In a significant development for Kenya’s coffee industry, the New Kenya Planters Cooperative Union (New KPCU) has extended Sh5 billion in cherry fund loans to 371,242 farmers across the country. This financial support, driven by low interest rates and improved governance in disbursement systems, marks a crucial step in reviving Kenya’s coffee sector.
The Coffee Cherry Advance Developing Fund report, released by the New KPCU, indicates a remarkable increase in loan advancements to farmers. As of August 5, 2024, there has been a 354.5 percent increase in loan disbursements since mid-November 2023. This surge reflects the growing confidence of farmers in the fund, encouraged by the favorable terms offered.
Driving Factors Behind the Increased Borrowing
According to Timothy Mirugi, Managing Director of New KPCU, the appetite among farmers to borrow from the fund has been spurred by several key factors. The most significant is the low interest rate, which has made borrowing more accessible and appealing. Additionally, the fund’s design minimizes bureaucracy; farmers are only required to provide proof of their coffee production, with no need for cumbersome paperwork or collateral beyond the coffee and cherries themselves.
“The increase in loan advancement has been prompted by the fact that there is no collateral needed apart from coffee and cherries, and no cumbersome paperwork like with financial institutions,” Mirugi explained. “As long as you are a proven coffee producer in Kenya, the process is straightforward.”
The quick disbursement and recovery of loans through the Direct Settlement System (DSS) have further enhanced the fund’s attractiveness. The DSS, managed by Co-operative Bank, ensures that payments to farmers are processed promptly once their coffee is sold. This system was introduced under the new coffee trading regime, supervised by the Capital Markets Authority, and has played a pivotal role in addressing the issue of delayed payments that historically plagued the sector.
Regional Distribution of Loans
The Sh5 billion advanced to farmers over the past nine months represents a significant increase from the Sh1.1 billion disbursed by November 2023. Notably, seven counties in the Mount Kenya region have received Sh2.9 billion, accounting for 58 percent of the total loans distributed. Nyeri County leads the way, with 70,660 coffee growers borrowing Sh701.1 million, followed by Kirinyaga, where 70,353 farmers received Sh566.7 million. Other counties, including Kiambu, Murang’a, Embu, Meru, and Tharaka Nithi, have also benefited from substantial loan disbursements.
Beyond Mount Kenya, other regions have also received support from the cherry fund. Farmers in Trans Nzoia, Uasin Gishu, Nandi, Migori, Nyamira, Baringo, and Kisii have collectively borrowed Sh582.7 million, benefiting nearly 20,000 farmers. The distribution of loans has been widespread, reflecting the national reach of the New KPCU’s efforts to revitalize the coffee sector.
In the week between July 29 and August 5, 2024, New KPCU disbursed Sh69.2 million to 5,370 beneficiaries across 14 counties, including Bungoma, Embu, Kericho, Kiambu, Machakos, Nandi, Trans Nzoia, Tharaka Nithi, Nyamira, Meru, Migori, Murang’a, Nakuru, and Nyeri. Machakos County saw the highest disbursement during this period, with 4,915 coffee farmers receiving a total of Sh45.9 million.
Historical Context and Government Support
The concept of the Coffee Cherry Advance Revolving Fund was first introduced by former President Uhuru Kenyatta during the 124th Session of the International Coffee Organisation (ICO) at the Kenyatta International Convention Centre (KICC) in Nairobi in March 2019. The fund was initially established with Sh3 billion to support smallholder coffee farmers, as part of broader efforts to revive Kenya’s struggling coffee industry.
The current Kenya Kwanza government, under President William Ruto, has continued to bolster this initiative. In December 2023, the government injected an additional Sh4 billion into the fund to accelerate the recovery of the once-thriving coffee sector. In June 2024, a further Sh6.7 billion was earmarked for the coffee farmers’ bailout plan, reinforcing the government’s commitment to revitalizing the industry.
Reforms and Future Outlook
The government is also implementing a series of reforms to enhance the sector’s efficiency and sustainability, guided by the Coffee Policy 2023, the Coffee Bill 2023, and the Cooperatives Bill 2023. These reforms include the restructuring of the Nairobi Coffee Exchange, allowing more coffee cooperative unions to participate in the auction process. By June 2024, 15 cooperative unions had been licensed to trade on the weekly auction floor, marking a significant step towards a more inclusive and competitive coffee market.
In light of these developments, President Ruto has advised coffee cooperatives to avoid seeking loans from commercial banks and instead leverage the affordable and accessible funds provided by the Coffee Cherry Advance Revolving Fund. This fund is designed to support smallholder farmers with less than 20 acres of land under coffee cultivation, ensuring they have the financial resources needed to thrive in the global coffee market.
As Kenya continues to implement these reforms and provide financial support through the New KPCU, the future of the country’s coffee industry looks promising. With improved governance, efficient disbursement systems, and strong government backing, Kenyan coffee farmers are well-positioned to regain their prominence on the international stage.
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