How Funding Agri-SMEs Through Agri-Fintechs Can Unlock Kenya’s Agricultural Potential

To be fair to commercial lenders, they are shy about lending to the sector because it is a risky affair.

Last year, Kenya faced its worst flooding in over two decades, and just a year before, the country experienced the most severe drought in 40 years, both of which devastated crops and livestock production.

Still, agriculture is an important sector for the economy because it offers the path of least resistance towards poverty reduction.

After all, increasing productivity is simpler than other sectors. For example, to boost productivity a combination of availing the right seeds, fertilisers, and credit, as we have seen in the maize sub-sector, which hit an estimated record 70 million bags in 2024, up from 48 million bags in 2023 or a 46 percent increase.

This was attributed to the availability and stocking of the right fertilisers and seeds. This bumper harvest is not only creating jobs, but it’s also directly benefiting Kenyans by significantly reducing the price of maize flour, their dietary staple.

The above example is evidence that financing the agricultural sector by providing funds for purchasing quality fertilisers, seeds, pesticides, feeds, and other inputs can have a palpable effect on lives and livelihoods.

However, how can we effectively lend to the sector while managing risks and ensuring returns for lenders? Partnering with companies that are using technology to overcome these hurdles offers a promising solution.

Agri-fintechs are such companies. These startups are using technology-driven insights to enable them to better lend to players in the agricultural value chain in better ways than traditional lenders, which even the banking regulator recognises.

The CBK’s November 2024 Agricultural Sector Survey Report highlights an improvement in access to credit for the agricultural sector, attributing this in part to digital lending, which effectively reaches businesses in the agricultural value chain in remote areas lacking brick-and-mortar banks or saccos.

Despite its immense potential for improving lives and livelihoods, the sector is underfunded. Therefore, there is an urgent need for innovative agricultural financing. Partnering with agri-fintech companies offers a promising solution not only for Kenya but also for the rest of Africa.

Agri-fintechs are also more adaptable or malleable to the realities of the agricultural sector value chain. For example, the cash flow cycle for the agricultural sector is different than other sectors.

The lion’s share of funding is often required ahead of the planting season but sales happen after harvesting which is months away.

Even where there are financial products that reflect these dynamics, traditional lenders are more comfortable working with larger firms in the sector and not SMEs, who have relationships, collateral, etc. but these only make up a small percentage of the larger agricultural value chain, leaving many underserved.

Speed is also one area where agritechs have an advantage over other mainstream lenders.

Speed is particularly important because often it can mean the difference between missing an opportunity or making a loss. Agri-fintech solutions facilitate rapid lending decisions, often within days, a crucial advantage given the unpredictable nature of rainfall patterns or market demands.

By ANASTASIA KAGUNYU: Kagunyu Anastasia Wanjiku is a Chief Research Scientist at Kenya Agricultural and Livestock Research Organization (KALRO). Kagunyu2010@gmail.com