In this guest post from Farming First, Ivan Mbowa, co-founder of Umati Capital discusses the financing challenges agribusiness SMEs are experiencing in Kenya, and how his team has arrived at a solution.
With commercial lending to agriculture representing just one percent of all lending in Africa, many agribusiness SMEs (small-and-medium sized enterprises) have limited options for financing or even worse, are excluded from financing entirely. One main obstacle, for example, is the onerous requirement for collateral. In Kenya, the time and cost of registering a building as loan collateral in Nairobi for an amount of KES 10 million would take a minimum of 2 months with fees around 6 percent of the amount.
Compared to other players across the agricultural value chain, smallholder farmers face an even higher obstacle. Even though financial institutions have attempted to provide financial services, farmers’ financing needs are not well understood. This leads to poorly defined financial products based largely on the same restrictions as those put on SMEs. Given that smallholder farmers usually live in difficult-to-reach areas and lack “viable” collateral, they, unfortunately, must deal with informal lenders at exorbitant rates that inhibit their growth…
Click here to continue reading the full article on the Farming First blog.