Greenland Fedha Limited- a subsidiary of the Kenya Tea Development Agency (KTDA) defaulted on terms of a Sh1.3 billion loan from the Dutch development bank FMO, a move that saw the amount classified as payable within 12 months.
The specific terms breached by Greenland Fedha were not disclosed by KTDA in its latest annual report covering the year ended June 2022.
Lenders usually attach conditions on their money to protect their interests, with such terms including maintenance of certain debt levels and cash reserves.
“Additionally, as of June 30, 2022, Greenland Fedha Limited, a subsidiary of Kenya Tea Development Agency Holdings Limited, was in breach of certain FMO loan covenants. As such, the entire borrowing of Sh1.3 billion was classified as a current liability,” the agency says in the report.
Greenland Fedha continues to negotiate for financing from international and local financiers for onward lending to farmers, the KTDA added.
The subsidiary is a non-deposit-taking microfinance firm offering loans to tea farmers. The breach of the loan repayment terms came Greenland Fedha’s earnings were hurt by the slashing of its interest rates from highs of 21 percent to eight percent effective November 2021.
The interest rate was cut drastically by the then Agriculture minister Peter Munya, as part of the reforms in the tea sector.
The reforms, which targeted KTDA’s lending arm, could have had a significant impact on the subsidiary’s financial performance in the year ended June 2022.
“It recorded revenues of Sh720 million compared to Sh1.01 billion [in the prior year], a drop of 29 percent,” KTDA said of Greenland Fedha’s performance.
“It posted a profit before tax of Sh110 million compared to Sh481 million last year, a drop of 77 percent.”
The microfinance firm, however, saw a sharp increase in the number of loans, indicating that the cheaper rates are attracting more borrowers.
The volume of outstanding loan contracts increased to 265,698 from 177,809. Greenland Fedha has been taking loans from development finance institutions such as FMO as well as local lenders to meet the growing demand for financing among farmers.
The money is normally recovered after farmers have sold their tea by deducting from the sales that they have made.
KTDA says easy access to affordable credit for their tea farmers remains the key objective of the company, and it is banking on the mobile banking platform Pesa Ulipo to reach farmers quickly and effectively.
The mobile app came in handy for farmers during the Covid-19 lockdown period when travel restrictions were imposed across the country.
The KTDA said low rates have helped smallholder farmers access much-needed credit with ease and lighten their debt burden.
The high interests before, which prompted the government to slash, had seen farmers and the State raise concern, questioning how growers can be charged exorbitant rates when borrowing money from their own related companies.
