Editorial: Agriculture insurance should stimulate commercial bank lending to farmers

One of the things holding back the progress of local farmers is the over dependence on rainfall and the vulnerability to climate shocks. This makes agricultural production unpredictable.

For instance, last year alone 9,412 hectares of crops were destroyed by disasters while some 797 deaths of livestock were recorded. This reflects a sharp rise compared to 2017 when 5,111 hectares of crops were destroyed and 589 livestock deaths recorded.

It is such risks that banks have persistently cited while making the case for not lending money to the agriculture sector.

To put things into perspective, last year the agriculture sector received a paltry 1.2 per cent of the total commercial bank loans despite the fact that it employs more than 70 per cent of the country’s labour force and contributes 30 per cent of the Gross Domestic Product (GDP).

Commerce, restaurants and hotels remains the leading sector with a share of 34.5 per cent of total loans, followed by public works and building which received 26.2 per cent and transport, warehouse and communication at 14.6 per cent.

The government has responded. On Tuesday next week it will launch the long anticipated agriculture insurance scheme

This offers hope. The scheme has the potential to bring peace of mind to livestock and crop farmers, whose fields are entirely rain fed.

If well managed, the scheme should be able to de-risk the agriculture sector and encourage banks to start lending money to farmers in order help them recapitalise their farms, apply modern farming methods such as irrigation schemes and cold rooms.

The scheme is subsidised by government to a tune of 40 per cent of the total cost.

However, clear terms between all parties should be designed if the scheme is to win the much needed trust of farmers and lenders. This would guarantee its survival.