The Agricultural Finance Corporation (AFC) has hired private debt collectors in fresh efforts to recover billions of shillings in defaulted loans from farmers.
Managing director George Kubai said the debt collectors would pursue defaulters in a bid to recover enough funds to lend to other farmers.
According to the company’s latest annual report, some Sh3,068,757,220 had been defaulted on by borrowers by June 2022, translating to 31 percent of the lender’s Sh9,892,054,000 loan book.
“We have on-boarded private debt collectors who are assisting us to recover loans from borrowers who have defaulted willingly. A majority of them (loanees) have the notion that this is free money, which is not true,” he said.
Mr Kubai added that the lender has hired valuers to assess the collateral that the lender is taking from farmers to support their loans.
Quality of collateral
This comes at a time when Auditor-General Nancy Gathungu has questioned the quality of collateral that the lender has used in the past, making recovery of defaulted loans difficult. “The valuers have provided us with professional indemnity covers. In case we lend using their evaluation reports and we incur losses, we will be compensated through the indemnity,” he said.
Access to credit has become critical, especially for farmers, amid rising costs of inputs such as fertiliser, pesticides and herbicides. According to the Agriculture Sector Survey of January 2024, conducted by the Central Bank of Kenya, about 75 percent of farmers said that the loans they took from various lenders for farming were spent on buying farm inputs. Besides inputs, the second highest proportion of farmers took out loans to pay for labour costs and to buy machinery and equipment, respectively.
Mr Kubai said AFC has raised Sh4.5 billion internally through the revolving funds, which will be lent to farmers in the financial year starting July.
The lender’s move comes as State corporations are increasingly turning to debt collectors to recover debt from defaulters who include government ministries, agencies, departments, private individuals and firms as well as county governments.
In February for instance, electricity distributor Kenya Power issued a tender for debt collectors to help it recover Sh3.53 billion that the 47 counties have failed to pay for their electricity consumption.
