Agriculture is the backbone of Kenya’s Economy. It has been the source of income for millions of families in Kenya, practised in both small scale and large scale. However, sourcing for finances to invest in agriculture from formal financial institutions never gets any easier for farmers. It takes farmers more hustle to get a loan from commercial bank, because of the nature of their business. Investing in agriculture is risky as there is so much uncertainty and unforeseen events like floods, drought, that could negatively affect the returns.
With high levels of risk comes high default rates that affect the loan a book s for banks. To mitigate the high default rate, formal lending institutions are forced to charge high interest, to cushion themselves, but in so doing farmers are discouraged from getting loans from them. Suppose a majority of the population are farmers, who cannot get loans from banks because they are expensive, banks will target other stable and fast-rising sectors like manufacturing.
Manufacturers in Kenya are among the key contributors to the GDP of Kenya. They are the largest taxpayers to KRA and have been the means to an end for many youths in Kenya who wallow in abject poverty and unemployment. According to an economic survey by the National Bureau of Statistics 2020, Commercial Banks advanced more credit to manufacturers. In 2019, commercial banks credit to the manufacturing sector increased by 9.2 per cent from KSh 334.6 billion in 2018 to KSh 365.4 billion, while credit advanced to agriculture decreased from KSh 83.0 billion as at December 2018 to KSh 81.0 billion as at December 2019.
Hotels and tourism industry are also sectors commercial banks generously give credit to. The report revealed that credit advanced to Wholesale and retail trade, hotels and restaurants increased by 8.9 per cent to KSh 467.4 billion in 2019. In the public sector, commercial banks credit to the National Government increased by 13.4 per cent to KSh 1,084.8 billion while credit advanced to Enterprises, Parastatal bodies and other Public entities decreased by 8.9 per cent to KSh 88.0 billion as at December 2019.