Financing major hindrance to Upscaling Smart Water Technologies
However, these enterprises usually fall into the “missing middle” in agricultural finance. This, according to the stakeholders, is as a result of being seen as too small and too risky to most Financial Service Providers (FSPs) who resort to high collateral requirements that these enterprises often don’t have or charging inflated “risk premium” interest rates that are unaffordable.
This necessitated the SWA programme to undertake a study to link the supply and demand side of access to finance, which provided some practical recommendations to improve financial access for the irrigation value chain actors in Kenya, specifically the smallholder farmers.
This was reported at the SNV Grounds, Nairobi, Friday, July 20, 2018, during a Master Class discussion running under the theme: Smart Finance for Smart Water Solutions organized by the JKUAT-based Water Research and Resource Centre (WARREC) and the SNV Netherlands Development Organization under the auspices of the Association of Irrigation Acceleration Platform (AIAP).
The Master Class brought together key financial service providers, development financial institutions (DFIs), impact investing stakeholders and irrigation solutions providers to stimulate debate on potential financial models that could unlock the opportunities in financing the smallholder irrigation value chain in Kenya.
According to the Director of WARREC, Prof. Bancy Mati, the forum was organized “to seek an understanding of the smart water solutions for smallholder farmers in Kenya, and the main issues hampering the uptake of the smart water technologies by the farmers, including costs and risks as well as exploring opportunities for development of new financing models that could increase access to credit for scaling up the uptake of smart water solutions.”
SNV County Director, Mr. Jeen Kootstra observed that “We are dealing with a complex matter of water stress, small holder farmers and risk appetite all of which provide challenges in the project’s quest towards implementing smart water agriculture,” and urged participants to engage with honesty in regard to the issues of finance and water solutions.
Some of the issues the forum explored included: Opportunities around smart water solutions, the readiness of the smallholder irrigation sector investment and unlocking opportunities for investments in smart water solutions.
SNV Technology Advisor (SWA) Ms. Jackline Muturi noted that a baseline survey had indicated that systemic and market barriers hinder irrigation growth in Kenya. She revealed that 90% of farmers in Kenya are using some form of irrigation and have potential for the uptake of new solutions (of the 554 farmers interviewed), while 76% of SWA farmers have access to finance (i.e Mpesa). The survey further showed that SWS offers significant market opportunities for companies if managed well.
Finance Advisor (SWA) Florence Kariuki, quoting a baseline survey on access to finance indicated that savings concepts as a means of financial inclusion should be promoted amongst groups to reduce the cost of borrowing; a re-financing model be explored between commercial banks and rural financial intermediaries, explore inter-linked financing mechanisms with input, technology suppliers, insurance companies another FSPs.
SWA envisages improving access to finance by reaching 20,000 SME, 50% women, develop appropriate mechanisms for SWS customized products and services, as well as developing financial innovation in consultation with FIs and stakeholders.
SWA Project Manager, Sebastian Ogema earlier in his opening remarks said, smart water agriculture was about risks and identified finance/funding as one way of mitigating risk. He appealed for a model blueprint that could interpret finance and technology.
The Master Class was a follow up to a workshop held April this year on – “Promoting farmer-led and market based smart
water solutions for improving small holder irrigation in Kenya,” and highlighted the challenges encountered by various stakeholders in upscaling SWA in Kenya.