Kenya Impact Area:
01. How is agri-finance and digital important to food systems in Kenya?
Agriculture is risky business. Over the last five years, Kenyan farmers and agribusinesses have had to weather severe droughts and floods, fight-off fall army worm and desert locust invasions, and cope with the mobility restrictions and supply chain disruptions that accompany necessary public health measures to curb the spread of COVID-19. Micro, small and medium sized enterprises (MSMEs), many of which operate in the informal sector, supply 80% of Kenya’s food and are particularly vulnerable to shocks. Their pockets are not deep. Farmers and other entrepreneurs stepping up and looking to innovate in agriculture also require finance to invest in their going concerns.
Agribusiness is not the most attractive for financial services either, at least based on current savings and lending patterns; there are more reliable and rewarding sectors to invest in. While Kenya has seen a boom in financial services provision over the last decade or so, agriculture has missed out. Yet it is our food systems that desperately need investment and innovations to transform and regenerate. Arguably, availability is not the problem. More than 80% of Kenyans, 15 or older, have some form of account to transact money, and over 70% of them used these accounts to save or pay money in 2017, most digitally. But how appropriate are these products for MSMEs in agriculture? Access to finance is widely accepted as a restraint for Kenya’s food economy. Going digital offered a quantum leap in the provision of more traditional financial services to Kenyans. Can the same hold true for customising and de-risking financial products for farmers and agribusinesses?
02. What is the current state of agri-finance and digital in Kenya?
Compared to other parts of East Africa, Kenya has a well-developed financial market. Many services are widely available, ranging from credit and loans, savings and payments from commercial banks and micro-finance institutes (MFIs), savings and credit cooperative societies (SACCOs), and mobile-based transfer services, like M-PESA. The number of Kenyan’s using these services has almost tripled over the past decade. Fintech has been a major driver of this development, having made it possible to link bank accounts to mobile money. M-PESA users can even open an M-Shwari bank account without having to visit a bank or fill out forms.
Traditional indemnity-based crop and livestock cover is tried and tested for sustaining financial resilience. It mitigates risks and breaks the vicious cycle of debt, challenges presented by supply chain disruption, and costly social demands, like having to pay for weddings and funerals. Thankfully, new, innovative and digital products are surfacing: like weather station, satellite-based and hybrid weather insurances; area-yield indices insurance; and dairy livestock and multiple peril crop insurances. The Kenya National Agricultural Insurance Program, Global Index Insurance Facility, Kenya Livestock Insurance Programme (KLIP) and ACRE Africa offer valuable opportunities to learn, collaborate, replicate and scale solutions across the food system.
To increase lending to agriculture, the national government put a cap on interest at 4% above the repo rate in 2016. This had the opposite effect to what was desired, as commercial banks declined to lend agribusinesses money. An interest rate of 13% was, in their view, not commensurate with the risks of the business. In 2018, a mere 3.4% of formal investments went into agriculture, despite the sector contributing a third of Kenya’s GDP. Realising their policy’s failure, the government abandoned the interest cap less than three years later. Loans are once again offered to small farms and emerging agribusinesses at an interest rate of 24–32%.
03. What are the challenges to systems leadership in agri-finance and digital in Kenya?
There are bottlenecks in both the demand and supply sides of credit provision, but loans are not the only way to finance investments. This is especially true for regenerative innovations in agriculture. REFOOTURE is exploring regenerative innovations in its living lab in Nakuru County, which will form an important case-study for food systems leadership, as we embed our programme geographically. Regenerative innovations enter the dynamic and fast-developing field of natural capital investments. There are other opportunities for financing innovations in different stages of their development too, and the Kenya Climate Innovation Centre (KCIC) is facilitating access to these.
What agribusiness and regenerative agriculture need are systems leaders capable of identifying financing opportunities in the public and private sectors, and linking the two. You would do well to build relationships with financial institutes and to change opinions about agri-finance. By investigating new products and the role of digital in shifting the balance from risk to reward, you may emerge as one of the architects of Kenya’s agri-finance future. Given the emphasis of your peers in the Kenyan cohort on inclusive aquaculture and micro and small enterprise in horticulture, there is huge scope to synergise your efforts.