More farmers are turning to informal groups, buyers of their produce, and the Hustler Fund for loans to invest in their projects, amid rising interest rates on bank loans.
In just two months through May, the number of farmers borrowing from informal savings and credit groups nearly tripled, and the number of farmers borrowing from the Hustler Fund to farm their farms doubled. Slightly, as a survey conducted by the Central Bank of Kenya reveals.
The findings on developments in Kenya's agriculture sector, commissioned last month, show that the number of farmers accessing loans, especially from banks, has declined since March, with high interest rates emerging as the main constraint.
“The main sources of financing for farmers are still banks, SACOs and digital loans,” the survey notes, noting that during this year, about a quarter of farmers said they had borrowed to boost their activities.
The agriculture sector survey adds that “the proportion of farmers who reported that they used the Hustler Fund to finance agricultural activity increased slightly in May 2024,” noting that the sources of financing with the highest rates of increase are informal savings and credit groups, and buyers of agricultural land. Agricultural products such as coffee and milk.
President William Ruto officially launched the Hustler Fund in March 2023 as part of his election manifesto to improve the lives of poor groups in the country. The fund issues loans of between Sh500 and Sh500,000 to individuals for 14 days at an interest rate of eight percent per annum.
In comparison, the latest Central Bank of Kuwait data shows that by February, the weighted average lending rates among commercial banks reached 15.88 percent, compared to 15.2 percent in January.
The study also notes that with about 82 percent of farmers still dependent on rain for farming and the market remaining highly volatile, many are avoiding borrowing to avoid being auctioned off in the event of default.
“Similar to what was observed in the March 2024 survey, it was observed that most farmers were reluctant to seek loans due to large fluctuations in production prices making their income unstable even in periods of good harvests. Some farmers also cited the lack of collateral as a deterrent from seeking loans, especially In cases where farms were rented.
He noted that high interest rates remain the biggest barrier to farmers seeking loans, with 57 percent of farmers who indicated they had not borrowed citing this factor, compared to 35 percent who indicated in March that high interest rates pose a problem. An obstacle to borrowing.
“High interest rates were still reported as the most notable constraint. In some cases, farmers were loathe to access any form of credit. They explained that growing crops was a risky activity as it depended mostly on rains which could fail exposing the farmer to a potential auction.” .
