The Agricultural Finance Corporation (AFC), a state-owned development finance institution, is scaling up innovative financing models to broaden access to credit for farmers lacking traditional collateral as it aims to boost financial inclusion and enhance Kenya’s agricultural sector.
In an exclusive interview with Capital FM, AFC Managing Director George Kubai disclosed that the organization has intentionally developed lending products to facilitate agricultural financing for farmers who lack conventional collateral or title deeds.
“We really are intentional when it comes to driving financial inclusion and making sure all farmers across the country are able to access financing from Agricultural Finance Corporation,” Kubai said.
Among the key innovations is the Warehouse Receipt System, implemented in partnership with the Nairobi Commodities Exchange (COMEX), which allows farmers to use warehouse receipts as collateral after storing their produce in accredited warehouses.
Under the model, farmers can get loans without having to sell their crops right away. This lets them meet their immediate financial needs while they wait for better market prices.
Kubai said that the method is especially helpful for small farmers who haven’t been able to get formal loans before because they don’t have enough collateral.
To further reach underserved farmers, AFC has also adopted a wholesale lending model that channels financing through Savings and Credit Cooperative Organizations (SACCOs), microfinance institutions, and other intermediaries, which then extend affordable loans to smallholder farmers.
According to AFC Chief Credit Officer Christopher Kiburu, the model enables the corporation to reach farmers who may only require modest amounts of capital to expand their agricultural activities.
“Some of them need as low as 20,000 Kenyan shillings, and from that they can grow,” Kiburu said.
Beyond financing
Beyond providing credit, AFC says it has strengthened technical advisory services through its network of 48 branches across the country’s 47 counties.
Kiburu said agricultural experts stationed at the branch level assess the viability of projects before financing and continue offering advisory support after loans have been disbursed.
“Our staff within our branches are trained agricultural experts. Even before we start to finance these farmers, they get to engage the farmers to understand whether their projects are viable or not,” he said.
The corporation also operates a supervised lending model under which officers conduct post-disbursement verification visits to ensure loans are invested in the intended agricultural projects and provide technical support where necessary.
In addition, AFC trains farmers on financial literacy, record keeping, insurance and good agricultural practices to improve productivity and strengthen loan repayment capacity.
The corporation also facilitates market linkages by connecting smallholder farmers with larger aggregators and anchor clients, creating ready markets for livestock and horticultural produce including tomatoes, onions and spinach.
Supporting youth, women and climate-resilient agriculture
AFC says it is also expanding access to finance for youth, women, persons with disabilities, and rural micro, small, and medium enterprises through specialized lending programs.
Among them is the Enable Youth program, financed jointly by the African Development Bank (AfDB) and the Government of Kenya, which equips young people with business training before financing viable agricultural enterprises.
Kiburu said AFC has so far financed about 280 youth under the program, disbursing approximately Sh300 million, while applications continue to be processed.
The corporation is also implementing the Rural Kenya Financial Inclusion Facility (RK FINFA), a wholesale green financing programme through SACCOs and microfinance institutions.
Under the program, 50 percent of financing is targeted at women, 30 percent at youth, and five percent at persons with disabilities, with the remainder supporting rural-based MSMEs.
Kiburu said the program integrates climate resilience into lending, requiring borrowers to undertake environmentally friendly practices.
“If one is not doing environment-friendly activities, then you are out of lending because the climate is very, very important in our ecosystem,” he said.
He added that borrowers are encouraged to plant trees or support tree-growing initiatives as part of AFC’s efforts to promote sustainable agriculture and green its investment portfolio.
Helping farmers manage risk
With agriculture increasingly affected by erratic weather patterns, AFC says it is working to reduce lending risks through risk-sharing facilities, partnerships with government and development partners, and efforts to expand access to agricultural insurance.
Kiburu noted that agriculture contributes about 30 percent of Kenya’s Gross Domestic Product (GDP) and supports nearly 70 percent of the rural population, yet receives a relatively small share of commercial bank lending because of the sector’s perceived risks.
Where farmers encounter challenges after borrowing, he said the corporation prioritises supporting them to restore productivity rather than immediately pursuing recovery measures.
“We are not there to sell properties of our customers,” Kiburu said.
He said AFC first works with farmers to revive struggling projects through technical advice, refinancing where appropriate, or restructuring loan facilities before resorting to enforcement measures provided for in loan agreements.
Record loan disbursements
The corporation says its strategy of combining innovative lending, technical support and close engagement with farmers has contributed to improved financial performance.
Kiburu said AFC recently recorded its strongest financial year, disbursing more than Sh5.2 billion in loans for the first time in the corporation’s history while collecting about Sh5.3 billion in repayments.
He added that the institution has reduced its non-performing loan ratio from 25 percent in 2021 to about 13 percent.
Kubai said AFC will continue developing products that remove barriers to financing while supporting farmers to build sustainable and commercially viable agricultural enterprises across the country.
