By Bob Aston
Information asymmetry between farmers and financial institutions often results in adverse selection, unsuitable loan products/terms and exclusion of some farmers from the credit market. This problem is being addressed by the Association of Kenya Credit Providers (AKCP) through its Credit Information Sharing (CIS) project which offers a comprehensive range of information shared.
With the collection and sharing of credit history, farmers are
finally gaining a credit identity and one that most financial institutions are
increasingly prepared to lend against. This has led to improved agricultural
production and an orderly, efficient and stable credit market.
Information asymmetry between farmers and financial institutions often results in adverse selection, unsuitable loan products/terms and exclusion of some farmers from the credit market. This problem is being addressed by the Association of Kenya Credit Providers (AKCP) through its Credit Information Sharing (CIS) project which offers a comprehensive range of information shared.
Jared Getenga, Interim Chief Executive Officer from the
Association of Kenya Credit Providers (AKCP) was at the Fin4Ag Conference:
revolutionising finance for agri-value chains which is taking place at the
Kenya School of Monetary Studies to highlight the importance of CIS during the
plug and Play Day.
CIS is a mechanism through which various lenders electronically
pool and pull borrower information using centralised (credit reference bureau)
databases, with the aim of addressing information asymmetry between borrowers
and lenders.
One of the biggest things holding back farmers is credit access.
Agricultural financing is often affected by lenders’ insistence on physical
collateral like land as a primary consideration in credit decision-making.
CIS has been helping in reducing reliance on tangible collateral
which leads to a faster turnaround time processing credit thus resulting in
increased access to affordable credit for farmers.
Photo: Gwendolyn Stansbury/ IFPRI |
CIS helps farmers to build a credit history for negotiating better
credit terms such as lower interest rates, and more flexible installment plans.
This has also resulted in improved liquidity thus improving the supply of
loanable funds available to finance agricultural needs of farmers in various
stages of the value chain.
AKCP has created a sharable pool of credit data that gives banks
and other lenders more confidence to lend to farmers.
AKCP has already signed up banks, licensed MFIs, development
finance institutions and the M-Shwari mobile phone-based loan product to its
CIS project, which provides a framework under which credit providers log both
positive and negative data about clients through credit reference.
Over the next 12 months AKCP will also enable savings and credit
cooperatives (SACCOs) to participate and will work to enrol non-traditional
lenders like utilities and solar light providers, which will be able to provide
data as simple as whether a smallholder farmer pays his electricity bill.
A big part of giving credit to small holder farmers is that there
is no formal record of their credit history. Without the ability to make credit
assessment banks are reluctant to lend to them.
The availability of credit information facilitates a transition
from collateral based lending to greater reliance on information in the credit
risk appraisal process. This has helped to ensure greater financial inclusion
among farmers in the agricultural finance value chain.
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