In 2019, Mr Peter Karubiu sought financial assistance from the Agricultural Finance Corporation (AFC) to start a dairy farming and milk processing project. The corporation advanced Sh6 million and Mr Karubiu acquired machines for the project, only for the business to slow down a year later after the Covid-19 pandemic struck.
He is now Sh3 million in default, as he was supposed to repay the loan in three years.
AFC has now issued a notice warning that his piece of land in Nyeri town, which he had used as collateral, will be auctioned to recoup the arrears.
“Covid-19 has worsened business and incomes and we have been operating in a depressing environment, which means we are not able to repay the loans within the stipulated time,” said Mr Karubiu.
He added that other businesses that would have complemented his earnings have also greatly suffered.
“We pray that the government, through the Ministry of Agriculture, offers a moratorium so that we can recollect ourselves financially and repay the loans,” he said.
For his part, Mr Patrick Dennis Mwaura borrowed Sh3 million from the corporation, also intending to start a dairy project on his farm in Nyeri County.
After providing the necessary information and evidence of ability to repay the loan, he got the money and started the project. He was to be repaying Sh100,000 per month.
"Things didn't go as anticipated because as soon as I started the project, Covid-19 struck, halting business activities and payments," he said.
In a letter dated April, the finance corporation notified Mr Mwaura of its intent to sell his piece of land to recover the money he owes them.
"The account is in arrears totalling Sh1.5 million, which continue to grow. The loan has become due and we demand from you Sh2.6 million, which will keep incurring interest if you do not rectify the default," read the letter.
The plight of the two Nyeri farmers mirrors that of many others who are bogged down by agribusiness loans.
Farmers who borrowed money to develop and mechanise agricultural activities are now pleading for a waiver from the government, citing harsh economic times.
Additionally, weather uncertainties in most parts of the country saw farmers incur huge losses and are, therefore, unable to repay the loans within stipulated timelines.
A majority of the farmers approached AFC after weakening of the Kenyan shilling against major world currencies led to a steep increase in commercial banks’ lending rates.
Mr Mwaura argues that, while the government has considered the after-effects of Covid-19 in other sectors, agriculture has been neglected.
"There are a lot of reasons I have not managed to repay my loan. For instance, we have a drought and it has affected my dairy project such that production has gone down," he said, calling on Cabinet Secretary Peter Munya to intervene.
AFC has granted Mr Mwaura a three-month grace period to settle the arrears or lose his land.
"The sale of the property shall be through public auction and any part or instalment payment made shall be received without prejudice... the sale of the property shall go on unless the entire amount in arrears is received in full together with interest accrued," read the letter.
Alternatively, Mr Karubiu, who is supposed to repay Sh200,000 per month, asked AFC to give them a friendlier repayment schedule of seven months, up from the current three months.
“We should be supported just as the government has assisted other sectors,” he added.
AFC chairman Franklin Bett acknowledged that farmers have had a difficult time repaying their loans due to the Covid-19 pandemic, heavy taxation and the vagaries of climate change.
Mr Bett says the corporation would push ahead with loan recovery to give it enough money to help other farmers and help contribute to the country’s food security – one of President Uhuru Kenyatta's ‘Big Four' agenda items, by helping more farmers access agribusiness loans.
“It cuts across the board but the loans have to be paid as we are giving the farmers ample time to repay the money within the terms of loan agreement,” he said.
He, however, said the government would not waive the loans for the defaulters, saying that would spark a “bad feeling among farmers who repay their loans on time”.
“People have to be disciplined. Money borrowed and used needs to be repaid. I would encourage the government not to follow the waiver route,” he said, adding that most farmers mismanage their money or invest it away from what the loan was intended for.