African Farmers Strangled by Credit Crunch

Accra – Despite lofty promises of agricultural development and farmer support, Africa’s farmers continue to be starved of crucial credit, hindering the continent’s food security ambitions.

Lenders have consistently prioritized other sectors, finding them more profitable, while governments’ attempts to manipulate interest rates have yielded little success. The result is a high cost of borrowing for farmers. Even when banks do extend agricultural loans, there are allegations of funds being diverted to other areas.

Kenya’s experiment with interest rate controls in 2016 is a case in point. While intended to lower borrowing costs, the policy backfired, leading to increased rates due to heightened default risks associated with farming.

Data reveals that agricultural credit has consistently hovered below 20 percent of overall loan portfolios in many African countries since 2015. This shortfall is exacerbated by limited government funding and the intensifying impacts of climate change.

“Banks often misclassify agricultural loans,” said Kwesi Korboe, an agricultural finance expert. “For instance, a loan to a tomato processor might be labeled as manufacturing credit.” Korboe made these remarks at a recent agricultural credit forum in Kampala.

Ghana’s agricultural loans accounted for a mere 3.2 percent of the total loan book at the end of 2023. The situation is not isolated; Kenya and Uganda face similar challenges. While Uganda saw a surge in agricultural loans between 2016 and 2023, largely driven by insurance uptake, the overall volume remains relatively small.

Poor documentation by farmers is another stumbling block. This increases lending risks and deters banks from investing in the sector.