The Agricultural Finance Corporation (AFC) lent farmers and co-operative societies Sh3.53 billion in the financial year ended June 2024, down from Sh4.11 billion, marking the third straight year of reduced lending on the back of elevated defaults.
The corporation says the performance was below target and marked a further decline from Sh5.58 billion lend in the year to June 2022, even as it continued to push to recover billions of shillings that are now in default.
“The target was not achieved due to a slack in loan repayments,” says AFC despite the clients accessing the loans having grown to 200,763 from 197,960.
Auditor-General report for the financial year ended June 2022, showed AFC had issued Sh9.89 billion loans cumulatively but customers had defaulted on Sh3.06 billion or 31 percent of the amount
This means that the default rate is nearly twice that of commercial banks (16.5 percent), despite AFC pricing the loans at 10 percent.
AFC says in the 2023-2027 strategic plan, lack of financial literacy and business management skills has contributed to low uptake of credit, low repayment and high loan defaults.
“This will require AFC to develop packages that combine both credit and financial literacy delivery for its clients. Additionally, the Corporation will focus on building the staff capacity to be able to impact knowledge on changing agribusiness financial requirements,” says AFC in the plan.
AFC estimates the annual demand for loans to farmers and co-operatives at Sh15 billion. But currently the corporation lends an average of Sh4 billion annually representing 27 percent of demand.
It said in May that it had hired private debt collectors to recover the defaulted loans, to enable it to operate on a revolving funds basis as is expected.
Considering the competing government funding priorities, AFC says it periodically receives budgetary allocations that are insufficient to meet funding gap in the agricultural sector. This limits its ability to grow the loan book.
In the 2022 audit, Auditor-General Nancy Gathungu questioned the quality of collateral that the lender has used in the past, making recovery of defaulted loans difficult.
Among the defaulters of the development financier’s loans were six directors as at June 2022, having failed to pay Sh35.82 million or 65.2 percent of the Sh54.92 million that had been extended to directors.
Ms Gathungu said the review of records revealed the six accounts have been graded as non-collectible. She deemed the provision of Sh5.96 million that IFC made on the six loans as insufficient.
