Collateral free financing for farmers launched

Recently licensed deposit taking Microfinance Century DTM has announced plans to offer collateral free loans to farmers and agroprocessors, months after another such agribusiness fund worth Sh2.2billion was unveiled by Investment firm Pearl Capital Partners (PCP), as research show record returns from the sector, over all others.

Under the Century DTM arrangement, which will be funded through share capital mobilisation, fund raising from development organizations and partnerships based on credit guarantees, farmers will have access to between Sh5,000 and Sh1million of collateral  free loan. The contract that Century DTM has with the farmers will be the loan guarantee with the volumes that farmers can supply at agreed prices also being taken into account when deciding the amount to loan a business.

The financing is primarily meant to spruce up production with the fund also supporting agroprocessors through a back-end working model, where it first identifies the market before engaging the supplier farmers.
“The small scale agribusiness sub-sector has a lot of potential based on our research and the pilot we undertook over the past two years,” said Century DTM chief executive Pauline Githugu.

The fund is also focusing on high yielding crops that have potential to earn farmers good returns in a short time and which are in high market demand both locally and internationally. One such crop is the aloe vera which is processed into herbal medicines, food supplements and cosmetics.

Farmers plant the crop for its sap(juice) which is highly sought after by local and regional processors.
Half an acre of land, can produce 300 litres of sap per harvest. Processors buy the sap at between Sh200 and Sh300 per litre.

Farmers who have moved into value addition of the sap, through making of the highly demanded aloe vera soaps have equally reaped big.  Nuru Processors, a farmers' group in Kilifi County makes soaps, creams and liquid gels from the precious weed.

From 1 litre of sap mixed with elements like glycerine the farmers are making 10,000 pieces of soap, each selling at Sh6.
However not all farmers have had the pleasure of actively planting these high yielding crops, as majority stall on financing of some of these crops that require heavy initial investments for example in irrigation kits and purchase of high yielding seeds. Financial institutions have given farmers a cold shoulder with tough financing options like high interest loans, locking thousands of farmers.

The new fund will add to the multi pronged efforts being undertaken to provide adequate financing to small and medium scale businesses without the need for collateral.
“Among projects we have started working with is rabbit meat processing. We identified the processor, who is building up stock to meet supply volumes to China. We funded the farmers so they could increase their rabbits and thus help the supplier meet the export stock requirements,” said Ms Githugu.

About three months ago, Investment firm Pearl Capital Partners (PCP) has launched a Sh2.2 billion to finance small businesses in agriculture including value chain, businesses engaged in seed development, irrigation systems, agro processing and packaging, among others.

Twenty start-ups businesses that have the potential to transform the lives of smallholder farmers will receive between $300,000 (Sh25.5m) and $2.5m (Sh212.5 m) in the form of equity, debt or a mix of the two,with seventy-five per cent of the fund ($19 million) being invested in the core East Africa countries; Kenya, Uganda and Tanzania.

Written by Bob Koigi for African Laughter