Farm Credit Gap Leaves Majority of Small holders Outside Formal Lending

A growing financing gap is leaving many of Kenya’s smallholder farmers outside the formal banking system despite agriculture’s major contribution to the economy and relatively low default rates.

Agriculture contributes 23.2 per cent of Kenya’s GDP and supports millions of rural households, yet commercial banks continue to allocate only between 3.2 per cent and 3.6 per cent of their total loan books to the sector.

The mismatch is being linked to Central Bank prudential rules that classify agricultural loans among the highest-risk credit exposures, increasing the cost of lending to small-scale farmers.

According to Jared Ochieng, agriculture finance lead at FSD Kenya, the current framework discourages banks from financing smallholders because a Sh2 million loan to a farmer may require a matching Sh2 million reserve. As a result, banks find it cheaper and easier to serve large corporate borrowers than thousands of smaller rural clients.

The lending gap is reflected in findings from the CBK’s January 2026 Agriculture Sector Survey, which shows only 48 per cent of sampled farmers accessed any form of credit, up from 37 per cent in late 2025. That still leaves more than half of food producers outside formal financing channels.

Limited access to credit has also increased dependence on government support, with 69 per cent of farmers relying on subsidised fertiliser while 81 per cent identified direct input subsidies as their most critical need.

Stakeholders are now pushing for reforms aimed at widening access to agricultural finance. Proposed measures include agriculture-friendly regulation, local-currency wholesale loan pools, digital credit models using farm and mobile money data, blended finance, and loan-linked insurance.

These proposals are expected to feature in discussions at the Food Systems Finance Africa Summit in Nairobi from June 30 to July 3.