Financial Inclusion

Despite their socioeconomic importance, smallholder farmers face a myriad of challenges; key amongst them, access to finance. Facilitated access to capital and other financial products, plays an important role in the overall strategy to improve the productivity of smallholders, their livelihood and food security while promoting improved agricultural yields. In addition, other financial services such as insurance and saving products may reduce the risk of external shocks, smooth cyclical cash flows of farmers and help them manage their farm as a viable business.

It is against this backdrop that the Kenyan Government and AGRA are partnering to implement the IFAD funded Program for Rural Outreach of Financial Innovations and Technologies Program (PROFIT). PROFIT’s intervention is based on three key rationale: First, a major constraint to increasing efficiency in smallholder farming, is the limited access to financial services. This limits the amount of produce a farmer can market and acts as a disincentive to reaching productive potential. Second, while finance is a key constraint for agricultural and rural growth, technical assistance for business services in helping the smallholder farmers to enhance their productivity, linkages with markets and market intermediaries, is also required. Similarly, market intermediaries (SMEs) need similar help to enhance the scope of their operations which can then enable them to procure surpluses from farmers. Third, assessment of Kenya’s financial sector reveals that it faces some key constraints, in spite of its vibrancy and rapid growth. The commercial sector has considerable liquidity but its risk perception of small-scale stakeholders in the agricultural and rural sectors is very high. This is particularly the case for women and youth.

PROFIT is focused on the following areas: de-risking the agricultural sector and incentivizing the financial institutions to offer a broad range of financial services to smallholder farmers and SMEs, technical assistance to financial institutions to develop appropriate agri-finance strategies and demand driven products, and capacity building on the demand side to SMEs and smallholder farmers to improve their business and financial literacy skills and hence visibility to financial institutions.