Kenyan coffee farmers risk finding themselves in debt once again, after the government provided a bail out by paying off some loans, an official has said.
The Central Province Co-operatives Officer, Geoffrey Karuku, said some farmers were falling easily to the lure of cash advances and attractive loan packages from financial institutions. "(Farmers') society managers are going round taking quotations from various financial institutions, and they are going for very expensive advances," said Karuku.
The government recently pumped Sh4.2 billion ($63 million) in re-paying loans which coffee farmers had defaulted on. The loans were acquired under a World Bank co-financed rehabilitation of the smallholder coffee sector known as the Small-holder Coffee Improvement Project (SCIP).
Competition between commercial banks and microfinance organisations has resulted in a race to lure farmers with attractive loans and crop advances. Officials say coffee growers are especially vulnerable due to the seasonal nature of the crop, which is picked just twice a year, and sees farmers secure advances to buy inputs such as seeds and chemicals against what they expect to earn. But given the up-and-down nature of coffee prices, the risks can be big.
Richard Mathenge, deputy manager at Taifa Sacco, which is licensed to distribute Coffee Development Fund (CoDF) monies, criticised banks for not scrutinising farmers before they release loans. "When a farmer comes to us for a loan, the first thing we do is to ask for their financial history for the last five years and if they have other loans then they must first clear them," he said.
Many coffee societies also have outstanding loans from Stabex funds, granted by the European Commission to stabilise export earnings in developing countries in Africa, the Caribbean and the Pacific region. The funds have been channelled to societies in times of low commodity prices, to help meet costs of inputs and expansion plans. But some have yet to pay back those loans as well.
The Minister for Co-operatives Development and Marketing, Njeru Ndwiga, has also warned coffee society managers not to plunge their members into debt. "We did not pay up all those loans so that we go back and make new ones. We want the farmer to benefit from the loan waiver," he said.
Business Daily
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