Smallholder Farmers In Kenya Use Grain Stores To Raise Bank Loans

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Written by Kevin Mwanza

From Thomson Reuters Foundation

An innovative Kenyan scheme enables smallholder farmers to store their produce in certified warehouses and use it to obtain credit from banks, avoiding middlemen who paid them rock-bottom prices and enabling them to buy good seeds and fertilizer and raise their yields.

“Brokers have always been a thorn in the flesh of  poor farmers because they take advantage of the harvesting season to purchase farm produce very cheaply, then sell (inputs) to the farmers very expensively when such commodities are scarce in the market,” said Paddy Likhayo, a Kenyan-based grain storage expert.

Joseph Karanja, a smallholder farmer in Kenya’s Rift Valley region, said prices of farm produce, especially cereals, are always very low at harvest time and very high during the planting season, making it impossible for poor farmers to buy farm inputs at the right time.

“Sometimes we end up planting without fertilizers because we cannot afford it, or at times we plant when it is too late because we did not get the finances in good time,” Karanja told Thomson Reuters Foundation.

Experts say that a one-week delay in planting can reduce a crop’s yield by more than 50 percent, and Peter Njau, a research scientist at the Kenya Agricultural Research Institute (KARI) , says late planting because of financial problems is one of the main reasons for poor yields among small farmers.

To bridge this gap, the Eastern Africa Grain Council (EAGC), in collaboration with the Alliance for Green Revolution in Africa (AGRA) and selected commercial banks, is supporting farmers by letting them store their cereals in certified warehouses and use the warehouse receipts as collateral for loans to finance their farming activities.

The process is known as a ‘Structured Grain Trading System,’ said EAGC Executive Director Gerald Masila, “This is a business venture for smallholder farmers. Those who tried it at first two years ago have already become self sustaining and can obtain loans without our support.”

Writing by Isaiah Esipisu | read more at Thomson Reuters Foundation