African banks have the capacity to develop tailored financial products by innovating beyond traditional loan structures and creating flexible, low-interest credit products for small holder farmers.
Agriculture and Livestock Cabinet Secretary Mutahi Kagwe said that with a little effort the banks can create input financing, warehouse receipt systems and value chain financing models.
Speaking Monday during a high-level conference to discuss and share knowledge on enhancing small holder farmers access to financial resources, the CS noted that the biggest hurdles farmers face are limited access to affordable credit due to lack of collateral, credit histories and financial literacy.
“Farmers have resulted in relying on high-interest informal lending or inadequate government subsidies, preventing them from accessing essentials like fertilizer, high-yielding seeds, and modern agricultural inputs,” he said.
Kagwe added that climate change has further exacerbated these challenges, keeping millions trapped in poverty and limiting Africa’s agricultural potential.
He reiterated that banks can also expand risk mitigation tools by encouraging agriculture-specific insurance schemes and guaranteeing funds that reduce lending risks for both banks and farmers, ensuring that adverse climate conditions or price fluctuations do not lead to financial ruin.
“There is a need for practical and inclusive financing solutions for agriculture. If we build a resilient and sustainable Africa, we must modify agricultural financing to directly address these core farmer challenges,” he said adding that this will drive sustainable agricultural transformation, helping millions of farmers transition from subsistence farming to commercial viability.
Technology, he said can be leveraged to accelerate efficiencies and gave an example of Kenya’s mobile banking, fintech solutions, and blockchain technology which are already entrenched, using digital financial services to reach unbanked rural farmers in need of fertilizers through quick, cost-effective loan disbursement and repayment via mobile platforms.
Kagwe added that government banks, and development institutions need to strengthen public-private partnerships (PPP) for better support and this therefore has to be done now.
“The time to act is now. If we prioritize innovative, practical financing measures, we will transform agriculture from a struggling sector into a thriving end-to-end business that fuels Africa’s growth and prosperity. Let us commit to ensuring that no farmer is left behind due to lack of financing,” the Cabinet Secretary said.
Beth Dunford, Vice President for agriculture, human and social development at the African Development Bank (AfDB) said they are consulting and working with partners to establish a USD 500 million facility that will support first loss, technical assistance and blended finance.
The facility will also leverage up to USD10 billion in trade credit guarantees, risk-sharing facilities and banks’ balance sheets.
“We need investors, governments, donors, and the private sector to step up. We are ready to make more happen. There is also a need for stakeholders to develop innovative financing solutions and partnerships focusing on critical segments of the smallholder agricultural support ecosystem,” she said.
Dunford noted that currently only 6 percent of African smallholder farmers can access credit while less than 20 percent of them use improved seeds.
“Africa’s smallholder farmers face a staggering USD75 billion financing gap per year, meaning that is the amount of investment needed for equipment, tools, inputs and services—the basics they need to be productive and resilient.
With this gap, Dunford said mobilizing and scaling sustainable investments is therefore imperative, considering 60 percent of the population in sub-Saharan Africa is engaged in agriculture and allied sectors and Africa’s population is set to double by 2050.
“Providing smallholder farmers with access to credit is essential to unlocking long-term gains in farmer productivity and incomes. This conference is designed to help ensure all of us go home with actionable plans to deliver full-scale programs that drive impact for these vital communities,” the VP Agriculture said.
Dunford further said that pursuing innovative financing models to de-risk agriculture through risk-sharing facilities, blended finance, private-public Public Partnership and other services should be key even as technology welcomes more of Africa’s small holder farmers into the Agritech age.
James Mwangi, Equity Bank Group Chief Executive Officer (CEO) blamed low agriculture productivity for putting the small-scale farmers on par with large-scale growers who benefit from other basic needs in the market.
“For as long as small-scale farmers are made to compete with the large-scale growers who are able to access finance without much difficulty, it will be rough for the small-scale farmers to enjoy premium prices in the market,” he noted.
“Governments in Africa are not aggressive to fix the challenges and thats why the agriculture productivity is low,” he said, advising them to address the weak agricultural advisory and extension services which if revived will help in encouraging farmers to adopt modern farming practices.
Governments, Mwangi added, need to further address policies in the sector to cushion farmers against being treated as a social sector group but as real players in the commercial field.
“Governments need to provide public infrastructure such as farmers’ cooperative societies and farmer associations to enable farmers to confront challenges aggressively even as they tackle challenges facing markets in order to make it a level playing field for the smallholder farmers,” said Mwangi.
Africa financial institutions currently lend only three per cent to small-scale farmers, a situation that has denied the growers an opportunity to grow the sector. “Currently, farmers are only accessing three per cent of finance. For the sector to fully benefit, commercial banks and the government need to increase finance to farmers to 30 per cent. This is over and above assisting farmers to access and adopt modern technology,” Mwangi added.
Smallholder farmers and small and medium enterprises supply 80% of food produced and processed in Africa. At the same time, Africa’s smallholder farmers are often the most vulnerable to the impacts of climate change and market failures. Africa’s smallholder farmers are the foundation of rural economies, yet they face significant obstacles to accessing finance.
The two-day high-level Conference on Smallholder Farmers Financing dubbed “Scaling Finance for Smallholder Farmers in Africa,” has been organized by the African Development Bank Group (AfDB) and the Pan-African Farmers Organization (PAFO) and hosted by the Kenyan government.
The conference will be discussing and sharing knowledge on enhancing smallholder farmers’ access to financial resources, investment opportunities, market infrastructure, capacity-building initiatives, and sustainable agricultural practices.
By Wangari Ndirangu
