Livestock financing rises on growth of industry

More financial institutions are now pouring finance into Kenya’s livestock sector as it emerges among the key drivers of the household and national income with data showing livestock incomes at some Sh320bn a year with informal sales, by-products and asset values included.

A livestock loan product launched by The Kenya Women Finance Trust last year to reposition rural women into viable businesses and better home lives, is enjoying massive uptake across the country and now overtaking all of its other loan products on the surging interest in commercial agribusiness.

The product has also enjoyed a rapid uptake by rural women since it was established early last year, due to its creativity in ensuring that women who want to start dairy farming access credit without being exposed to debts they cannot repay.

The women identify the cows they want to acquire. Veterinary doctors and KWFT DTM then assess the animal to ensure it is healthy. Once the animal is cleared on health grounds, it is insured by Jubilee Insurance, after which a microchip is inserted into the cow for tracking. The insurance cover is to ensure the farmer is not saddled with debt in case the animal dies.

KWFT then pays the breeder the price of the cow. “However we ensure the cow is seven months pregnant so that the farmer does not wait for long before they can start repaying their loan. In the case of the animal's death, the insurance company will pay off the debt and the balance of the claim paid to the farmer,” said says KWFT DTM Managing Director Mwangi Githaiga in an earlier interview.

To cover all aspects of livestock financing, the microfinance is also financing goat buying, in a system where it links rural women with goat milk processors who buy the milk and pay the women through KWFT.

Dairy goats are not new to Kenya. They were first introduced to Kenya by NGOs. But KWFT is the first organization to provide dairy goats to farmers using a business model.
“We look for people with dairy goats and create a market for them by financing the acquisition by people who want to rear them for milk. This way we create a value chain in the goat milk subsector of livestock,” said Githaiga.

The dairy loan has also equipped most of the borrowers to install biogas digesters, which provide them with cooking gas, thus ending firewood cooking which has been associated with eye problems and a massive degradation of the forests.

The success of this loan facility comes at a time when micro financiers report that financing for smallholder farmers has growing at its fastest pace ever, with some reporting a tripling of loans dispersed to agricultural producers. 

Over 80 percent of these loans are going to small holders in poultry, running agro-veterinary shops and in dairy farming. There is equally a surge in loans to animal health providers, milk value addition processors, animal feed manufacturers, hides and skins dealers, fish mongers and processors, bee keepers, livestock traders, artificial inseminators and pig farmers.

Kenya Livestock Finance Trust (K-Lift) a micro finance offering credit for the livestock sector, says the loan requests by smallholder farmers are astronomical and unprecedented.
Through K-Lift’s various programs, farmers can borrow up to Sh1.2 million repayable in 3 years. The loan attracts a 13 percent interest rate.

Besides funding individual farmers K-Lift funds farmer groups’ initiatives of a minimum 15 farmers.
The K-Lift finance has added a new strand besides the programme from K-rep, which has been so successful in offering leasing finance for high-quality cattle that it last year launched an independent subsidiary Juhudi Kilimo to run the credit business, and expanded its lease agreements to include greenhouses, beehives, goats, rabbits and poultry.

Juhudi Kilimo reports growth of over 60 per cent in the loans dispersed to farmers during 2010, with now over Sh400m of cows financed through the programme. The K-rep scheme works only with farmers groups, where each farmer takes a turn to receive a one-year loan that funds the purchase of a high-yield dairy cow giving farmers extra milk output that they can use to make the repayments for the cow.

Equity Bank has been a prominent player in this in its Kilimo Biashara scheme in partnership with the international NGO Alliance for a Green Revolution in Africa, AGRA.

AGRA catalysed the Kilimo Biashara project by setting up a Sh400m “cash guarantee fund” that buffers the bank’s risk of lending money to farmers and small agricultural businesses with little or no collateral. The $5 million was posted jointly by AGRA and the International Fund for Agricultural Development (IFAD).

The study on the Contribution of Livestock to the Kenyan Economy by the Inter-Governmental Authority on Development (IGAD) Livestock Policy Initiative (LPI), has found that the contribution of livestock to agricultural GDP is only slightly less than the Sh399bn earned from crops and horticulture, which have traditionally been believed to be the prime drivers of the agricultural sector.

Using figures from the census, the IGAD study estimated the amount of physical product generated, on average, by a given population of animals and valued this output at producer prices. By contrast, the lower, official estimates of the economic importance of livestock are based on recorded sales of livestock and livestock products.

However, because only a small portion of Kenya’s livestock production is exchanged through recorded channels, these figures undercount the size and economic significance of the livestock sector.

According to the revised estimates, milk is far and away Kenya’s most economically important livestock product, with a value of Sh257.8bn in 2009, or about 70 per cent of the total value of livestock’s contribution to the agricultural sector.

The disparity on the milk figures between the official sales and the census-based figures was particularly wide, with officially recorded milk production standing at just one twentieth of total re-estimated milk production in 2009.