Time for lenders to step up Agribusiness financing

The ongoing flooding across parts of the country has once again brought to stark relief the precarious nature of the country’s agricultural economy which remains exposed to the shifts in weather patterns.

In a few short weeks, many Kenyans across the country have witnessed their landscapes become transformed, as flash floods and landslides sweep through what was very recently dry earth scorched by several years of drought.

Not long ago, the country had just experienced one of the worst droughts in 40 years.

The agricultural sector remains the most exposed and previous extreme weather events indicate that both farmers and consumers are likely to bear the brunt in terms of crop and livestock losses and higher costs of commodities, especially foodstuffs.

Already, the previous year had seen the agricultural sector contract by 1.6 per cent compared to 2021 on account of a prolonged drought that cut maize production by 36.7 per cent and milk production by more than seven per cent with similar declines experienced in other value chains.  

“The agricultural sector has continued to face several challenges such as climate change and macroeconomic challenges that have resulted in stagnant yields and contributed to food insecurity.

Lack of market access increases post-harvest losses, and unstructured value chains add to the burden on value chain actors within the agricultural sector.

According to Daniel Munyambu, country Agribusiness Specialist at Absa Bank Kenya, nearly a third of Kenya's agricultural production worth billions of shillings goes to waste due to fragmented supply chains, outdated practices, and poor infrastructure.

Last year, Absa Bank signed a Kshs1.3 billion partnership agreement with eco. business Fund for development to increase funding for domestic and export businesses in the country’s entire agricultural value chain.

This includes corporates and SMEs engaged in processing, exports, production, distribution, and packaging who will be assisted in developing sustainable and climate-smart agricultural practices to mitigate the impact of climate change.

Such initiatives work to address crucial pain points expressed by entrepreneurs in the agricultural sector including access to markets, information, mentorship and coaching, and access to sustainable finance.

The bank’s participation in the agricultural value chains transcends the provision of financial services to capacity building and creating resilience in the sector.

Last year, in collaboration with other partners, Absa conducted post-harvest loss training across the country targeting dairy, horticulture and grains value chains.

Munyambu insists that financial institutions will need to continuously work with value chain actors to confront the challenges they face.

This can be through capacity-building initiatives that help mitigate credit risk and eventually increase the financial solution to the Agriculture sector.

Data from the latest consumer price index by the Kenya National Bureau of Statistics, KNBS indicates that the price of onions is currently up 65 per cent compared to March 2023 while the price of other essential foodstuffs like carrots and beef is up 26 per cent, and 16 per cent respectively.  

With the weatherman indicating that the floods will persist for the better part of May, there is concern that consumers will be hit with more scarcity and price hikes in the coming months.

With extreme weather conditions becoming more frequent around the world, there is a need for financiers to re-evaluate the strategy that informs crucial support that goes into funding agricultural value chains.

Data from the Central Bank of Kenya, CBK’s latest report on the banking sector indicates that loan accounts to the Agricultural sector stood at 124,290, translating to 0.9 per cent of the total loan portfolio.

The total amount of loans to the sector in 2022 stood at Sh126.4 billion, representing 3.5 per cent of the total gross loans advanced to the private sector. On the other hand, gross non-performing loans for the sector stood at Sh27.7 billion, representing 5.5 percent of the total non-performing loans recorded.

This financing portfolio is in stark contrast to the significance of the Agricultural sector which currently accounts for one out of every five shillings generated in the economy.

The intensity of climate change and its impact on vulnerable ecosystems has until recently been the subject of PowerPoint presentations and UN declarations. Today, Kenyans are witnessing firsthand its disruption, cost in human life, and environmental and man-made destruction that continues to affect tens of thousands of mostly low-income earning citizens.

As the government and humanitarian agencies work to respond to those affected in its immediate aftermath, the floods have cast a spotlight on the role of commercial banks in funding recovery efforts in other sectors.

Several banks have in the recent past set aside credit lines dedicated to entrepreneurs in the agricultural sector in the country.

Absa Bank Kenya for instance has embedded agribusiness as one of the growth pillars of the lender’s accelerated growth plans.

The bank is taking a value chain approach to actively provide solutions for input providers, primary producers, aggregators, and agro-industry players.

The writer is the CEO Maudhui House, a Public Affairs consultancy.