Feature: Kenyan banks scramble to finance farmers as demand for produce rises

About a decade ago, commercial banks in Kenya could not extend loans to small farmers due to the many risks perceived to be in agribusiness.

Farmers seeking loans were turned away from banks they went to, making them rely on government financing that was not enough through the Agriculture Finance Corporation (AFC).

Today, however, growth in the various agricultural sectors amid rise in demand for produce in the East African nation has seen banks scramble to offer the small farmer, who they shunned many years ago, loans.

Nearly all the major banks and microfinance institutions in the East African country have now come up with different products tailor-made for farmers as they seek to encourage them to take loans to grow their businesses.

From buying farm machinery like tractors to fertilizers, seeds, pesticides, hiring labor for planting or harvesting and dairy cows, the banks' credit offers are unlimited as they reach out to farmers.

Some are even extending credit to farmers after harvesting, enabling them to store their produce in warehouses and pay later when they sell them at higher prices.

The loan amounts for the small farmer vary from 55 U.S. dollars to 5,494 dollars while for the big farmer, many who export produce, there is no ceiling for them.

Some of the financial institutions which are financing agriculture include Chase Bank, Equity Bank, Kenya Women Finance Trust and CFC Stanbic Bank.

"Our agricultural loans are provided to individual farmers or groups cultivating on either dry land or an irrigation basis," says CFC Stanbic Bank.

While majority of the banks allow farmers to go directly to them and seek the loans, others are financing them through agricultural companies dealing in inputs like fertilizer and seeds, and equipment like greenhouses.

"I bought my greenhouse on credit and right now I am about to complete my loan after two seasons of successful tomato farming," Bernard Watitu, who grows horticultural crops in Juja on the outskirts of Nairobi said on Wednesday.

The greenhouse was worth 2,197 dollars, including the cost of installation. "It is the best decision I have ever made since I can now grow tomatoes and capsicum all seasons. I am hoping to complete repaying the loan this June."

Samuel Ndonga, Head of Agribusiness at Chase Bank, Kenya, said agriculture is time-sensitive, thus, they finance farmers based on intent basis. The bank is among those financing Kenyan farmers keeping maize under the warehouse receipt system.

"We lend out money when the maize is in the warehouse. The farmer brings the original warehouse receipt, and then we talk to the facility and approve 65 percent loan of the value of his produce in two days," said Ndonga in a recent interview, adding the interest rate averages 1 percent a month.

According to him, the financial institution, which started the product last year, has loaned out over 2 million dollars to farmers, mainly in the country's South and North Rift.

"Kenya farmers now do not have any reason not to grow crops they want because the money is available to them. However, what worries us is the high interest rate that some banks charge, which is even higher than what they offer on normal loans," said Watitu.

Banks are currently charging an average of 16 percent on loans, but for some farmers' products, the charges are as high as 25 percent due to perceived high risks. Endi