Finance for farmers
The Ministry of Finance has launched a programme in collaboration with the International Fund for Agricultural Development (IFAD) aimed at spurring lending to the agricultural sector.
Dubbed the Programme for Rural Outreach of Financial Innovations and Technologies (PROFIT), the initiative will create a risk-sharing facility that will be passed on to commercial banks to encourage lending to small holder farmers.
Dubbed the Programme for Rural Outreach of Financial Innovations and Technologies (PROFIT), the initiative will create a risk-sharing facility that will be passed on to commercial banks to encourage lending to small holder farmers.
Finance Permanent Secretary Joseph Kinyua said on Tuesday that commercial banks limit lending to the agricultural sector due to perceived high risks associated with it.
"Inadequate knowledge of the agricultural value chain limit banks' ability to develop innovative financial products that would grow the sector, that ultimately stimulates economic growth," Mr Kinyua said.
IFAD has extended a grant-loan of $29.31 million (Sh2.6 billion) to Kenya to provide better access to financial services, increase incomes, and improve production and outputs in the rural smallholder farm and off-farm sectors.
Mr Kinyua said the programme would provide an insurance cover for participating banks to lend to small scale farmers and small scale businesses in the farming industry.
"It is a good initiative because if it's effectively implemented it means most small scale farmers will be able to access credit and channel that towards supporting agricultural production," the PS said.
Despite its contribution to the country's GDP, the agricultural sector receives three percent of total credit extended to the economy. A recent study commissioned by the Ministry of Finance estimates that the annual credit need of key agricultural value chains stands at Sh130 billion.
However, the current level of credit to the sector is pegged at Sh40 billion, implying a funding gap of Sh90 billion.
"This means that only 30 percent of the demand for credit by the agricultural sector is currently being met," he said.
He also indicated that such an initiative could push for the lowering of interest rates on loan facilities for people in the agricultural sector.
The PROFIT programme will implement structural changes required to improve the performance and sustainability of the rural financial sector by investing in innovations and technologies.
It will encourage the development of a range of tailored financial products, most importantly savings and remittance services, value chain financing, medium-term financing for the agriculture sector and micro venture capital modalities, as well as provide technical support services.
PROFIT will be implemented throughout Kenya's rural areas, in particular in the arid and semi-arid lands and areas with agricultural potential and a high incidence of poverty.
Source: newsroom - farmingnewsdaily.co.uk