Economic opportunities for thousands of small holders across Kenya are to be transformed under a new EUR 50 million (KES5.7 billion) agriculture sector financing programme, the Kenya Agriculture Value Chain Facility, launched by the European Investment Bank in Nairobi on Thursday and supported by the European Union.
The new initiative represents the first dedicated support for long-term investment by agriculture companies in Africa backed by the European Investment Bank, the world’s largest international public bank. The scheme is designed to tackle specific investment gaps currently hindering expansion in the sector.
“The European Investment Bank is pleased to launch our first dedicated support for long-term investment in African agriculture here in Nairobi. Working with Equity Bank across country the new Kenya Agriculture Value Chain Facility will help agriculture companies to modernise and harness the full economic, employment and export potential of agriculture as well as expand business with local smallholders. As the EU Bank, the EIB is pleased to strengthen our close cooperation with Kenyan partners and the European Union Delegation to ensure that agricultural investment can increase under an exciting new scheme that acts as a model for our engagement across Africa.” said Catherine Collin, European Investment Bank regional representative for East Africa.
Equity Bank is the first Kenyan partner to participate in the Kenya Agriculture Value Chain Facility and other financial institutions are expected to join later. Equity Bank is one of the key financial institutions supporting the agricultural sector in Kenya and is a leading provider of financial services to rural communities and smallholders.
“The Kenya National Government’s Big 4 Agenda includes Manufacturing and Food Security (Agribusiness). Equity Bank has aligned its strategy with this national agenda, to focus on growing the Agribusiness portfolio through servicing all segments from retail, to SME to large enterprises and corporate banking customers,” said Polycarp Igathe, Equity Bank Kenya Managing Director. Equity Bank has identified the potential for growth, by adding medium size and large commercial farmers to the Agriculture portfolio as well as focusing on financing of the Agri-Food processing companies.
“This credit facility will be used for on-lending of up to 50% of project costs to beneficiaries who are eligible. The enterprises we are targeting include Value Chain SMEs in agribusinesses that are supporting a smallholder farmer base,” added Igathe.
Unlocking long-term investment to strengthen Kenyan agriculture
The new agriculture financing initiative will address the gap of long-term funding in the sector identified as a key barrier to growth.
Agriculture is the leading source of economic activity, employment and exports in Kenya. Agriculture contributes directly and indirectly to 51% of Kenyan GDP and accounts for 60% of jobs in the country.
Under the new financing programme agricultural companies across Kenya will be able to access Kenya Shilling loans with maturities of up to 7 years, longer than commonly available in the market. This is expected to help companies to expand, upgrade and modernise their equipment thereby improving productivity, and strengthening integration of smallholders into the agricultural value chain.
The new initiative is designed to increase investment activity by agricultural companies and by making available funding in Kenya Shillings will mitigate against exposure to foreign exchange risks that currently hinder agriculture investment.
Improving specialist banking support for Kenyan agriculture
The impact of the new Kenya Agriculture Value Chain Facility will be strengthened by a dedicated technical assistance programme. This will improve financial assessment and monitoring of long-term agriculture investment by local banks.
Building on European Union Key initiative to strengthen financial inclusion across Africa
The new European Investment Bank financing scheme will be supported by a EUR 10 million grant under European Union’s Kenya AgriFI programme. This will cover currency-hedging costs and technical assistance.
“It is good to see the European Union’s bank, the European Investment Bank, partner with Equity Bank. This is the first time the EU funds the private sector in the agricultural sector in Kenya directly. There is a great deal of expectation on this new approach. The EU chose it in Kenya because we recognize that smallholder farmers do not need handouts: they need an enabling environment to be successful market operators. This requires access to finance and reducing the risk of investing in a difficult environment.” said Walter Tretton, Chargé d’affaires of the European Union delegation to Kenya.
Expanding the impact of EIB support for private sector investment
The Kenyan scheme is part of the European Investment Bank’s ongoing support to strengthen private sector investment and entrepreneurship across Africa through new financing and technical assistance aimed at institutional strengthening.
Since 2007 the European Investment Bank has made available EUR 1 billion for private sector investment in East Africa through credit lines in both local and international currency in partnership with more than 25 banks and financial institutions active in Uganda, Kenya, Tanzania and Rwanda.
This has supported new investment by entrepreneurs and companies active in trade, agri-business, fishing, food processing, manufacturing/ industry, construction, transport, tourism, and services.
In the last decade the EIB has provided more than EUR 6 billion for private sector investment across Africa through lending programmes managed by local banks and financial institutions.