Agency wants credit bureau services extended to farmers
A bank client. Lenders are sceptical of the authenticity of title deeds provided by farmers as collateral. File
An economic advisory agency has recommended that services of credit reference bureaus be extended to the agriculture sector to enhance farmers’ access to bank loans.
The National Economic and Social Council said lenders were sceptical of the authenticity of title deeds provided by farmers as collateral, limiting their ability to increase food output.
“We need to move from this position because the trend is towards the proposition of a venture other than the security offered,” Mr Julius Muia, the secretary at NESC told the Business Daily.
Corruption at the Lands ministry has seen some land owners issued with fake title deeds leading to caution among lenders. This, coupled with the risk profiles of the mainly weather-based agriculture in Kenya, has seen lending to the sector remain low despite its massive 25 per cent contribution to the national Gross Domestic Product (GDP).
“Most farmers have not participated in the banking sector in the past and as such most bankers don’t have information on them. But with the bureaus we could have this anomaly resolved,” said Mr Muia.
Statistics by the Central Bank of Kenya (CBK) show that in the 12 months to February 2011, agriculture took up just 3.6 per cent of the Sh929.6billion credit extended to the private sector.
Other sectors deemed less risky by lenders such as real estate and trade took up 27.9 and 20 per cent of the lending to the private sector over the period respectively. NESC said lending to the agriculture sector could be improved through CRBs that provided more realistic analysis of the potential borrowers. Credit referencing is also powerful debt recovery tool that should help determine a defaulter’s ability to obtain or service credit elsewhere in the market.
Although lending institutions have over the years employed the Know Your Customer (KYC) concept prior to lending, the evaluation was limited by the information being inadequate to assess default risk. CRBs help log the on the credit histories of potential borrowers, helping those with astute repayment periods negotiate terms from lenders. The Central Bank has so far registered two CRBs — Metropol and CRB Africa — to compile the debt record of borrowers. Credit information sharing was rolled out in July 2010.
Banks have submitted over 760,000 records to date and even began accessing credit reports from the licensed bureaus for appraisal purposes.
Better co-ordination
Since August last year, banks have perused 442,128 reports from CRB Africa alone with customers going through 865 reports.
NESC further recommended better coordination between the ministries of Agriculture and Water and Irrigation to help improve food security.
The country is currently grappling with serious food shortage that has seen the prices of key staples rise to record levels.
A preliminary forecast by the Food and Agriculture Organisation (FAO) agency showed that the country’s 2011 maize production is expected to yield 27.8 million bags, 11 per cent less than last years output of 31 million bags. A bag weighs 90 kilogrammes.
Cereal harvests over the 2011/12 period are expected to be 13 per cent lower at 33 million bags compared to last year’s 38.9 million bags.
