Banks have remained the leading lenders to farmers over the last one year, at 39.1%, according to the July 2023 Monetary Policy Committee(MPC) Agriculture Sector Survey conducted by the Central Bank of Kenya(CBK).
Banks, digital loans, friends/family and the Hustler Fund were the main sources of credit for farmers, with the funds mainly used to finance, farm inputs, labour and equipment hire.
Other lenders to farmers included the Agricultural Finance Corporation (3.4%), Microfinance Banking Institutions (2.3%), Buyer of Farm Produce (2.3%), informal money lender (1.1%) and Other (5.7%)
According to this Survey, 14.9% of farmers sampled borrowed funds from friends and family as well as taking digital loans from such platforms as Mpesa, KCB Mpesa, Mshwari among others, to finance their farming activities.
Co-operative Societies accounted for 5.7% of farmers who borrowed money to finance their farming activities.
The State sponsored Hustler Fund, which was introduced last year to provide cheaper credit to individuals at the low end of the income pyramid and with no collateral, accounted for 10.3% of those who got loans to conduct their farming activities.
CBK noted that the newly launched Fund has great potential to finance small scale farmers in settling day-to-day expenses such as payment of workers and purchase of inputs
This Survey drew respondents from wholesale, and retail markets, and farms in major towns across the country. These included Nairobi, Nairobi Metropolitan area, Naivasha, Gilgil, Nakuru, Narok, Bomet, Nyandarua, Nyahururu, Kisumu, Mombasa, Kisii, Eldoret, Kitale, Meru, Mwea, Machakos, Isebania, Nyeri, Molo, Kericho, Isiolo, Oloitoktok, Namanga and Makueni.
Credit facilitates access to requisite farm inputs such as seeds and fertilizer. It also facilitates the payment of workers, purchase/lease of land and adoption of appropriate technology in agriculture.
A majority of the sampled farmers in this Survey (86.2%) borrowed to purchase farm inputs followed by labour costs (50%) and hire/lease of farm equipment (46.6%) respectively.
This clearly shows that the farmers are in need of operating capital to run the day to day farming activities.
The proportion of the farmers who borrowed to expand their farms, buy equipment and machinery as well as diversify their farming activities was relatively low. This could be rationalized by the huge amount of money required for capital investments in agriculture.
Most of the sampled farmers cited high interest rates (29.5%) as the main reason why they had not borrowed to finance their farming activities. This was followed by 23.0% who indicated that they did not need credit while 18% feared crop failure, a likely scenario in case of insufficient rainfall, drought or flooding.
Some farmers also feared auctioning of their property (8.2%) in the event they default on the loans. Another reason was related to asset ownership where 8.2% indicated that the land was not in their name while 11.5% lacked collateral which is key when borrowing for agriculture.
Most lenders ordinarily require a farmer to present a title deed registered in their name for them to access credit.
This could explain why most of the borrowers either went for digital loans, loans from friends and family or Hustler Fund, all of which do not require collateral.
