Farmers in Kenya can now use their farm produce as collateral to secure credit from eight commercial banks through the Warehouse Receipt System(WRS).
Agriculture Principal Secretary Prof. Hamadi Boga says commencement of operations of the new system is now expected to enhance lending to the agriculture sector given that farmers will use their produce as alternative collateral.
According to CBK data, out of the total gross loans and advances by banks which amounted to Kshs 2.49 trillion in 2018, the agriculture sector accounted for a paltry of 3.62% or Kshs 90 billion.
The Warehouse Receipt System is designed to enable farmers to store their grains in designated warehouses after which they are issued with a warehouse receipt usable as collateral when seeking credit from lenders.
“The WRS is aimed at promoting aggregation of produce by small scale farmers enabling access to competitive markets and enabling them to participate in a modern and efficient market with standard quality and weights,” said Prof. Boga.
The PS highlighted that to support the private sector participation in WRS, the National Cereals and Produce Board (NCPB) has been tasked to secure a space capable of holding seven million bags of cereals to the private sector on a lease basis.
“Initially, the government will focus on implementing the WRS for maize, beans, green grams, coffee, wheat and rice but progressively expand to cover other agricultural commodities,” said Prof. Boga.
The PS added that there are five warehouses located in Trans Nzoia, Uasin Gishu, Nairobi, Nakuru and Meru counties which have already been certified for the initial implementation with NCPB helping the farmers with drying and storage.
“The purchase of anything for the strategic food reserve will be done through the WRS and that is why we are working very fast to move into that space so that everything is done through the system,” said the PS.
In July this year, Agriculture CS Peter Munya inaugurated the Warehouse Receipt System Council to take charge of the system.
WRS Council chairperson Jane Ngige said that maize contributes 3% of Kenya’s Gross Domestic Product (GDP) and 10% reduction in post-harvest losses will negate the need to import any maize.
“Marketing cereals has not been structured and has led to the exploitation of farmers by traders and other actors in the sector. To reverse this, Agriculture CS Peter Munya requested us to receive the October harvest under WRS identified warehouses,” said Ngige, adding that the council has already certified warehouses have a capacity of 450, 000 bags.
Ngige said that they are going to assist farmers to maintain quality yield right from production, storage, and trading which will in return address the issue of aflatoxin.
Eastern Africa Grain Council Executive Director Gerald Masila said that they have come up with a tripartite contract with the farmer-depositor, warehouse operators, and banks so that the farmers can use the warehouse receipt as collateral to access funds which they can use to buy farm inputs as well as doing other things.
Masila said that so far eight banks have already come into the system and they are scaling up and getting universal acceptance since the Warehouse Receipt System Act No. 8 of 2019 makes the receipts almost as good as a tender document or a currency.
Ng’arua Grains Cooperative chairman Nahashion Kagiri said that they used to harvest and sell everything immediately due to lack of storage facilities and then a few months down the line they would have hunger in the area due to lack of food.
“We are now a certified warehouse and even receive produce from as far as Nakuru County and through the initiative, farmers can get funding from banks using the produce that they have stored with us,” he explained.
Kagiri said that not many banks were willing to help farmers but with the WRS they have seen improved funding and this will attract more farmers into the system and also improve output.