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April 16, 2008

Kenyan bank offers grain farmers fertilizer loans

Kenya's Equity Bank will give loans worth Sh1 billion ($16 million) to farmers growing maize and cereals, to help them buy fertiliser for the current planting season.

The price of the input has trebled recently due to global high oil prices.The credit will be offered in partnership with farm inputs supplier and fertiliser manufacturer, Mea Limited.

“We are offering credit as farmers seek better prices due to an expanded cereal market,” said the bank’s chief executive, Dr James Mwangi.

A stockist can borrow as much as they need. The loans will attract a 15 per cent interest rate charged on a reducing balance, he said. They will also come with a three-month grace period.
However, the service is only available to stockists recommended by Mea Limited.

Fertiliser use in Africa is still low, and companies are using innovation to increase its penetration in the country, that would in turn lead to higher yields.

“In Kenya, the current usage is 8 kilos per hectare while in the West it is about 100 kilos per hectare, which is a huge contrast,” said Mea director, Titus Gitau.

Companies have also been forced to reduce their packaging to offer farmers cheaper options. In the course of the month, the bank is also set to venture into warehouse trade financing. This is a facility under which farmers and traders can deposit their maize at a certified warehouse in the months of December to March and get a warehouse receipt.

They can the present the receipt at Equity Bank branches in return for cash, as they wait to sell their stored maize, when prices increase in the months of May to August.

After selling their maize, traders will repay the loans and storage costs, while retaining some margins, as opposed to selling during the harvest period, when prices are normally depressed.

The concept of grain financing using warehouse receipts is new in Kenya, and is pioneered by the Eastern Africa Grain Council (EAGC), under the Pilot Warehouse Receipt System project.

EAGC says it has negotiated for affordable storage and minimum financing costs with the participating partners, to enhance the grain value chain process. Millers and other organisations wishing to buy grain, such as food aid agencies, can buy the warehouse receipts, which guarantee the quality, quantity and location of the commodity.

This initiative is also supported by the Financial Sector Deepening Trust, United States Aid Development Agency, Kenya Maize Development Program, Regional Agricultural Trade Expansion Support and Lesiolo Grain Handlers Limited.

Daily Nation

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