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Increase lending to agriculture sector, experts urge Kenyan banks

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A combine harvester harvesting wheat at a farm in Kenya’s Uasin Gishu County . Pictures: File

A combine harvester harvesting wheat at a farm in Kenya’s Uasin Gishu County . Pictures: File 

By KEN OPALA

Posted  Saturday, October 20   2012 at  10:54

In Summary

Kenya launched three policy documents to boost agriculture sector

  • The National Agribusiness Strategy— an ambitious policy that seeks to move farming from the subsistence level to a modern machine that can compete at the international level
  • The National Agricultural Sector Extension Policy (NASEP), to improve extension services to farmers in rural areas.
  • The National Food and Nutrition Security Policy, that seeks to address food security in Kenya
  • The National Horticulture Policy , which is expected to reinforce the approach to turning around agriculture to a business machine
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The agricultural sector’s top decision-making organ is asking Kenya’s lending institutions to commit at least one in every seven shillings to agricultural producers, if Kenya has to transform its key revenue earner and employer from hitherto low added-value to a commercially-oriented competitive sector.

“We ask banks to increase to 15 per cent their lending portfolio to the agricultural sector,” Agriculture Ministry Permanent Secretary Romano Kiome told sub-Saharan Africa’s largest assembly of farmers, agricultural experts, policymakers and donors, in Nairobi last week.

“This is one of our recommendations,” Dr Kiome added.

The Agricultural Sector Development Forum (ASDS) headed by President Kibaki, is the most influential organ in the sector. It held its third biennial conference on October 14-17, opened by the President Mwai Kibaki and closed by Prime Minister Raila Odinga’s representative.

President Kibaki kicked off the call to the banks. He said only three per cent of the total bank’s lending portfolio goes to agriculture sector. “Although lending by commercial banks to the sector has increased from KSh25 billion ($288.7 million) in 2003 to about Ksh53 billion ($611.9 million) last year, this is still way below the sector’s potential.”

This was underlined by Mr Odinga, who said there is a need for a financial support to develop agriculture sector.

“Access to credit need to (move) to 15 per cent, to enable farmers to engage in agribusiness,” Mr Odinga said in his speech read by Wildlife Minister Noah Wekesa. “We ask all banks to be partners in our endeavour to turn around this sector.”

Banks have yet to collectively respond to the proposal. But James Mwangi, the CEO of Equity Bank hinted at lenders’ readiness to oblige.

“Let’s build partnership. Equity Bank has loaned out Sh6 billion ($69.3 million) to the sector through the Kilimo na Biashara initiative”

“It is not about risks but how we can insulate against the vagaries of nature. We need to modernise our agriculture so that it is not dependent on nature. Once we make the industry noble, big and well-paying, it will have dignity. It will attract even the youth. But we can only do this if we give incentives to all people involved in the sector.”

According to financial analysts, microfinance institutions, including Equity and Jamii Bora, loan about Ksh143 billion ($1.7 billion) to 1.1 million borrowers. Banks had KSh1.6 trillion ($188.2 billion) in deposits by June 2012. About three-quarters of this can be loaned out, which is KSh1.2 trillion ($141.1 billion).

The sector needs just Sh180 billion ($2 billion) from the banks, according to recommendations by the 1,000 participants at the biennial conference—whose theme was “Moving Towards Agribusiness for a Globally Competitive Agricultural Sector.”

Private sector participation

“An ingredient in the process (of modernising agriculture) is availability of credit, which is sensitive to small scale farmers and the youth,” said Agriculture Minister Sally Kosgei. “Agriculture has to be kicked out of subsistence to the market to make it commercial. We need the private sector.”

Were Kenya to achieve the 15 per cent threshold, it will be far ahead of neighbouring economies in terms of credit to farmers. The figure for Uganda is seven per cent while Rwanda is 7.5 per cent.

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