Kenya’s rural economy operates at the frontline of climate change.
Recent years have seen planting seasons lost to failed rains while floods have washed away crops and eroded soils. Livestock mortality has risen, water sources are drying up and staple food prices remain volatile.
A farmer who loses a harvest cannot repay her loan. An MSME reliant on agriculture falters when supply chains are disrupted.
For microfinance institutions (MFIs) and saccos, the result is rising non-performing loans, higher portfolio-at-risk (PAR), and institutional vulnerability. The CBK reported that agriculture accounted for nearly 30 per cent of non-performing loans in 2023.
Structural barriers compound these risks. Women face hurdles in accessing credit due to lack of collateral and restrictive cultural norms.
Youth are often excluded from finance on the grounds of limited credit history. These groups remain the most vulnerable to climate risks and the least supported by financial systems. The urgency is how quickly rural finance must adapt.
Reforms are emerging through the Rural Kenya Financial Inclusion Facility (RK-FINFA). Implemented by AGRA, the Treasury, the Agricultural Finance Corporation and IFAD, it strengthens rural financial institutions to deliver climate-resilient, inclusive and gender-responsive services.
At its core is a Green Finance Facility taxonomy, prioritising investments in climate-smart agriculture, renewable energy, clean cooking and water efficiency.
Several lessons have emerged. First, capacity and capital must go hand in hand, as skills and systems are essential to translate finance into measurable impact. Second, inclusion must be designed.
Gender and youth targets should guide product innovation and outreach. Third, replication requires bundling credit with complementary services like insurance, technical support and after-sales service. Fourth, knowledge-sharing is vital so that early adopters do not remain isolated pilots.
If MFIs and saccos embed green finance effectively, they will strengthen food security, reduce loan defaults, expand rural enterprise and position the country to attract global climate capital. What is at stake is not simply the survival of farmers and MSMEs but the resilience of Kenya’s broader financial system.
Resilience must become the cornerstone of rural finance, replicated, scaled and institutionalised if Kenya is to secure a sustainable economic future.
The writer is the lead consultant and founder, Impact Africa Consulting
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