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Inside the push to fix Africa’s broken agriculture finance system
Delegates follow proceedings during the financing agriculture sustainably conference themed: positioning Kenya for resilient agriculture enterprises at Safari Park Hotel, Nairobi on March 27, 2024.
Chepkorio Dairy in Elgeyo Marakwet County is widely held aloft as a standout farmer organisation in Kenya’s dairy sector.
From its relatively modest beginnings as a cooperative helping members market raw milk in the neighbourhood in 2009, it has since scaled to a robust agribusiness enterprise dealing in milk aggregation and livestock feed production.
Much of that growth has happened in the past five years after the cooperative tapped asset grants under a catalytic financing project backed by Heifer International Kenya, a non-profit organisation that works with smallholder farmers.
Catalytic financing is an investment approach where cheaper capital from public or philanthropic sources is deployed to absorb initial risks, attracting financial institutions to advance loans to enterprises that would otherwise remain excluded.
Chepkorio Dairy used the grants from the Heifer International Kenya’s Dairy Sector Catalytic Growth Project to purchase refrigerated vans and modern pasteurizers, which has enabled it to cut losses from milk spoilage.
But the impact of the funding was felt beyond the transport and storage equipment: it gave formal financiers such as banks and savings and credit cooperative societies (saccos) the confidence to lend to the cooperative, unlocking affordable credit for its members.
“Catalytic capital comes in to absorb that early-stage risk and support enterprises to demonstrate performance. And once that happens, you begin to see commercial lenders come in with much more confidence. At Chepkorio Dairy, catalytic financing enabled access to loans at around 10 percent, compared to 14-18 percent from commercial sources,” says Wairimu Munyinyi-Wahome, country director for Heifer International Kenya.
Economic contribution
Agriculture remains a key economic sector in Kenya, accounting for about 20 percent of the gross domestic product (GDP), employing at least 40 percent of the workforce, and serving as a source of livelihood to between 60 and 70 percent of the rural population.
Under the ambitious Kenya Vision 2030 blueprint, which sought to transform Kenya into a newly industrialising, middle-income country, agriculture was identified as one of the key sectors to deliver a 10 percent annual economic growth rate.
But its contribution to the economy has stagnated, partly because of chronic underfunding.
The proportion of Kenya’s national budget allocated to agriculture has for years swung between 1.3 percent and 3.0 percent, with social services such as education and health taking the lion’s share of the government’s spending plan.
This falls far short of the 10 percent target set for African Union (AU) member countries under the Comprehensive African Agriculture Development Programme (CAADP).
Commercial bank lending to agriculture is, meanwhile, stuck at 3.0 percent of private sector credit because banks perceive smallholder farmers, who account for 80 percent of Kenya’s total food production, as high-risk borrowers.
The ‘missing middle’
Agricultural small and medium enterprises (agri-SMEs) and farmer organisations such as Chepkorio Dairy face the problem of the ‘missing middle’, an industry term used to describe a unique credit gap created by being deemed too big for microfinanciers and too small and risky by traditional commercial banks.
A market analysis by Financial Sector Deepening (FSD) Kenya showed that commercial banks mainly shunned lending to agriculture because of a lack of good underwriting data and skills, high operational costs associated with serving smallholder farmers or enterprises in remote areas through brick-and-mortar financing models and risks posed by the sector informality, commodity price swings, rain-fed farming and changing weather patterns.
Innovative financing models
But development sector players in agriculture believe the traditional finance system is fundamentally broken and are pushing for adoption of innovative funding models such as catalytic and blended finance to bridge the agricultural credit gap.
“The issue is not the absence of capital; it’s that financial architecture doesn’t fit rural realities. Agriculture is seasonal, it’s exposed to risk, and often operates without formal data. But most financial products are designed for predictable, year-round businesses. So, there’s a clear mismatch,” says Ms Munyinyi-Wahome.
“We’re seeing that when financing is structured well, it performs. Even with digital and structured financing models, repayment rates are strong.”
The push for a sustainable financial architecture for Africa’s agriculture is expected to take centre stage at this year’s Financing Agri-Foods Systems Sustainably (FINAS) summit next week in Nairobi.
More than 1,000 participants, including senior government officials, bank chief executive officers, private investors and development NGO executives, are expected at the forum organised to discuss innovative ways to close a $100 billion financing gap for the continent’s food systems.
The turning point
Prof Hamadi Boga, vice-president in charge of programme delivery at AGRA and the chairman of the FINAS secretariat, says the summit represents a turning point for the agricultural finance agenda in Africa.
“FINAS 2026 is about moving beyond commitments to coordinated delivery. By bringing together policymakers, financiers, and practitioners, the summit provides a platform to unlock capital at scale and translate policy ambitions into bankable investments that reach farmers and agri-enterprises,” Prof Boga says.
This year’s summit comes against the backdrop of external economic shocks related to the US-Israeli war with Iran, which has disrupted fertiliser and food supply chains due to the closure of the Strait of Hormuz, a key waterway, since March.
And amid the protracted Russia-Ukraine war, major donors such as the US, the UK, Germany and France have significantly cut internal aid, prioritising defence, regional security and domestic economic interests in their budgets.
Opportunity in geopolitical shocks
Jared Ochieng’, agriculture and processing finance lead at FSD Kenya, says the geopolitical shocks should reawaken Africa to the need to design a sustainable financial architecture.
“We have seen the cost of capital rise, significant disruptions in trade flows and a growing mistrust in international cooperation. There is a chance to rethink and chart a way forward by designing systems that allow us to not only cushion ourselves [against external shocks] but also work for us,” says Mr Ochieng’.
