Barclays have launched an agribusiness unit in Kenya, with the objective of operating a 1-year lending programme for small- and medium-sized businesses.
The money, which the bank said is repayable according to agricultural cycles, will come from an 30 billion shillingcache. Barclays also said it also wants to offer more sizeable loans for larger projects through corporate lending.
Barclays Kenya managing director Jeremy Awori said that Barclays Kenya, which has set up the unit with African partner-bank Absa, is determined the programme will help turn the country into a net food exporter. But while investors in the region are eyeing up with interest, some also remain sceptical as to how far-reaching the programme will be.
“Until now commercial banks in the region have often announced intentions to increase lending to the agriculture sector,” said Pearl Capital Partners managing director Tom Adlar, “but these announcements have seldom lead to any noticeable increase in the flow of funds to the sector.”
Nevertheless, Adlar remains sceptically hopeful that the new unit could work, and begin laying the road to increased access to financial services for the agricultural sector.
More lending could help businesses invest in better seed quality, processing plants and other technology to increase yields. Although agriculture accounts for 60 percent of employment in Kenya, the country faces daunting food security issues. The Kenyan government aims to achieve food security and significantly increase exports by 2030, and part of that programme will need to include new irrigation and fertiliser projects as well as wider use of drought-resistant seeds.
“The cost of debt finance, allied to its short-term nature, makes it almost prohibitive for agricultural businesses to borrow for any other purpose than seasonal or trade finance,” said Adlar. “There is a critical shortage of medium to long-term lending to the agri sector in East Africa.”
Without higher levels of equity and long-term debt, Adlar said, “We will not see the sort of growth and new business we need for Africa to realise any of its potential for increasing productivity and performance in the agri sector.
“So, what I would welcome is more seasonal capital and more trade finance instruments appropriate to the sector, and I hope that’s what this unit will be focusing on.”
But Adlar added rolling out too many loans at high speed might put some farmers at risk: “In some ways, given the high cost of credit in East Africa and the short tenor of loans, [that commercial banks don’t always deliver] isn’t a bad thing, as their borrowers would almost certainly be at high risk of default.”