Africa-Press – Kenya. The Cabinet Secretary (CS) for Agriculture and Livestock Development, Mutahi Kagwe, has urged financial institutions to rethink their approach to agricultural lending, as smallholder farmers continue to face a huge financing gap despite their vital role in food production.
Speaking during the African Rural and Agricultural Credit Association (AFRACA) congress in Mombasa, Kagwe noted that of the total US$49 billion loan portfolio held by commercial banks in 2023 in the country, only three per cent was extended to the agricultural sector.
“This is an indictment. The reasons advanced as to why this has been the case are well-known: perceived high risks, lack of collateral, poor access to financial services, and underdeveloped rural capital markets. But it no longer needs to be the case,” he stated.
CS Kagwe noted that the Agricultural Finance Corporation (AFC), though largely undercapitalised, is making significant strides in providing financing to smallholder farmers.
“It has innovated and crafted products that acknowledge that the seasonal farming and crop cycles mean that farming is not a very high-return business, and the repayment terms need to reflect this. AFC is pricing in capital and non-capital investments made by the government, development partners and farmers,” he said.
The five-day congress, themed: “Innovating Finance for a Resilient and Inclusive Agri-Food System”, brought together policymakers, financiers, and development partners from across Africa, Asia, and Europe
Financial institutions were exhorted not to lock farmers into short-term, high-interest facilities and instead, take a long-term view.
“Lend at low interest rates and encourage farmers to adopt modern farming methods by embracing technology. Push contract farming. Sign futures contracts and encourage participation in the commodities and futures exchanges.”
CS Kagwe announced that the merging of AFC and the Commodities Fund for scale and to raise AFC’s core capital is in the offing. “In this way, we are pivoting and effecting a paradigm shift to a more inclusive, innovative and sustainable financing ecosystem,” he said.
To foster a conducive and enabling policy environment for doing business, the Ministry of Agriculture is undertaking reforms of its institutional, policy, legal and regulatory frameworks.
The Ministry is also implementing the National Agroecology Strategy for Food Systems Transformation (NAS-FST) to promote regenerative agriculture and reduce carbon footprint.
Additionally, the Agricultural sector is also embracing digital innovation. The Kenya Integrated Agriculture Management Information System (KIAMIS) has registered 6.4 million farmers, with geo-tagged land parcels and digital farm profiles.
“KIAMIS is enabling targeted subsidy delivery, traceability, and improved credit scoring. Through the tech-savvy agriprenuers that we are training in our Kenya School of Agriculture (KSA) to cover the last mile, this is a game changer and will supplement our e-extension services,” said the CS.
He added that a big data centre has been established at KALRO to complement KIAMIS, leveraging real-time datasets from public and private actors to inform policymaking and market access.
“We are consolidating all these assets and capabilities under a revamped Kenya Agricultural Digital Information Centre (KADIC), into a centre-of-excellence, innovation and AI hub, incubator, and accelerator for AgTech firms offering bundled services, weather-based crop insurance, digital loans, soil analytics, and input delivery to farmers via mobile phones.”
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