A model that al­lows farm­ers to take quick in­formal loans and repay them without strin­gent re­pay­ment meas­ures like col­lat­eral is fast rising across Kenyan rural areas with al­most every farmer be­long­ing to a vil­lage Sav­ings and Loan As­so­ci­ation even as banks struggle to pen­et­rate these tra­di­tion­ally neg­lected but po­ten­tial gold mines.

Under the VSL’s as they are com­monly known, farm­ers with a com­mon pur­pose come to­gether to es­tab­lish a struc­ture where they con­trib­ute. To allow mem­bers stick to the or­gan­iz­a­tion the scheme farm­ers are al­lowed to own shares based on their con­tri­bu­tions, mak­ing them eli­gible for loans that they repay with in­terest.

As more farm­ers re dis­cover farm­ing for busi­ness, being buoyed by the im­press­ive re­turns, they are now in­vest­ing in ma­chinery and pur­chase of high yield crops, that re­quires huge cap­ital in­vest­ment.  With the te­di­ous pro­ced­ure of tak­ing loans from com­mer­vcial banks that has dis­cour­aged ma­jor­ity of the farm­ers, the VSLA’s have offered res­pite to the farm­ers who claim they get loans in­stantly re­quir­ing the con­tri­bu­tion of the other mem­bers to act as se­cur­ity. “This however means that we have to be very strict with who the mem­bers  are, be­cause ex­per­i­ence has taught us that there are those who be­ne­fit and leave without hav­ing cleared their loans,” says Dam­aris Nyokabi, the Treas­urer of Mwiheti Farm­ers sav­ings As­so­ci­ation in Nyahur­uru, which now boasts 150 mem­bers from a paltry 12 last year.

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The rules of en­gage­ment in the Nyahur­uru based VSLA spells that any ven­ture that the farmer takes the loan to fin­ance still be­long to the group until the farmer makes 75 per­cent re­pay­ment of the loan. Ma­jor­ity of these sav­ing as­so­ci­ations re­cord brisk up­take of loans to buy water pumps, high grade Fleck­vieh cows, green­house kits, and chaff cut­ters.

Han­ning­ton Pere a sec­ret­ary from an­other VSLA in Siaya Kisumu says most of the farm­ers in the area are still skep­tical of ap­proach­ing banks for loans. “Its not easy for a farmer who has just moved from sub­sist­ence farm­ing to ag­ribusi­ness to just walk into a bank and re­quest for Ksh 100,000 loan to buy a water pump, but at our sav­ings group we can pull to­gether re­sources and make sure that the farmer buys the pump,” he added.

Take Fleck­vieh for ex­ample, a cow that is every farmer’s dream that pro­duces 25 litres daily and between the second and third lacta­tion, reaches op­timum milk pro­duc­tion of 40 litres. The breed im­por­ted by cow breed­ers from Ger­many has been bey­ond the reach of many farm­ers due to its pro­hib­it­ive cost with a price tag of Sh250, 000 or more. However through the VSLAs farm­ers es­pe­cially in Ma­lindi part of Mom­basa now own the coveted breed with the num­ber of those who own it in the area stand­ing at around 100 farm­ers.

Chair­lady of Ma­lindi farm­ers Wel­fare group says Mrs Ab­dalla says out of the 80 mem­bers they have in the group 30 of them have taken loans to buy Fleck­vieh buoyed by suc­cess stor­ies of the cow’s per­form­ances. 20 of the farm­ers are now re­pay­ing their loans from the pro­ceeds they get from the sale of milk with one farmer hav­ing taken a second loan after hav­ing re­paid three quarter of the loan from sale of the milk. Mem­bers repay their loan with a 3per­cent loan in­terest com­pared to banks that charge between 11-15 per­cent in­terest rate ex­plain­ing why farm­ers opt for the VSLA’s.

Set Kobor VSLA an­other of the sav­ing farmer in Sotik Dis­trict has re­cor­ded roar­ing suc­cess. Richard, 38, and Car­oline, 35, rear two cows through a semi-zero graz­ing method. They own a chaff cut­ter, which cost them Sh20,000. The chaff cut­ter makes pre­par­a­tion of the an­im­als’ feeds easier thanks to the sav­ings group. “I took Sh45,000 loan (Sh15,000 on three dif­fer­ent oc­ca­sions) and my wife also took a sim­ilar amount to start dairy farm­ing two years ago.

We have already re­paid the loans,” says Richard. The hous­ing unit for the dairy cows cost them Sh45,000. The couple has a money­maker water pump they bought last year for only Sh2,700. The en­thu­si­astic couple has also planted stevia, a crop suit­able for dia­betic people. Richard says they are now able to ac­cess Ar­ti­fi­cial In­sem­in­a­tion ser­vices. The couple ex­em­pli­fies how VSLA have trans­formed the lives of hun­dreds of farm­ers in Sotik Dis­trict, by al­low­ing them mod­est loans that they util­ize to in­vest in farm­ing activ­it­ies.

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Vil­lage Sav­ings and Loan As­so­ci­ations gained ground in rural areas in in the late 1990s and early 2000s when ma­jor­ity of the formal fin­an­cial in­sti­tu­tions closed their rural op­er­a­tions cit­ing dis­mal cus­tomer base. The in­formal in­vest­ment clubs had as­sisted rural dwell­ers up­grade what they owned with ma­jor­ity now liv­ing like their urban coun­ter­parts.

A 2009 re­port by Fin­an­cial Sec­tor Deep­en­ing Kenya found that rural dwell­ers had scaled up what they owned with a size­able num­ber of them now own­ing a radio, at 80.1 per cent, a sofa set, at 36.1 per cent, and even TVs. The 2009 Na­tional Pop­u­la­tion and Hous­ing sur­vey also iden­ti­fied a marked in­crease in stone build­ings in the rural areas where grass thatched and mud walled houses dom­in­ated ten years ago.

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