Govt outlaws use of tea farmers’ funds as loan collateral

The government has outlawed the use of tea farmers’ funds as collateral for bank loans, a move officials say will shield farmers from financial exposure and curb profiteering within factory management.

The directive forms part of the reforms targeting the Kenya Tea Development Agency (KTDA), with Agriculture Principal Secretary Paul Ronoh saying the changes are essential to restoring trust and accountability in the sector.

As part of the overhaul, multiple factory bank accounts have been shut, with KTDA instructed to operate a single general account to tighten financial controls and improve transparency.

The ministry has also initiated lifestyle audits for current and former tea factory directors following allegations of looting and mismanagement of farmers’ money. Ronoh said the forensic exercise will scrutinize operational costs, foreign exchange transactions, and director conduct, warning that those found culpable will face consequences.

“Each factory will have its own account, and similarly, if it has sold in dollars, the factory directors themselves will know the exact exchange rate. We will also know the exact amount spent on operational costs. Now, in this forensic audit, we will audit the current directors as well as the others. If we find you, you will look for a cell to hide in and wait for your file there,” Ronoh said.

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The reforms include phasing out the decades‑old inter‑factory loan programme, which is being replaced by commercial bank lending. The shift follows revelations that factories in the West Rift region borrowed a cumulative Ksh14 billion from those in the East Rift over the years, much of it still outstanding.

KTDA says reconciliation of previously borrowed funds is nearing completion as the agency transitions away from the model. Officials argue that centralizing accounts and ending collateralization of farmers’ funds will reduce financial risk and close loopholes that have enabled opaque practices.

The reform drive comes amid growing discontent among KTDA’s more than 680,000 smallholder farmers over declining bonus payouts, particularly last year. KTDA attributed the lower returns to global market conditions and currency movements, noting that the final bonus payout reflected external trading dynamics beyond its control.

By Masaki Enock

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