Farmers access loans with their harvest thanks to receipting model

Cereal farmers in the country can now access short term finance using their harvests as collateral thanks to an initiative from East African Grain Council (EAGC) and Chase bank.

Dubbed warehouse receipting, the model introduced 2 years ago is aimed at stimulating the economy through producer empowerment. According to Jane Wanza an officer from EAGC, on many occasions, farmers in the country have been barred from accessing financial facilities as they are regarded as high risk clients. “The only form of collateral that many farmers have is their piece of land which in that case becomes their only hope of livelihood with hope of passing it to their future generation and therefore they cannot risk it to the bank.” This kind of predicament is what has led EAGC to initiate this model with the aim of helping empower farmers and open up more opportunities for them from their produce.

The model is open to all cereal farmers in the country dealing in wheat, maize, barley and sorghum and is able to access the certified warehouses which are located strategically within leading cereal producing areas. We have entered into partnership with private warehouse firms. The warehouses are located in Nakuru, Makueni, Nyahururu and Eldoret. The warehouses are certified having met the required standards like safety, health, and proper channels of management. Currently over 15 warehouse firms have signed into the arrangement and are accepting farmers’ produce for issuance of a receipt to access finance from the bank.

In order to ensure smooth operation of the model, EAGC partnered with a specific financial institution (Chase Bank) and the warehouses. “After successful negotiations, we formulated the terms of operation which compels every party to work towards the model’s success because the sole beneficiary we have in mind is the smallholder farmer who cannot advance economically because of unfavourable market forces,” noted Jane.

She explained that the model will help guard the farmers from the shocks of glut in the market. “We are offering them an opportunity to preserve their harvests when the market is flooded, the prices of the same commodities take a dip and then sell them later when there is scarcity fetching attractive prices.” According to her, the model will guard them from exploitation from middle men as they will be able to preserve their harvests but at the same time use them as collateral to access finance hence continue executing other development projects like land preparation, purchase of farm inputs or even personal demands like school fees payments.

Farmers deliver their cereals to the certified warehouses either individually or as a farmer group. Farmers with little harvests and would like to enjoy the service can organize themselves into a group and pool together resources including transport to the warehouse. Contracts are then entered between the warehouse, bank and the depositors who in this case are farmers. EAGC facilitates the whole process and helps to ensure its’ smooth running by dealing with any technical hitches arising.

The charges at the warehouse vary depending on the location and time frame for the depositor. “Initial charges are a bit high they also include handling, insurance and fumigation,” added Jane. After depositing the produce at the warehouse, farmers are issued with the receipt which they deliver to Chase bank for cashing in. Chase Bank’s head of agribusiness, Kathleen Goense said farmers and traders of grains can access 65 per cent financing upfront from the bank using their warehouse receipts. “The credit finance that the farmers are offered also attracts manageable interest rate that is about one percent per month. This is very affordable to most farmers because ideally someone can only preserve his harvest for about four to five months after which there will be shortage and prices would have shot up making it favourable to sell them off.”

 Although the model is meant for farmers, Jane agreed that any business minded person with passion can also follow suit and even farmers themselves can also end up ripping a fortune from it. “We do not discriminate on who should be part of the initiatives so long one fulfills the demands. Therefore innovative farmers can use the credit finance offered to them by the bank from their initial receipts to acquire more cereals in the market and cash in at later times although this needs prior knowledge on how to manage the costs and interest rates payments.

The warehouse receipt financing is new in Kenya and the necessary legal framework and regulatory structure is still being put in place. Stakeholders in agribusiness like Food and Agricultural Organization (FAO) are upbeat on the new system with evident success of the model in other countries especially from Latin America.  Argentina's warehouse receipts systems account for a significant portion of agricultural lending and total receipts issued now exceeds $US 1 billion.