Posted on August 13, 2019

Evolving agricultural credit: A combi-model for input and trade financing

FSD Kenya’s 2018 experiment with Apollo Agriculture illustrates how to start from a real economy problem and then innovate a suitable financial solution that helps unlock real value.

For many years, Charles, a smallholder farmer in Nakuru County, planted just two acres of maize, despite owning a five-acre farm. “I used to cultivate what I could afford,” Charles explained at an FSD Kenya consumer immersion session in Nakuru. But this all changed in 2017, when Charles received a loan from Kenyan fintech startup, Apollo Agriculture. For the first time, Charles planted maize on four acres during the March 2018 rainfall season, using high-quality seed and fertiliser. As a result, he was able to harvest around 20 bags per acre, compared with 10 bags per acre in previous seasons.

Kenya, like Africa in general, has low agricultural productivity as a result of low input usage. Low yields, like what Charles experienced, are typical for the majority of the 8.7 million farmers across Kenya. Between 2000 to 2010, yields per acre for Kenyan maize grew marginally, from 7.4 bags (90 kg) per acre to 8.7 bags[1] compared to South Africa, where farmers on average harvest 22.3 bags an acre. In other words, a Kenyan farmer would need 2.57 acres to achieve the same output of a South African farmer on one acre.

Low use of farm inputs, low yields

Some of the key reasons cited for low productivity in maize farming is low fertiliser and hybrid seeds utilisation. Indeed in the year 2010, 30% of Kenyan farmers did not use any fertiliser at all. Even those that did, had low application rates of fertiliser, estimated at 12.6 kg per acre in 2015[2]. Comparatively, for the best producers like Chile—where fertiliser usage stands at over 150 kg per acre—output per acre is over 50 bags of maize. This is six times Kenya’s average.

The chart below explains the costs for five different farmer groups:

  1. Farmers who borrow an optimal package of inputs, agronomic services and risk cover.
  2. Banked farmers who borrow at standard rates to finance an optimal package of inputs without risk cover.
  3. Farmers who self-finance an optimal package of inputs without risk cover.
  4. Farmers who self-finance a sub-optimal package of inputs.
  5. Farmers who only buy one pack of seeds and do not buy fertiliser.

Both the supply and demand sides face challenges

Insufficient access to inputs is driven by challenges on both the demand and supply sides, and any effective solution must address both sides. On the demand side, customers often lack capital to make investments, in addition to scant knowledge on best practices, risk management resources like insurance, and low market access. On the supply side, input suppliers like agro-dealers lack adequate financing to grow bigger businesses. They also struggle with inventory management, sustainable customer demand, and quality control.

Kenya has over 10,000 agro-dealers—seemingly enough to distribute inputs to all of Kenya’s small-scale farmers. However, most of these agro-dealers, especially those serving the “last mile” farmers, have a very low capacity to offer affordable inputs to farmers. Their low capacity is compounded by low demand for inputs by smallholder farmers and a long input supply chain that increases the cost of goods. These small-scale agro-dealers account for more than a quarter of agro-dealers in the country, but the majority have an estimated annual turnover below KShs one million.

A financial solution for both last-mile farmers and agro-dealers

Apollo Agriculture uses technology to offer input credit to both smallholder farmers and agro-dealers, thus addressing challenges on both the demand and supply sides. The Apollo model leverages the network and reach of small-scale agro-dealers to distribute goods on credit to farmers who otherwise cannot afford these investments. Apollo quickly recognised the need to address the constraints facing both farmers and agro-dealers. With support from FSD Kenya, Apollo began offering trade credit to agro-dealers to help them better manage their inventory, and in turn, create a better experience for their customers. In sum, Apollo’s model ensures that smallholder farmers receive high-quality inputs on time for harvest, and that their agro-dealer partners can keep their shelves stocked. Agro-dealers earn a margin on every sale they make to Apollo’s customers, and consequently benefit from higher volumes of customers coming to their stores.

When Charles’s application for a loan was approved, he received an input voucher from Apollo via his mobile phone. He then proceeded to the nearest registered agro-dealer, where he used the voucher to purchase the farm inputs he needed. In the past, Charles estimates that he typically bought “a bag or so” of fertiliser, and then either reduced the acreage he farmed or applied less than the recommended fertiliser amounts to allow him plant on a larger acreage. “This time round, I used 50 kilos of fertiliser for each acre and it made a big difference,” Charles says. His challenge is now to find a better priced market for his increased harvest – a double yield.

Simple simulation shows that farmers with high productivity (due to increased investments) would make higher net amounts compared to those with low investments, even if they sold their maize at relatively low prices. The marginal cost increase due to higher investments by farmers gives a positive return when compared to net income growth because of increased productivity (assuming farmers sell at the same prices). The increase in productivity directly impacts farmers’ net incomes. In Charles’s case, a 70% increase in cost of production led to a 100% increase in yields.

In 2018, Apollo worked with over 60 last mile agro-dealers, each assigned credit limits based on their previous transaction data. The type and quantity of inputs was guided by the requests made by approved farmers, as well as the determined credit capacity of the agro-dealers. The value of this model is that it matches the demand and supply sides, thereby solving the problem of dead stocks or stock-outs. This also addresses the capital constraints faced by small-scale agro-dealers.

As a result of accessing working capital, some agro-dealers reported significant increases in the number of customers and value of goods sold to participating customers. One agro-dealer in Njoro area reported to have sold fertiliser worth over KShs 300,000 compared to KShs 100,000 in a typical season. Several other agro-dealers were able to triple their sales due to the increased number of customers and their increased purchasing power.

Innovating solutions for the real economy

The Apollo model is promising and continues to evolve to ensure good credit repayment and ongoing sustainability. Keeping in mind that input finance repayments can be affected by issues like market price risks and production risks, Apollo continues to experiment with efficient merchandise distribution channels that guarantee a large-scale sales opportunity.

For FSD Kenya, this experiment with Apollo Agriculture illustrates how to start from a real economy problem and then innovate a suitable financial solution to help unlock real value.


[1] Tegemeo Institute Household Panel Survey, 2000-2010.

[2] Fertilizer Consumption and Fertilizer Use by Crops (FUBC) in Kenya,,  Sept 2015.


Michael Mbaka is a Senior innovations specialist at FSD Kenya.

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