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Sustainable agriculture financing, a must-have conversation for Kenya

Thursday, March 14, 2024 — updated on August 23, 2024 - 3 min read

Agriculture-focused fintechs accounted for a disproportionately small share of the $880 million raised by Kenyan startups in 2023. FILE PHOTO | COURTESY

By Charity Mutegi

Director

Financing Agri-Food Systems Sustainably (Finas) 2025 Dialogue

Thank you for reading businessdailyafrica.com

Participating in conversations around sustainable financing for Kenya’s agriculture in the past few months alongside some of the key players in this space has been quite a learning experience for me.

I have learnt, for example, that for all the buzz around the digital revolution in Kenya, only 15 percent of the country’s farmers use the fintechs – the companies whose technology platforms have made financial services more accessible and more affordable for businesses and consumers.

And agriculture-focused fintechs accounted for a disproportionately small share of the $880 million raised by Kenyan startups in 2023. This is not good news for a sector that badly needs innovative financing models to keep its position as the most important contributor to the country’s gross domestic product (GDP) and the largest employer.

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Agriculture accounts for close to a quarter of Kenya’s GDP and employs 40 percent of the total population and more than 70 percent of people living in rural areas. The current administration of President William Ruto has declared its intention to pursue agriculture-led economic growth to achieve food security, reduce poverty and create employment for the youth.

At a strategic level, this is the right policy path to take for Kenya. Studies have shown that growth in agriculture is 11 times more effective at reducing poverty than growth in any other sector. Investments in agriculture have in the past been linked to significant reductions in poverty in countries like Ghana, Burkina Faso, Ethiopia and Rwanda.

A World Bank study found that between 2000 and 2015, poverty was down 33 percent in Ethiopia and 45 percent in Rwanda, with agricultural growth the main driver. For Kenya to realise similar achievements, it will have to find a solution to the financial challenges in its agriculture. The country’s national budget allocation to agriculture has stagnated at between 2-3 percent amid the pressure on government to fund social programmes such as education and universal health coverage.

This is well below the at least 10 percent African Union (AU) member states pledged under the Comprehensive Africa Agriculture Development Programme.

Commercial bank credit to agriculture meanwhile is just 4.0 percent of the total loan book because the lenders continue to perceive smallholder farmers as risky borrowers.

With development assistance or donor funding often riddled with uncertainty and issues like climate change posing even more challenges, the need to have a national conversation about sustainable financing for agriculture couldn’t be more urgent.

Talking to various players in the private sector, you get the sense that the money is actually there. The problem is how to unlock it and deploy it.

The writer is a member of the planning committee for the Financing Agriculture Sustainably Conference set to be held in Nairobi on March 27-28.

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