According to a November 2023 survey by Kenya’s Central Bank, 42.53 per cent of farmers reported to have borrowed money to finance their farming activities in the last 12 months. The main lenders to the agriculture sector were commercial banks at 29 per cent followed by friends and family (10 per cent), Saccos, and digital lenders such as Mpesa, KCB Mpesa, and Mshwari at 11 per cent.
The Hustler Fund which was introduced in 2022 to provide cheaper credit to individuals and businesses at the bottom of the pyramid accounted for 6.6 per cent and 10.3 per cent of agriculture loans in November and September, respectively. This highlighted the great potential the fund has to finance small-scale farmers in meeting their operating costs such as payment of workers and purchase of inputs.
Access to finance
According to CBK a higher proportion of large-scale farmers accessed loan facilities compared to medium and small-scale farmers, perhaps due to economies of scale and higher absorption capacity.
Large-scale farmers (over 12 acres) accounted for 52.2 per cent of the loans towards agriculture compared to 20.0 per cent and 42.8 per cent for medium (5 -12 acres) and small-scale farmers (under 5 acres), respectively.
Purpose of Agricultural Loans
A majority (36.0 per cent) of the farmers sampled in the survey used the borrowed funds to buy farm equipment and machinery. This could be explained by the need for machinery and equipment during the harvest season and land preparation for the new season.
This was followed by the labour costs (25 per cent) which peaked during the planting and harvest season.
10 per cent of agriculture loans are used to buy inputs e.g. fertilizer, seeds and another 10 per cent was used by farmers to expand farmland. 8 per cent each was used on hiring and leasing farm equipment as well as diversification of agricultural activities.
Barriers to Credit among Farmers
High-interest rates were cited by 31 percent of the sampled farmers as the main barrier to agriculture finance. This was followed by 25 per cent who voluntarily excluded themselves arguing that they they did not need credit. Other barriers include; lack of collateral, fear of crop failure, and fear of action on default among others.
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