The Kenyan financial sector has seen rapid growth and expansion in the recent past mainly through private sector investment and the entry of new dynamic local banks into the market. However, less successful have been efforts to reduce interest rates and expand access to the poorest segments of the population, particularly those in rural agricultural sector. An overview of the financial sector landscape shows a number of gaps as concerns rural areas and the provision of financial services for agricultural activities, key amongst them being: unequal access (breadth); exclusion of the poor (depth), narrow range of services (variety), products do not match demand and circumstances (quality), non-optimal interest rates plus high transaction costs (cost), and fragile institutional sustainability (sustainability). Given this scenario, initiatives focused on expanding rural access to finance are a big priority for the Kenyan Government and its development partners.
It is against this backdrop that the Kenyan Government and AGRA are partnering to implement the International Fund for Agricultural Development (IFAD) funded Program for Rural Outreach of Financial Innovations and Technologies Program (PROFIT). Which spans over eight and a half-year period (Dec 2010- June 2019). The Programme is implemented under the Directorate of Budget, Fiscal & Economic Affairs of the National Treasury through agreements with various implementing partners including AGRA.
The rationale for PROFIT’s intervention is based on three key constraints: Firstly, limited access to financial services is a major constraint to increasing efficiency in smallholder farming. e. This limits the amount of produce a farmer can market and acts as a disincentive to reaching productive potential. Secondly, is limited technical assistance for business services to help the smallholder farmers and agri-SMEs to enhance productivity, market and financial linkages for agricultural and rural growth. Thirdly, the commercial banking sub-sector despite its vibrancy and rapid growth still holds considerable liquidity but its risk perception of small-scale stakeholders in the agricultural and rural sectors is very high. On the other hand, the rural Savings and Credit Co-operative Society (SACCO) and microfinance sub-sectors, while have demonstrated good outreach to the rural areas, have challenges of governance and deposit mobilization respectively.
PROFIT’s Intervention is therefore focused on de-risking the agricultural sector and incentivizing the financial institutions at the same time providing technical assistance on the supply side to support development of appropriate and broad range of financial products. Similarly, on the demand side, agri-SMEs and smallholder farmers are supported to improve business and financial literacy skills to enhance productivity, market and financial linkages. In addition, rural SACCOs are supported to enhance governance and develop appropriate financial services.
The overall goal of PROFIT is to contribute to the reduction of poverty in rural Kenya. Its aim is to reach 287,750 smallholder farmers, artisanal fishermen, pastoralists, women, landless labourers and youth. The PROFIT development objective is to increase incomes of the target group as a result of improved production, productivity and marketing in the various rural enterprise sectors. Through PROFIT, the following three development outcomes are pursued:
- Enhanced and systemically sustainable access of poor rural households to a broad range of cost effective financial services;
- Target group effectively manages assets, markets produce and increases employment;
- Efficient and cost effective use of programme and complementary donor resources to achieve the development objective.