Cash advance scheme helps dairy farmers boost production

What you need to know:

Among the constraints hindering development of the otherwise high potential sector that contributes three to four per cent of the country’s GDP is lack of access to financial solutions that are tailor-made to the needs of the dairy industry.

When the VAT Act came into effect last year, Jonathan Biwott was a worried man as he had been caught unawares by the sudden increase in cost of animal feeds. Mr Biwott, a dairy farmer in Uasin Gishu County, found it difficult to acquire feeds for his animals in the middle of the month, a move that affected his production.

The high cost was also coupled with the delayed payment of farmers’ dues by milk processors, currently resulting from huge stocks of unsold long life products.

It was thus with relief that Mr Biwott welcomed the launch of Kilimo Advance, a financial service that enables farmers to access advance payment instead of waiting for their dues at the end of the month. Mr Biwott’s hopes in the business were rekindled as he could access the mid-month payment to acquire inputs.

Rafiki Microfinance partnered with New KCC and Mobipay, a local technology company, to provide the advance payments to milk suppliers.

“This is a short term credit facility advanced over a 60-day period to a milk supplier, either an individual or a group, against confirmed quantities of milk delivered and accepted at the New KCC,” says Daniel Mavindu, CEO, Rafiki Microfinance Bank Limited.

The service, Mr Mavindu says, has accommodated the specific needs of the milk suppliers who wanted to access their payments faster than the milk processors were able to pay. Farmers are able to access quick cash, which they use in acquiring farm inputs to improve their yields.

“I am now in position to buy feeds in the middle of the month, a move that has seen me maintain high production of milk,” says Mr Biwott.

Boosting production

“This innovative idea has seen farmers maintain high yields through proper feeding of their animals as they access cash mid-month to purchase the input such as feeds to boost their production,” says Mr Biwott.

Kilimo Advance has also helped in curbing milk hawking, which has seen the processors lose out a significant share of the milk delivered as farmers sought quick cash.

The Kenya Dairy Board, the sector regulator, has been against milk hawking noting that the commodity sold by vendors does not meet the required standards of hygiene as a result of poor handling.

Rafiki Microfinance has to date advanced more than Sh1 billion to the farmers who supply milk to New KCC.

To lock in supply, processors have been forced to create incentives for their raw milk suppliers, such as providing input on credit or through partnerships with suppliers, providing advance payment schemes through partner financial institutions among other value added services that help create loyalty.

Among the constraints hindering development of the otherwise high potential sector that contributes three to four per cent of the country’s GDP is lack of access to financial solutions that are tailor-made to the needs of the dairy industry.

Most banks do not have appropriate products and services for the dairy industry whereas on the demand side, the borrowing capacity of farmers and businesses is low due to the focus by banks on collateral rather than on cash flow-based lending.

The processors cites challenges such as inconsistency in milk supply mainly due to reduced production and from increased competition for raw milk by other processors as well as from unlicensed vendors who hawk the commodity directly to consumers through informal channels.

“Such partnerships are a testament of our commitment to the youth. We will continue supporting their endeavours and empowering them to achieve the much needed financial liberation,” says Mr Mavindu.