30th May 24

Navigating the Credit Flow Landscape in Kenya's Agriculture Sector

The agricultural sector in Kenya is a cornerstone of the nation’s economy, employing 40%[1] of the total population and 70% of the country’s rural population[2].  Moreover, the sector contributed 21.8% to the GDP in 2023[3] making it the single largest contributor to Kenya’s GDP. Despite its critical role, the sector faces a persistent challenge: limited access to credit. According to CBK reports, as of 2022, the Agri sector accounted for 4% of the total bank’s loan book.

Fig 1. Kenya’s Historical GDP by Activity

Source: KNBS Economic Survey 2024

Why is there a low credit flow in the Agri- sector despite its value to the Kenyan Economy?

According to the Kenya Bankers Association Centre for Research and Financial Markets and Policy[4], among the key impediments to credit flow in the agricultural sector in Kenya:

  • Perceived High Risk: Banks perceive agriculture as a high-risk sector due to unpredictable weather conditions, pests and diseases, and price volatility. These risks can lead to high default rates, discouraging banks from extending credit.
  • Lack of Collateral: Many smallholder farmers do not have formal titles to their land or other assets that can be used as collateral. This lack of collateral limits their ability to secure loans from formal financial institutions.
  • Informal Nature of Farming: Much of Kenya’s agriculture is conducted on a small scale and is highly informal. This makes it difficult for banks to assess creditworthiness and manage loans since there is limited credible and verifiable data on farmers that could support agri-lending decisions.
  • High Transaction Costs: The costs associated with lending to smallholder farmers, such as due diligence, monitoring, and collection, are relatively high compared to the loan amounts. This reduces the incentive for banks to lend to the sector.
  • Limited Financial Literacy: Many farmers lack the financial literacy needed to understand loan products and manage credit effectively, leading to reluctance to seek formal credit.

What can be done to derisk agri-lending in Kenya?

  • Risk Mitigation Mechanisms: Implementing risk mitigation tools such as crop insurance, weather index insurance, and government-backed guarantees can help reduce the perceived risk of lending to the agricultural sector.
  • Technical Assistance: Offering technical assistance to lenders to improve their agricultural knowledge and risk management practices as well as technical assistance for borrowers to make them more attractive to lenders by improving their corporate governance structures, improving their financial management and management systems and improving their business process to match best in class practices.[5]
  • Innovative Financial Products: Developing tailored financial products that cater to the unique needs of farmers, such as flexible repayment schedules aligned with harvest cycles, can make credit more accessible.
  • Strengthening Farmer Cooperatives: Encouraging the formation and strengthening of farmer cooperatives can enhance farmers’ bargaining power, improve access to credit, and reduce transaction costs for banks.
  • Digital Financial Services: Leveraging digital platforms to offer financial services can lower transaction costs, improve access to credit, and facilitate better credit assessment through data analytics.
  • Improving Financial Literacy: Providing financial literacy training to farmers can help them understand and manage credit better, increasing their willingness to engage with formal financial institutions.
  • Public-Private Partnerships: Encouraging partnerships between the government, financial institutions, and development organizations can help create a more supportive environment for agricultural lending. For instance, the government can provide subsidies or incentives for banks to lend to the sector.
  • Credit Information Sharing: Establishing robust credit information systems that include data on smallholder farmers can improve their credit profiles and make it easier for banks to assess and manage credit risk.


Enhancing credit flow to Kenya’s agricultural sector is crucial for unlocking its full potential and driving economic growth. While the challenges are significant, a combination of risk mitigation, innovative financial products, digital solutions, and supportive policies can create an enabling environment for increased agricultural lending. By addressing these issues, Kenya can ensure that the agricultural sector has the financial resources it needs to thrive and contribute to the nation’s prosperity.

Agri Frontier has done extensive work in this area. See a related article for more information. We would love to speak further, so please get in touch with us.

By Danny Mitchel

[1] https://www.usaid.gov/kenya/agriculture-food-and-water-security#:~:text=The%20agricultural%20sector%20is%20the,percent%20of%20the%20rural%20population.

[2] https://www.fao.org/kenya/fao-in-kenya/kenya-at-a-glance/en/

[3] https://new.knbs.or.ke/wp-content/uploads/2024/05/2024-Economic-Survey.pdf

[4] https://www.kba.co.ke/wp-content/uploads/2022/05/Realisation-of-Full-Potential-of-the-Agricultrural-Sector-Is-Commercial-Financing-a-Core-Missing-Cog.pdf

[5] https://agrilinks.org/post/how-close-agri-sme-financing-gap-evidence-east-africa

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