Agricultural Value Chain Financing Kenya

UNIZIK JOURNAL OF BUSINESS, 2020

In the past, the agricultural financing policy of the Nigerian government emphasized primary production without paying attention to the marketing of agricultural products. Consequently, the current emphasis by financial institutions on value chain financing has further compounded the problem of access to credit by smallholder farmers who account for over 90 per cent of agricultural production in Nigeria and do not have access to lucrative markets, nor adequate processing and storage facilities. More worrisome is how the right amount of investment can be acquired, particularly in a challenging environment where financial uncertainty causes a reduction in available resources along with increased fear and scrutiny of risk. From the perspective of other climes farmer linkages, improving access to improved seeds, fertilizers and production technology, enhancing farmer integration into the seed production, processing and marketing chain through farmer organization, training and out-grower...

East African Agricultural and Forestry Journal, 1993

Agriculture is the mainstay of Kenya's economy. It provides food, employment, a market for industrial products, raw materials for the agro-based industries and capital for investment elsewhere in the economy and foreign exchange. The agricultural sector in Kenya consists of both small-scale and large-scale farms. Agricultural production processes take time before the inputs are converted into outputs. Thus, expenditures on inputs have to be incurred much in advance of the income from the resulting outputs. Furthermore, to increase agricultural production, use of improved production technology is imperative. However, such technology is associated with additional costs to farmers. Farmers meet these expenditures out of their past savings. Whenever these savings fall short of the required production costs, farmers may need to obtaine credit from the existing agricultural credit markets. Broadly, there are two types of agricultural credit markets in Kenya: the formal and the informal credit markets. The formal credit markets comprise the conventional suppliets of loanable funds. These are savings and loan institutions, commercial banks, cooperatives , parastatals, private companies and non-governmental organisations. The informal credit markets include friends, neighbours, relatives, landlords, local welfare associations, contribution clubs, informal local-level groups and money lenders. This paper is based on the first author's M.Sc. thesis submitted (1990) to the Dept. of Agric. Economics, University of Nairobi.

2015

We review agricultural financing strategies in developed and developing economies in light of the risks that agricultural businesses face due to variations in weather conditions among other challenges. We specifically review Kenyan farmers’ agricultural risk management strategies and credit products that are offered by banks, insurance companies and other organizations, that are intended to minimize the negative impacts of agricultural risks. We discuss the application of index-based agricultural insurance and credit products in Kenya. We analyze reasons for low uptake of the product and propose an innovative credit-insurance model that can effectively link the small scale farmers to two potentially important players, commercial banks and the Kenyan government. Our model aims at persuading the commercial banks that there is more business to tap in the agribusiness credit for small scale farmers with reduced exposure to the risk of default. Also, it is aimed at convincing the governm...

Enterprise Development and Microfinance, 2007

The case of Zambia KEY CONCLUSIONS • Value chain financing (VCF) is a viable model to improve access to agricultural finance for smallholder farmers in Zambia based on the findings of the three case studies.

European Scientific Journal, 2014

Financing in the Agribusiness sector has been difficult due to perceived and unmanaged sectoral risk factors although it contributes to employment by up to 53% in a majority of poor and developing countries, 60% in South Saharan Africa; and up to 80% to the Kenyan population. Despite the commercial banks' application of credit risk mitigation mechanisms, there is little empirical evidence on the use of the forward integration credit risk mitigants on the performance of the agribusiness firms. The purpose of this study was to determine the extent to which the commercial banks provide credits to agribusiness firms. Specifically the study sought to ascertain the extent to which the commercial banks grant credit financing to the agribusiness enterprises in Nyanza region and determine the agribusiness borrowers' opinion on commercial banks' application of forward integration credit risk mitigation mechanisms in granting credits to them. This study takes a descriptive research design. The target population comprised 183 agribusiness firms in operation for the period 2003 to 2012. Stratified random sampling was used to select a sample size of 45 agribusiness managers. Both primary and secondary data were used. The study findings reveal that the commercial banks grant an average of 4.98% credit funding to the agribusiness capital level, 12.40% to owner equity and 4.38% share of credit extended to the agribusiness sector. Borrowers' opinion reveal that the commercial banks highly consider the credit volume determinants in extending credits to the agribusinesses at a mean of 2.2372.

Journal of Economics and Sustainable Development, 2013

Uasin Gishu County produces about 3.29 million bags of maize, which is 14.3% of the national output of 23 million bags. The production is associated with increasing cost, yet the area under production has at most stagnated. This brings to fore the question of financial requirements. To understand this puzzle, this study sought to answer the question regarding farmers' financial requirements. To achieve this, the study evaluated and established the existing relationship between usage of loan facilities and maize production. Using exploratory survey design, 384 maize farmers were sampled and the data collected was analyzed using descriptive and inferential statistics. The regression analysis model fit the data well to imply a significant relationship between credit financing and maize production. However, the chi-square analysis did not show any relationship between farmers perception of output in relation to credit use.

