The agriculture sector was the lowest recipient of loans from commercial banks in the 11 months to November last year as the lenders grappled with low capacity to price default risks in the sector. Treasury data shows that the industry received Sh1.6 billion in the eleven months, a relatively low figure compared to other sectors despite it being the backbone of the Kenyan economy. Trade was the largest recipient at Sh48.2 billion, finance and insurance (Sh44.6 billion), consumer durable (Sh30 billion), manufacturing (Sh21.7 billion), mining and quarrying (Sh11.1 billion) and real estate at Sh6.6 billion. "Most banks do not understand how to handle agricultural loans in terms of seasonality and structures so they avoid them," said a credit risk manager in a large bank who sought anonymity. Central Bank of Kenya data showed that total loans advanced to the sector shrunk by Sh1.8 billion in the year to October indicating that loan repayments were more than new disbursements. Agricultural loans dropped to Sh53.5 billion in a period when the CBK predicted improved performance from the sector. "Most indicators of performance in agriculture in the year to September 2013 point to favourable outcome. Among selected crops, production of tea, horticulture, milk and sugar cane increased," said CBK in its October monthly report. Loans issued to farmers represent less than three per cent of the Sh1.6 trillion loaned out to the private sector by banks despite it contributing a fifth of the country's GDP. The credit risk manager noted that most banks systems were unable to tie the credit to the farmers' cashflow resulting to them burdening the borrower with untenable monthly repayments. The unpredictability of the sector performance, which is dependent on weather, has also seen bankers keep away in efforts to avoid bad loans. In August last year maize farmers in Trans Nzoia were reported to have suffered losses estimated at Sh53 million following a heavy hailstorm in the area. Insurers are making efforts to bridge the gap by introducing index-based weather insurance for both crop and animal farmers. The farmers make a claim to the insurer when the performance of their crop is adversely affected by weather. READ: APA launches index-based weather insurance for maize farmers Agriculture has been a source of distress to some lending institutions like Faulu Kenya which wrote off bulk of loans issued to farmers in North Rift Kenya in 2010 due to defaults and also the government-owned Agricultural Finance Corporation . International institutions have made efforts to support the sector by offering guarantees to the banks in efforts to encourage them to support the sector. Equity Bank has been working with World Food Programme where farmers access finance to purchase farm-inputs for crops and to aggregate produce which they sell to WFP. The government has also declared its intention of using agriculture to create job opportunities. It was not however clear whether loans disbursed to agribusiness companies such as those in horticulture industry are categorized under agricultural facilities.
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