Low interest rates, reforms spur high loans to coffee farmers

Coffee beans/KNA

Around 500 small scale farmers drawn from 27 counties out of 32 coffee-growing regions, have borrowed Sh6.7 billion from the Coffee Cherry Advance Revolving Fund.

This is thanks to the ongoing reforms championed by the government and counties that has seen the fund that is administered by the New Kenya Planters Cooperative Union (New KPCU) see 497,221 farmers borrow the fund at the end of last week.

According to New KPCU Managing Director Timothy Mirugi who spoke during a press interview, this is attributed to an increase in loan borrowing following low interest rates and improved governance disbursement systems.

Mirugi confirmed seven counties from the Mount Kenya region have, as of December 19, 2024, borrowed Sh4 billion of the total amount, accounting for 59.7 per cent of the total fund.

“The loans advanced to farmers have increased to Sh6.7 billion compared to Sh1.1 billion advanced as of November 14, 2023, accounting for a 500 per cent increase,” he confirmed.

He noted that the increase largely has been motivated by the reduction in paper work and awareness by the government and improvement in prices at the Nairobi Coffee Exchange (NCE).

According to the Coffee Directorate at the Agriculture Food Authority (AFA) the country has 800,000 coffee farmers.

Nyeri County topped the list of beneficiaries with 82,927 coffee growers borrowing Sh943.4 million, followed by Kirinyaga with 99,258 farmers as beneficiaries of Sh845.6 million.

Kiambu, Murang’a, Embu, Meru, and Tharaka Nithi counties have 129,501 farmers in total who borrowed Sh820.6 million, Sh579.2 million, Sh449.9 million, Sh319 million and Sh46.7 million, respectively.

Other top borrowers include Kericho County, where 32,258 farmers borrowed Sh624.5 million; Bungoma County (Sh414 million); and Trans Nzoia County farmers applied for Sh319.2 million.

“The increase in loan advancement has been prompted by a lack of collateral conditionality apart from coffee and cherry required, no cumbersome paperwork like the financial institutions as long as you are proved to be a coffee farmer who is producing coffee in Kenya.

“Further introduction of the Direct Settlement System (DSS) as a payment system has motivated the farmers' morale,” said Mirugi. 

He added, "Today, it takes less than 72 hours after applying for the loan unlike before where it could take five to 14 days and with huge paperwork. We can confirm that the ongoing reforms have immensely contributed to transparency and thus promoting farmers to borrow to meet their daily financial obligations, for example, paying school fees, buying farm inputs and funding their infrastructure development." 

The Capital Markets Authority (CMA) has so far licensed 16 coffee brokers to trade at NCE, the majority of whom are firms owned by small scale farmers.

Mirugi noted the increase in borrowing by farmers at three per cent has been supported by the implementation of coffee reforms that national government and counties have been undertaking, for example, enhancing transparency in coffee marketing and payment.

Coffee production in the country currently oscillates between 40,000 and 50,000 metric tonnes, but the government has guaranteed to fast-track more reforms to boost output to over 150,000 metric tonnes by 2027. 

Last month, Mirugi confirmed the National Treasury released New KPCU Sh750 million as part of this financial year’s factored allocation.

Launched in August 2023 and Cooperative Bank of Kenya appointed as the implementing agency, DSS, Mirugi stated it has assisted in loan recovery and stands at zero default. 

DSS is a technology platform on which coffee trading is conducted as provided for in the new coffee trading regime supervised by the Capital Markets Authority (CMA).

Mirugi observed that the increased borrowing of loans from the kitty has led to the introduction of coffee in nontraditional regions such as Trans Nzoia, Uasin Gishu, Nandi, Migori, Nyamira, Baringo, and Kisii.

“We have witnessed an increase in coffee bushes in parts of the Rift Valley, Western, and Nyanza regions, an indication that national coffee production will increase greatly in the next three years,” he added.

Since the beginning of the 2024/25 coffee year in October, 81,745 farmers have borrowed Sh1.182 billion. Kirinyaga County led in the last three months as 27,368 farmers borrowed Sh267 million, followed by Kiambu County (Sh194 million), Machakos County (Sh170 million), and Embu County (Sh112.3 million).

The Coffee Cherry Advance Revolving Fund (CCARF) was established to provide affordable, sustainable, and accessible cherry advance to smallholder coffee farmers whose land under coffee does not exceed 20 acres.

In March 2019, former President Uhuru Kenyatta announced the establishment of a Sh3 billion cherry advance revolving fund as part of bigger plans to revive the struggling coffee subsector.

Kenya Kwanza Government boosted the fund with Sh4 billion more in December 2023 to accelerate recovery of the onetime leading foreign exchange earner in the country.