Agriculture forms the backbone of the Indian economy. It employs about two-thirds of the total workforce. Despite this, the share of agriculture in India's gross domestic product (GDP) continues to decline. The agricultural sector is the largest employer in the unorganized sector of our country. Agricultural finance is considered as one of the most basic input for conducting all agricultural development programmes. In India there is an immense need for proper agricultural finance as the economic condition of Indian farmers is very poor. From the very beginning the prime source of agricultural credit in India was money lenders. After independence the government adopted the institutional finance approach through various agencies like cooperatives , commercial banks, regional rural banks etc. to provide adequate credit to farmers, at a cheaper rate of interest. Moreover with growing modernization of agriculture during post-green revolution period the requirement of agricultural finance has increased further in recent years. The uncertain character of Indian agriculture, small amounts of individual loans, inadequate security for loans, difficulty in recovery of loans from farmers and lack of business experience of working with rural sector, were some of the factors which discouraged the commercial banks from taking interest in agricultural finance. These agriculture problems can be removed by providing adequate and timely finance to Farmer Producer Organizations (F.P.Os) The Indian economy has witnessed buoyant growth, however positive effects of the economic growth has eluded a large section of population dependent on agriculture and allied rural livelihoods. The decline of agriculture and of those dependent on agriculture as an occupation is all pervasive, agricultural growth rate being little over 2 per cent. As a result, majority of livelihoods dependent directly or indirectly on agriculture are losing viable earning opportunities. Farmers have been facing multiple challenges and one of the most dominating reasons for this crisis has been the weakening of the rural credit structure and the inability of the system to strengthen credit delivery arrangements for small and marginal farmers. According to NSSO about 51 per cent of the farmers are excluded from the availability of any credit arrangement. Priority Sector Lending Priority sector refers to those sectors of the economy which may not get timely and adequate credit in the absence of this special dispensation. Priority sector lending is an important role given by the Reserve Bank of India to the banks for providing a specified portion of the bank lending to few specific sectors like agriculture or small scale industries. This is essentially meant for an all-around development of the economy. These are the small value loans to farmers for agriculture and allied activities, micro and small enterprises, poor people for housing, students for education and other low income groups and weaker sections. Agriculture finance to farmers under priority sector lending is mainly given through crop loan and term loan by different financial institutions are shown in the Tables below. Categories under priority sector (i) Agriculture (ii) Micro, Small and Medium Enterprises (iii) Export Credit (iv) Education (v) Housing (vi) Social Infrastructure (vii) Renewable Energy (viii) Others RBI Guidelines for Priority Sector Lending 1. 40% of the total net bank credit as on 31 st March should go to priority sector advances 2. 10% of the priority sector advances or 10% of the total net bank credit, whichever is higher should go to weaker section.

Open Access Library Journal , 2022

Liberalization of global trade has presented an opportunity for sub-Saharan African economies to integrate into the regional and global value chains, secure stable markets for their agri-commodities, and increase the much needed private sector investment in the agriculture sector. However, for most African economies, realizing the opportunities associated with the integration of local agriculture value chains into the global supply chain has been more of a pipe dream. Moreover, the nature and organisation of agriculture value chains in most African countries, and the relevance of value chain integration in catalyzing access to finance through facilitating agriculture value chain finance remains largely unclear. This is in part due to the fact that, research evidence in this area is not only scarce but also remains fragmented across agriculture and access to finance related studies. This article briefly reviews the existing research literature relating to the relevance of agriculture value chain integration and agriculture value chain finance in the context of access to finance for the agriculture sector players in Uganda. The paper presents literature review findings, and identifies the knowledge gap which may be addressed in future research.

Global Review of Islamic Economics and Business, 2015

Agriculture sector becomes important sector in many developing countries including in Nigeria. The contribution of agricultural sector to the development of Nigeria is considerable. This important sector was the economic backbone upon which the government of the Federal Republic of Nigeria relied for its foreign exchange and revenue. A country was once a net exporter of agricultural products. However, since the discovery of oil in the early 1960, agricultural productivity has continually decreased due to many problems, especially related to financial aspect. Several programmes and policies have been adopted by various administrations to find solution to the dwindling agricultural productivity but to no avail. These solutions have mainly focused on alleviating the financial problems the farmers face. Usually financial intermediaries including banks would provide micro-financing to the farmers but with high interest rates coupled with collateral requirements. Hence, this mode of financing has not produced any significant result. This study will therefore examine problems facing agricultural sector in Nigeria with special emphasis on its financial aspect and propose a Waqf-Muzara'ah-Supply Chain model (WMSCM). Under this model, Waqf fund will be used for providing financial facility of the farmers. The relationship between farmers and financial institutions is based on partnership where profit and loss will be shared by both parties. This will enhance commitment by and cooperation among both parties to ensure the success of the business. Furthermore, the issues of collateral and high interest rate that constrain the financial ability of the farmers and their agricultural output are inherently solved by the model. Moreover, the model has features of investment and risk diversification for both the financial institutions and the farmers that will lead to high agricultural productivity and employment generation in the economy.

NG-Journal of Social Development, 2017

A value chain is a connected string of companies, groups and other players working together to satisfy market demands for a particular product or group of products. In recent times, Financial Institutions are more interested in financing various actors along the value chain, with emphasis on cash flow rather than any form of collateral. Value chain approach to agribusiness financing considers the market first and assesses the level of development of the value chain. However, in Nigeria as in most other Sub-Saharan African countries where agriculture is still characterized by small scale producers and disjointed agricultural value chains, a lot still needs to be done to be able to achieve success with the concept of value chain financing in the bid to transform the agricultural sector and accelerate economic development. One of the prerequisites for making the concept of agricultural value chain financing work efficiently in Nigeria where over 90 percent of agricultural output in the country is produced by smallholders with less than 2 hectares under cropping is connecting farmers to markets.