Nairobi — The Treasury on Tuesday signed subsidiary Sh600 million loan agreements with four Deposit Taking Microfinance institutions (DTMs).
The institutions are the Kenya Women Finance Trust (KWFT), Faulu Kenya, SMEP and Rafiki.
The funds made available to the Kenyan government by the International Fund for Agricultural Development are intended to reduce poverty in rural areas by making available credit facilities at competitive interest rates.
"There are many Kenyans in the rural areas running productive and profitable businesses within the agricultural value chain sector, but are left out by the mainstream financial sectors," Finance Permanent Secretary Joseph Kinyua explained at the ceremony.
Small scale farmers are targeted in an effort to increase and improve the efficiency of food production resulting in greater food security, employment creation and a rise in living standards among the rural population.
"Special focus is being given to areas with agricultural potential, areas of high poverty incidence, the arid and semi-arid regions and synergies are sought with IFAD's ongoing projects."
One hundred and thirty five thousand Kenyans are expected to benefit over the next four years from the credit facilities.
The microfinance institutions have 10 years over which to repay the loans accorded to them at a five percent interest rate annually on the reducing balance.
"We will also ensure they don't again get driven by abnormal profit motivation. Given that the money is being extended to them at very reasonable costs, there will be no reason why they would ask for 20 percent (interest)."
The four DTMs were selected through a tendering process that took into account the extent of their rural networks and their use of mobile money transfer services to make available credit facilities in hard to reach areas at low transaction costs.
"Special focus," Kinyua ascertained, "will be given to technological innovations that facilitate reduction of transaction costs to avail financial access to the rural areas."
Speaking at the event, KWFT Chief Executive Officer Mwangi Githaiga assured the money extended to his institution would achieve the objectives of reducing poverty in the rural areas.
"About 80 percent microfinance institution operations are based in the rural areas. Our main agenda as a combined sector is to reduce the rural urban migration so that people don't have to move from rural to urban areas in search of opportunities."
KWFT received the largest share of the Sh600 million getting Sh205 million followed by Faulu Kenya which received Sh200 million with SMEP and Rafiki receiving Sh100 million and Sh94 million respectively.