Kenya’s agricultural sector has been starved of finance and financial services for decades. This makes it difficult for smallholders to intensify their farming activities and commercialise their activities. Most smallholders are served by traders similarly low on capital and without access to credit. These traders are the focus of ongoing work of the FAC Commercialisations team in Kenya.

Gem Argwings-Kodhek, Convenor of the FAC Commercialisations Theme, worked with colleagues at the Alliance for a Green Revolution for Africa (AGRA) on a plan to have the Government of Kenya address this lack of credit. Using an extensive database developed by long-time collaborators at the Tegemeo Institute of Egerton University, he was able to compute the total demand for credit at farm and post-farm level in all significant agricultural commodity value chains at Ksh 140bil/year. However, interviews with commercial bank representatives indicated a supply of only Ksh 39bn/year. After presenting these results to senior government officials, they were convinced that something needed to be done to close this gap. Working with a team of agricultural, finance and insurance experts, a risk-sharing scheme was designed that would reduce the risk of agricultural lending for commercial banks and encourage them to lend some of the excess liquidity on their books to farmers and agribusinesses.

The new scheme includes Ksh 1bn of government funding for the current year to provide a partial guarantee on loan funds and technical assistance for product development. This policy measure was announced by the Kenyan Minister of Finance in two paragraphs of the annual Budget Statement for Financial Year 2011-12 (section “Transforming Agriculture into Business for Food Security and Employment”). The new scheme aims to provide loans to one million farmers and 10,000 agribusinesses.

Lessons:

• This case highlights how selective, well targeted policy analysis can influence high-level decisions in both the public and private sectors.
• Collaboration with other influential research and development organisations can lead to mutually beneficial outcomes.