Rural Credit Guarantee Scheme (R-CGS)

R-CGS will provide risk sharing mechanisms to promote rural outreach innovations, and catalyse funding from Kenyan mainstream financial institutions into the rural and agriculture sector.

GOK and IFAD will invest KES 2,8billion (USD 20 million) in the existing Credit Guarantee Scheme under the National Treasury. This will be leveraged by Participating Financial Institutions (PFIs) lending KES 11.5billion (USD 80 million) to rural MSMEs and agriculture value chains.

1. Direct Lending

PFIs provide guaranteed loans to eligible smallholder farmers and agribusiness MSMEs, using their own credit appraisal systems and criteria to process the loans.

RK-FINFA project provides technical assistance services to the PFIs, MSMEs and smallholder farmers that participate, or are potential beneficiaries of the scheme.

This lending mechanism is targeting smallholder farmers in transition towards commercialisation of their production activities, and the associated MSMEs in the value chains.

Capacity building for business development will be provided for smallholder farmers and rural MSMEs to enable them develop bankable business plans and formalise their business operations.

Eligibility criteria of PFI’s

A PFI will be eligible to participate if, in addition to the Credit Guarantee Scheme (CGS) eligibility criteria, it fulfils the following:

Has branch networks in any of the initial counties in which IFAD supported projects are being implemented.
Has capacity to offer appropriate financial services, manage risk of lending to the agriculture sector and reduce transaction costs
Has management information systems (MIS) that support automation of client profiles and risk assessments
Has received capacity from IFAD and/or any other partner in Climate Insurance products and solutions, such as bundled loan/input insurance packages to farmers and other value chain actors
Has developed policies and procedures to implement Environmental, Social and Governance (ESG) standards in their operation systems
Commits to deploy at least 30 percent of investment to youth, women and persons living with disabilities (PwDs) and report this in the quarterly progress reports.

Eligibility criteria of agribusiness MSMEs

In order to receive guaranteed loan facilities from PFIs, a MSME should:

Be registered as a business or company under the relevant laws
Be registered by a county government and hold a valid business permit or trade licence
Has complied with the relevant tax laws
Is not part of any group or enterprise which would otherwise not be eligible for a credit guarantee under these regulations
Intends to use the credit advanced for business purposes, including
- Working capital requirements of the enterprise
- Acquisition of assets
- Rebuilding businesses affected by natural disasters or other financial crises
Is credit-worthy
Does business in Kenya
Satisfies any other condition that may be imposed by the Steering Committee before the credit guarantee is granted.

2. Value Chain Financing

This is a specialised product developed for PFIs, which lends to SMEs who are aggregators and/or processors in the agriculture sector.
PFIs use their own credit appraisal systems and criteria to select the SMEs to be financed.
The financed SMEs use the loan to finance structured end to end value chain activities that are progressively de-risked, including:

Purchase farm inputs in bulk and offer them on credit to smallholder farmers
Purchase farm produce from farmers leading to minimised marketing risks faced by smallholder producers
Invest in producer groups’ , organisations and registration with relevant authorities
Offer farmer trainings in production, quality standards and certifications
Develop storage and transportation facilities and post-harvest management infrastructure
Invest in digital platforms and ICT based MIS for efficient management of large numbers of smallholder farmers
Any other investments agreed upon between the Financial Institution and Agribusiness SME

The Agribusiness SMEs are responsible for the organisation of their smallholder suppliers’ investments, the entire value chain management and loan repayment to the financial institution

SMEs Eligibility criteria

SMEs will meet the following requirements in order to receive guaranteed loan facilities from PFIs;

Be a small or medium enterprise (SME) meeting the eligibility criteria set out in the CGS legal framework.
Intends to use the credit advanced for agribusiness purposes, including investments in production and post-harvest risks management
Have formal agribusiness arrangement with smallholder producers including provision of inputs on credit and purchase produce from farmers
Demonstrated ability to provide trader credit to smallholder producers with access to produce markets
Has sufficient logistic infrastructure with sufficient post-harvest management facilities

3. Wholesale Financing

This aims at mobilising funding from the Kenyan financial systems, through SACCOs and Micro Finance Banks (MFBs) towards small scale rural productive investments.

PFIs under R-CGS will provide guaranteed wholesale loans to eligible rural SACCOs and MFBs regulated and supervised by SASRA and CBK respectively. The SACCOs and MFBs will extend credit facilities to eligible smallholder farmers and agribusiness MSMEs.