspect of every business. However, there’s a catch.
When to take it
Agricultural economists at Jomo Kenyatta University of Agriculture and Technology caution that farmers should only take a loan when they really need it.
“Essentially, a farmer should ask themselves three important questions before they take a loan for agribusiness. These are whether or not they need a loan, how much they need, and what they think is most convenient place to borrow the loan from,” says Dr Robert Mbeche, a lecturer in Agriculture and Rural Development at JKUAT.
Investment needs
The JKUAT researcher advises farmers to first look at internal sources to finance their businesses before they start looking for a loan.
“It is important to first determine the investment needs and resources you have internally and identify the gaps you need to fill. Most farm enterprises are integrated and someone who runs a greenhouse and a dairy may actually use either venture to fund the other before they take a loan,” says Dr Mbeche.
Dr Josiah Ateka, an Agricultural Economist at the research university adds that it is important to determine what you will need the loan for.
The hidden costs
“It is impossible to go for credit that will cover everything about the investment. You can’t rely on credit to start a poultry from scratch but you can convert an idle structure at home to a poultry house and may be only borrow money to buy feeds,” says Dr Ateka.
Most farmers err when they fail to analyse packages that financial institutions offer as credit, according to the JKUAT researchers.
“Most people focus only on interest rates and ignore other packages. There are nicer packages out there for farmers for instance those that provide insurance and market linkages. Others provide options of group collateral where you share debt as a group and have better ground for negotiation,” says Ateka.
Dr Ateka says most farmers are easily enticed by informal sources as opposed to more established financial institutions. He urges farmers to be more formal when accessing credit. Farmers should also start working on their records.
“Not many farmers keep records of how their ventures perform. No serious financial institution will extend credit to you if you do not provide a satisfactory history in agribusiness,” warns Dr Ateka.
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