A pickup truck loaded with kales (sukuma wiki) arrives at Wakulima market in Nairobi County on November 11, 2025.
I am a small-scale farmer managing a two-acre enterprise that includes poultry farming and sheep rearing. I make around Sh21,000 per month after deducting airtime and Wifi expenses totaling to Sh2,500. I have a defaulted loan from a friend of Sh19,000. In the coming year, one of my insurance policies is scheduled to mature, and I expect to receive approximately Sh300,000.
My short-term objective is to acquire a 4WD TT75 tractor to support the mechanisation and expansion of my farming activities. In addition, over the next three to five years, I plan to construct a three-bedroom house. My long-term goal is to purchase a brand new Isuzu FRR truck, which will support my agribusiness and transport operations. I am also a member of Stima Sacco, though I am currently not active in saving. How do I allocate the upcoming insurance payout and structure my savings?
Dominic Karanja, a financial planning and investments consultant
You need to urgently address the outstanding loan default of Sh19,000. A maturing insurance policy should provide a substantial payout of Sh300,000, which will be instrumental in fulfilling immediate objectives such as acquiring a tractor and longer-term goals, including house construction and truck purchase. Additionally, membership in Stima Sacco offers a strategic avenue for leveraging financing, facilitating the achievement of mechanisation and planned expansion initiatives.
The Sh300,000 insurance payout should be allocated with careful planning, starting with immediate attention to financial stability. The foremost priority is repayment of the defaulted Sh19,000 loan, thereby alleviating debt-related pressure and safeguarding both personal relationships and future creditworthiness.
Subsequently, it is advisable to set aside Sh45,000 as an Emergency Fund, equivalent to roughly three months of essential living expenses. This reserve will function as a vital buffer, mitigating risks associated with unforeseen events such as emergencies or livestock illness, and supporting the sustained achievement of long-term objectives.
Once foundational debts are resolved and an emergency fund is established, the remaining Sh236,000 should be allocated towards initiating your mechanisation objectives. This considerable sum is best invested in your Stima Sacco Back Office Service Activity Share Capital account. By increasing your Sacco shareholding, you can promptly enhance your borrowing capacity, often up to three or four times your savings.
To promote sustainable advancement towards your objectives, the subsequent phase entails strategically restructuring your savings, positioning your Stima Sacco membership as the central financial mechanism. An essential initial action is to establish a commitment to a minimum monthly saving of Sh5,000. This figure represents a practical 23.8 per cent of your Sh21,000 net monthly income, amounting to Sh60,000 in annual savings.
Maintaining this regular contribution is critical for strengthening your capital foundation and exemplifying financial discipline qualities that lenders, including the Sacco, consider highly when evaluating loan applications.
When it comes to Sacco products, it is important to use both BOSA and Front Office Service Activity (FOSA) accounts wisely. The BOSA account serves as your main savings option and should receive the substantial Sh236,000 payout. This will significantly increase your share capital and enhance your borrowing capacity. Your routine monthly contributions of Sh5,000 are best overseen through a FOSA Account, which is ideal for everyday transactions.
As your farm grows and you earn more income, any extra funds should be reinvested in your farming operations, such as purchasing additional livestock or establishing a dedicated investment account. This approach will help boost your farm's productivity and strengthen your overall financial position.
Your membership in Stima Sacco is a key asset in achieving your goals. The immediate priority is the purchase of the TT75 Tractor, which will likely be supported by an Asset Finance or Development Loan. The plan involves depositing the Sh236,000 payout into Sacco BOSA shares to increase borrowing capacity.
However, covering the full cost of a Sh2.5 million tractor will require substantial share top-ups or applying the Sh236,000 as a down payment to reduce the loan principal. It is essential that the tractor generates contract revenue or increased farm income sufficient to service its own loan, thereby ensuring the sustainability of the mechanisation initiative.
The medium-term goal of constructing a three-bedroom house within three to five years necessitates either a specialised mortgage or housing loan, or alternatively, a substantial development loan. The primary strategy involves securing an unencumbered land title deed to use as the principal form of collateral. Regular monthly Sacco savings of Sh5,000, accumulating to approximately Sh180,000 over three years, will enhance loan eligibility. As the tractor loan is systematically serviced, the growth in capital (BOSA shares) will further strengthen the position for a future housing loan application.
Finally, the long-term objective of acquiring a brand-new Isuzu FRR truck will require asset financing, contingent upon the successful achievement and improved profitability arising from the initial two goals. In this context, it will be essential for the farm's net monthly income to increase significantly, and the completed house or cleared tractor may serve as collateral for obtaining the final and largest loan.
For lasting success, boost your farm’s productivity with the tractor and aim to grow your sheep flock from nine to over 20 animals, or increase poultry production to achieve a higher monthly net income. Safeguard the tractor and future house with insurance, add crops to create multiple income streams, and stay away from high-interest loans. Every three months, assess your financial progress, and look into government programmes such as the Agricultural Finance Corporation (AFC) for affordable loans designed for farmers.
If you have any money problems, send us an email at [email protected]
