Lukas Barake & Anne Mwenje - Jul 07 2022
Lending to the Agriculture Sector in Kenya: How Accurate is the Data?

Source: Kenya Investment Mechanism

The performance of Kenya’s agriculture sector is currently in the limelight thanks to the recent publication of data from the Kenya National Bureau of Statistics (KNBS), showing that the sector contracted by an estimated 0.9% in 2021.

However, the Central Bank of Kenya (CBK) has flagged the reported numbers, casting doubt on the quality of data and creating concerns that the accuracy of the data may affect lending to the sector

For a program like USAID’s Kenya Investment Mechanism, whose main objective is to mobilise capital and increase access to finance for smallholder farmers and small businesses in the agriculture sector, the availability of accurate, credible, and reliable data cannot be overstated. Investors can’t be expected to invest in an area where their likelihood of a return can’t be measured.

Beyond demonstrating the impact of development interventions, accurate data is necessary to inform effective policies and strategies that can bridge the gap in agricultural financing. Imperfect or irregular information only impedes the allocation of resources toward and within the agricultural sector.
Given that the agriculture sector is the single largest contributor to Kenya’s GDP and employs more than 40%of the total population and 70% of the rural, it’s ironic that the sector is also one of the least funded of the economy – gross loans accounted for only 3.6% of total lending in 2020.

According to the CBK Bank Supervision Annual Report 2020, personal and household loans accounted for 28.6% of total loans, while trade, manufacturing, and transport and communications accounted for 17.2%, 13.7%, and 7.45% respectively, revealing how grossly underfunded Kenya’s agriculture sector is.

But there are similar concerns about the accuracy of data on financial institutions’ lending to the agriculture sector.

Analysts in the banking and financial sector believe that this data is not a true reflection of the total lending that goes to the agriculture sector. According to Simon Kinuthia, ABSA Bank’s Head of Agribusiness, the low level of lending to agriculture is the result of how loans are classified by most financial institutions.

For instance, loans to agriculture industries such as millers and processors are classified as manufacturing, while a significant portion of trade and personal loans are invested in agriculture related activities. Additionally, where a bank’s customer is importing or exporting any agricultural produce, they will often use Letters of Credit, Factoring, or Export Financing, which banks classify under trade facilities and not lending to agriculture – leading to reduced reporting under agriculture.

Mary Achini, Cooperative Bank’s Business Development Manager for Agri-Cooperatives, also agrees that if all loans that support agriculture related activities were factored into the equation, including asset finance, personal loans, transport, and logistics, total lending to agriculture would be higher than what is reported.

This reveals the considerable need for collection, organisation, analysis, and dissemination of a broad range of agricultural finance data sets and not just the aggregate data on loan portfolios to the agriculture sector. Such data from financial institutions, coupled with other survey research, could contribute to continuous and strategic reviews of agricultural finance and lead to sound policy.

With Kenya’s agriculture sector projected to grow by 6.3% in 2022, efforts to increase lending to this critical segment of the economy will need to be enhanced. But such efforts will only be effective when there are systems in place to accurately measure and report on actual lending to the sector. Availability of accurate data on lending to the agriculture sector is critical in informing development interventions to increase access to finance for agribusinesses and smallholder farmers across the country.

Development programs such as the Kenya Investment Mechanism will greatly benefit from this data to strategically align the designed interventions and ensure that we are focusing on the right sectors or sub sectors for greater impact.

Regulators such as the CBK have an integral role in the development of a more robust framework for accurately capturing data on lending to the agriculture sector by banks and other financial institutions that it regulates.

Financial institutions will also need to streamline their internal tracking and reporting systems to ensure that loans are better classified to demonstrate where the money is going.

Only then will lending to the agriculture sector be accurately measured.
This will not only inform but can exponentially improve efforts by the public and private sectors to increase and optimise lending to the agriculture sector and provide access to finance for thousands of smallholders and small- and medium-sized enterprises across Kenya.


Lukas Barake is the KIM Monitoring and Evaluation Director and Anne Mwenje is KIM’s Financial Institutions’ Director. For more information, visit Kenya Investment Mechanism’s website or Linkedin and contact INVESTinKenya@thepalladiumgroup.com for more information.