Digital Loan Process Transforming Smallholder Access to Credit in Kenya

By Jessica Joye, Communications Director at Fintrac.

In Kenya, smallholder farmers lack access to financial services and face high barriers accessing commercial banks and community lending institutions. These institutions rarely approve loans to smallholders or have a slow turnaround time for approval, preventing farmers from getting capital when they need it in the agricultural cycle. Smallholder farmers not only face the improbability of loan approvals, but, even if approved, they often encounter hidden fees on top of already-high interest rates. To overcome these challenges, Fintrac’s Partnering for Innovation program is working with Musoni, a Kenyan microfinance institution, to pioneer and commercialize a digital model specifically targeted toward smallholders.

Musoni developed a model to reach high volumes of remote smallholder customers with an agriculture-specific “Kilimo Booster” loan. Village-based loan agents meet directly with farmers to discuss their credit needs and, using a cash flow software developed by the Grameen Foundation, can wirelessly submit farmers’ loan applications on the spot. Farmers don’t have to worry about traveling long distances to a bank or completing complicated applications requiring extensive documentation.

At many Kenyan banks, customers usually need personal or family connections in order to schedule appointments, making it difficult to inquire about loan or repayment details. In contrast, Musoni customers can receive immediate attention via walk-in appointments for any issue. Unlike many traditional Kenyan banks, Musoni wants to see its customers grow, and building personal relationships helps Musoni determine if and when customers are able to increase their loan amount or transition into other types of credit offerings. Although its interest rates are on the higher side, Musoni does not charge any hidden fees and customers have been willing to pay the higher rates in exchange for this personal attention.

Once a Kilimo Booster loan is approved, it is deposited into the customer’s mobile money account within 72 hours, ensuring farmers have timely access to the finance they need during specific times in the agricultural cycle. Musoni’s software also tracks customer information, including repayment information and changes in income, to make loan processing more efficient.

This client-focused approach benefits both customers and Musoni, which profits from reduced time needed to complete each application. Musoni also offers customers a mobile platform from which they can receive payment reminders and obtain other information about their loans, reducing the need to make visits to physical banking locations.

Michael Chege, a Kenyan farmer, also points out that “Musoni is flexible in case of disaster and willing to work with farmers to get payments in.”

In just 18 months, Musoni disbursed more than $6.4 million in loans to rural smallholders, proving its high-touch, efficient approach is gaining traction in the market. Musoni has built a reputation of valuing its customers, building relationships, and successfully applying digital technology to the smallholder market. By paying a relatively high interest rate, smallholder customers prove they place a premium on easy processes, personal and trustworthy customer service, and transparency.