Banks on the spot as Sh7bn farmers’ credit scheme flops

• Only Equity Bank was able to disburse the money as planned with very little activity from the other lenders.
• Under the lending partnership agreement, the ministry was to act as a five per cent guarantor to loans disbursed to large and small scale farmers to access farm inputs
• Kilimo Biashara is designed to help subsistence farmers make the transition to commercial agriculture through improved access to credit, the purchase of farm inputs and equipment.
• Kepsa says such programmes have failed to spur economic growth as intended mainly because of poor management.
• Recall of the funds marks yet another phase of the government’s successive failure to spur economic growth through micro-lending.

The government has recalled nearly Sh450 million it advanced to commercial banks in support of a multi-billion- shilling lending programme targeting small-scale farmers.

Withdrawal of the funds, disbursed under the Kilimo Biashara initiative, adds a fresh layer to the successive failure of similar programmes meant to create jobs and spur economic growth.

Kilimo Biashara was a partnership between the Ministry of Agriculture, Equity Bank, the Alliance for a Green Revolution in Africa (Agra) and the International Fund for Agricultural Development (Ifad).

Each partner contributed $2.5 million (Sh210 million) as guarantee funds for the facility meant to supply affordable credit to low income and small-holder farmers.

It was set up four years ago with the provision of Sh700 million guarantee funds to Equity, Kenya Women Finance Trust, Co-operative and Family banks, which had been contracted to disburse the money.

Each bank was to mobilise Sh10 for every Sh1 received – meaning that the guarantee was to translate to the disbursement of at least Sh7.12 billion in loans to farmers at an interest rate of between 10 and 12 per cent.

But it has now emerged that only Equity Bank was able to disburse the money as planned with very little activity from the other lenders.

(Read: Sh3bn project eyes business model for subsistence farmers)

“We have written to banks that have not disbursed the money to return it so that we may re-advertise the tender and give it to other lenders,” said Romano Kiome, the permanent secretary in the Ministry of Agriculture.

Some of the lenders, however, refuted Dr Kiome’s claim that they had performed below expectation.

Family Bank said it was up to date with its lending programme and had regularly filed reports with the ministry. The bank said it had lent close to Sh20 million over the past one year and submitted monthly reports to the Director of Agriculture.

Co-op Bank said it had disbursed Sh10 million and is processing an additional Sh500 million, including the bank’s own funds, for the next phase of the programme.

KWFT denied that it was party to the loans disbursement scheme cited by the PS. “Kenya Women Finance Trust Deposit Taking Microfinance did not participate in the Sh700m scheme referred to,” said managing director Mwangi Githaiga in an e-mail response to our questions. “We are, however, participating in a subsequent credit guarantee scheme by the Ministry of Agriculture, details of which we can discuss separately.”

Information on the ministry’s website, however, shows that the KWFT managing director signed the credit guarantee scheme agreement on behalf of the bank, which was allocated Sh61 million. Equity was allocated Sh300 million, Co-op Bank got Sh70 million and Family Bank Sh69 million.

Equity Bank’s director for strategy Mary Wamae and Co-op Bank’s director for corporate strategy signed for their respective banks while Peter Kinyanjui, a former managing director, signed for Family Bank.