By Antynet Ford
Smallholder farmers in Kenya remain deprived of much-needed credit despite agriculture being an economic mainstay, findings by CBK, Agriculture Sector Survey, 2024
More than 25 percent of the sampled farmers reported having obtained loans from various sources in September, July, May, March, and January 2024, with a large share of loans allocated to buying inputs.
The main sources of finance for farmers have continued to be banks, SACCOs, and digital loans. The share of farmers who reported to have borrowed to finance agriculture was much lower in September 2024 relative to July 2024, to alleviate the input cost burden.
In tea farming, access to credit is a critical factor in empowering farmers, enabling them to increase productivity, adopt modern agricultural practices, and strengthen rural economies in developing countries.
Despite its importance, however, many smallholder farmers continue to face significant barriers when seeking financial support. Limited access to nearby financial institutions, high collateral demands, steep lending costs, and rigid policies often make formal credit inaccessible.
Further, complexities in application processes and limited financial literacy exacerbate these challenges, frequently trapping farmers in cycles of low productivity and economic vulnerability.
Addressing these barriers is essential to unlocking the full potential of tea farmers and fostering a resilient agricultural sector that benefits local communities and contributes to sustainable development.
Equity Bank’s Tea Bonus Loan is designed specifically for tea farmers, offering a targeted financial solution that meets their unique cash flow needs. By structuring loan disbursements to align with the tea harvest and bonus distribution cycles, this loan provides credit when farmers need it most, reducing repayment pressure during off-peak times.
The Tea Bonus Loan also lowers traditional collateral barriers and offers flexible terms that enable farmers to invest in crucial inputs like fertilizers, seeds, and farm maintenance. Such investments directly enhance productivity and improve crop quality, ultimately fostering a more sustainable and resilient agricultural sector.
The Tea Bonus Loan has additional features designed to support the financial growth and stability of farmers:
– Loan Amount: Borrowing ranges from KES 5,000 to a maximum of KES 2 million.
– Loan Tenure: Up to 12 months, with repayment pegged to the date when the anchor organization pays out the tea bonus, payable as a bullet payment.
– Charges: Interest rate of 20.1%, a loan processing fee (Lace) of 4%, credit life insurance of 1% per annum, and an excise duty of 20%.
– Repayment: Loan recovery is made from the transacting account on the maturity date.
– Re-borrowing Option: Farmers can borrow multiple times as long as they have not exceeded their credit limit.
Eligibility and Limit Calculation:
– Farmers who have received tea bonuses for at least the last two consecutive years.
– Upward Trend: Eligible farmers may borrow up to 80% of the average bonus amount if the bonus trend is upward.
– Downward Trend: Borrowing limit is set at 70% of the lowest bonus payment amount.
– No arrears on existing loan facilities, no non-performing accounts (as per bureau records), and only accounts with single account mandates are eligible for Phase One.
– Maximum eligible age is 70 years.
Through such targeted financial products, Equity Bank demonstrates its commitment to empowering farmers, advancing agricultural sustainability, and contributing to a broader vision of inclusive economic growth across the developing world.