Why are Kenyan farmers turning to alternative financing instead of banks?

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Kenya’s agricultural financing sector is undergoing a stress test as formal bank lending declines, prompting farmers to turn to faster and more flexible funding channels.

According to a November 2025 Central Bank of Kenya (CBK) survey, the share of farmers borrowing from commercial banks fell to 30%, down from 53% in September.

During the same period, loans from friends and family rose to 25% (from 6%), digital lending platforms accounted for 23% (up from 13%), and buyer credit (where produce buyers advance inputs) rose to 18% (from 0%).

Lending in Kenya

Only about 3% of Kenyan commercial banks’ total loan portfolios are allocated to agriculture, a small fraction compared with global peers.

Banks often classify farming as high-risk due to climate volatility, fluctuating commodity prices, and limited verifiable production data. Farmers themselves report fears of losing land in the event of harvest failure, discouraging formal borrowing.

Digital loans and mobile platforms, including Fuliza, now play a critical role in addressing urgent cash needs, from seed purchases to labor payments. The “buyer-funder” model is also expanding, with farmers receiving inputs such as fertilizer or seeds in advance of harvest from produce buyers, completely bypassing banks.

SACCOs have seen a growing share of agricultural lending, rising to 44% of borrowers by late 2025, while informal loans from friends and family jumped from 6% in mid-2025 to 25% in early 2026.

International Comparisons

United States

The Farm Credit System (FCS) is a nationwide network of borrower-owned lending cooperatives. These institutions raise funds by issuing bonds rather than taking deposits, and members receive patronage refunds that effectively reduce interest costs.

FCS loan officers specialize in agriculture, offering repayment schedules aligned with seasonal cycles. For farmers unable to access loans from FCS or commercial banks, the U.S. Department of Agriculture’s Farm Service Agency provides direct loans or guarantees up to 95% of commercial bank loans, reducing lender risk.

China

Rural Commercial Banks, reformed from older Rural Credit Cooperatives, and the Agricultural Bank of China serve as the main agricultural lenders.

State-owned banks provide targeted loans for seed production, irrigation, and agricultural infrastructure, while more than 3,000 government-backed credit guarantee schemes cover potential losses, encouraging lending to smallholders.

Interest payments are often subsidized, reducing the effective borrowing cost compared with informal village loans. The system also consolidates smaller rural banks into larger entities to improve credit quality and operational stability.

India

India mandates “Priority Sector Lending,” requiring commercial banks to allocate at least 18% of total loans to agriculture. The system is supported by the National Bank for Agriculture and Rural Development (NABARD), which provides low-cost refinancing.

The Kisan Credit Card (KCC) program offers farmers a revolving line of credit at subsidized interest rates, sometimes as low as 4% if repaid on time, with loan limits on collateral-free borrowing up to ₹1.6 lakh.

Banks face penalties for failing to meet lending targets, ensuring consistent capital flow into rural areas.

Kenya’s Banking Approach Remains Conservative

Agriculture in Kenya is primarily served by commercial banks such as KCB and Equity, alongside SACCOs. Lending remains cautious, heavily reliant on land titles rather than production-based credit assessments.

Interest rates remain elevated even after the CBK cut the Central Bank Rate to 9% in 2025, due to risk-based margins. Repayment schedules largely demand fixed monthly installments, although some products like KCB’s Agri-Business Loan have started offering crop-aligned terms.

Jefferson Wachira is a writer at Africa Digest News, specializing in banking and finance trends, and their impact on African economies.