By Bob Aston
Limitation in access and utilisation
of agricultural finance results in inefficient agri-value chains, as actors
utilise rudimentary business approaches. This heightens agricultural risk,
which makes the need for agri-risk management tools even more important to
mitigate risks.
Participants at the Fin4Ag Conference: revolutionising
finance for agri-value chains, which took place at the Kenya School of Monetary
Studies (KSMS) from 14-18 July, 2014, looked at workable solutions that can be
used to mitigate against financial risks.
Session 41 on Risk management tools for agriculture finance, which was
chaired by Prof. Nuhu Hatibu, Chief Executive Officer, Kilimo Trust
Uganda, examined how agri-value chain actors’ access to finance can enhance the
efficiency of operations and ensure the realisation of value chain actors
objectives in a manner that is supportive to the sector.
Some delegates sharing ideas |
Lending to the agricultural sector
has been slowed by the preponderance of unaddressed risks associated with the
sector. In some instances, uptake of credit by agri-value chain actors is even
constrained when credit is accessible. The challenge of risks affecting the
sector cuts across value chains, actors, and gender.
While addressing delegates, Annastacia
Kivuva, Head – Trade Promotion Unit, Agribusiness Department at the
Ministry of Agriculture livestock and Fisheries in Kenya, noted that trends in
lending among Kenyan commercial banks indicate that banks invest only about 6%
of their total portfolio in agribusiness and the percentage is trending
downwards.
She informed participants that the
national budget allocation of most African countries still trail far behind the
Maputo declaration. She cited the case of Kenya, where agriculture was
allocated only 4% of the total budget.
“During an International symposium
hosted by Kilimo Trust in 2013, lenders indicated that they have the resources
and means to fund agribusiness, but not with the current low capacity of
absorption,” said Annastacia.
The limited absorption capacity in
agribusiness comes with its own risks as well. As Esther
Muiruri noted during the session, it is important for financial
institutions, as well as farmers, to factor in risks for any eventuality that
may arise. People cannot wish risks away; mitigation factors have to be put in
place to help minimise risks.
Marketing, personal, financial and
production risks are some of the issues that need to be addressed in order to
help farmers. So, as Muiruri urged, farmers should look at production factors
before planting as it is important to know if the crop planted will be in
demand or not.
“We need to put more effort in the
part of a farmer on inclusive insurance cover. The issue of post harvest
management also needs to be addressed as most farmers usually lose their
produce during such times,” said Esther.
She noted that high levels of
inflation negatively affects farmers as it makes loan repayment burdensome
while others are unable to borrow from financial institutions due to high
interest rates brought as a result of inflation.
She said that Equity Bank has been
engaging staff who are knowledgeable in crop husbandry as a risk mitigation
strategy. In this set-up, staff members usually deal directly with farmers and
can enhance the capacity of farmers in crop husbandry.
Other risk mitigation approaches
include: doing market driven financing, using technology to reduce costs,
working through partnerships (like forming risk management fund), working with
farmer organisations, structuring value chain through reduction of
inefficiency, taking up successful models and adoption of proper policies.
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