Protect me from AFC loan nightmare, farmer tells court

A farmer has filed a petition against the Agricultural Finance Corporation (AFC) over alleged excessive interest and penalties on agricultural loans.

Mr Francis Luseno Ashono wants the High Court in Kitale to quash excessive interest and penalties on his agricultural loan imposed by the financial institution established under the AFC Act, arguing that it violates his constitutional rights.

The case portrays tribulations facing maize farmers in the country, with the high cost of farm inputs and poor returns due to varied market and weather forces, with some ending up in huge debts.

Mr Ashono says he secured a Sh990,000 loan from the AFC to finance maize farming on his 90-acre land parcel, Trans-Nzoia/Kitale Municipality Block 1/Lessos/539, in June 2010.

The loan agreement stipulated a one-year repayment period with a 10 percent interest rate and allowed AFC to impose compound interest on overdue amounts, as well as to vary the interest rate without prior notice.

Due to a series of poor harvests attributed to seed and fertiliser issues, Mr Ashono says he struggled to meet his payment obligations.

Over time, the debt ballooned alarmingly, escalating to Sh3,552,813.94 by 2024, despite Ashono repaying an amount equivalent to the original loan.

In his petition, Mr Ashono says AFC’s imposition of excessive interest and penalties on his agricultural loan violates his constitutional rights.

The farmer claims this practice violates the in duplum (double) rule, which limits interest charges after a borrower defaults on the principal, according to Section 44A of the Banking Act.

He says his experience reflects a violation of Article 46, as he has faced unfair treatment and exploitation, undermining his consumer rights and leaving him vulnerable.

According to the farmer, AFC has issued multiple demand notices over the years, the latest indicating arrears of Sh3,446,606.64.

In 2018, it advertised Ashono’s land for public auction, a move he unsuccessfully challenged in the Kitale chief magistrate’s court.

His advocate, Mr Dennis Mutaki Wanyama, says the petition, if allowed by the court, will see all farmers, who obtain loans from AFC, being protected from being charged interest exceeding the principal amount.

As things stand, borrowers of the said corporation, like him, unlike those of banks, are not protected by the provisions of Section 44A of the Banking Act that provide for the in duplum rule. 

This has seen farmers who borrow from the AFC charged interest that exceeds the principal amount.
In his petition, Mr Ashono finds this discriminatory and wants the court to declare that farmers are entitled to protection under Section 44A of the Banking Act.

His lawyer cites Article 27, highlighting the unequal treatment of AFC borrowers compared to those borrowing from banks, which raises significant concerns about discrimination.

Citing Article 40, Mr Ashono argues that AFC’s excessive charges threaten his land ownership, jeopardising his ability to maintain his property, noting that these financial burdens infringe upon his socio-economic rights as outlined in Article 43, severely hindering his economic well-being.

In his legal challenge, Mr Ashono seeks to declare certain provisions of the Agricultural Finance Corporation Act unconstitutional, particularly those permitting unlimited interest and penalties, arguing that they contradict the Constitution and violate his rights, including the protections afforded under the Limitation of Actions Act regarding debt recovery.

The petition raises significant questions for the court, including whether the in duplum rule applies to the AFC, whether the AFC's interpretation of its statutory powers aligns with constitutional standards, and whether Ashono's rights have been compromised.

Mr Ashono is calling for a declaration that the AFC's practices violate the Constitution, an order to prevent the sale of his property, and a ruling that any claims exceeding the original loan amount are invalid.

He also seeks legal costs and any additional relief the court may deem appropriate.