Responses to environmental challenges by agricultural finance corporation of Kenya (AFC)

Abstract

In the present world nothing can be taken for granted. An organization's success is very much determined by its ability to appropriately respond to the fast changing environment. This study has focused on responses by Kenya's Agricultural Finance corporation to environmental challenges. The objectives of the study were to establish; strategic responses by AFC to environmental challenges, and operational responses by AFC to environmental challenges. AFC is a government owned and agriculture based development institution established in 1963 as a statutory body. Since its inception, it has been government's main conduit for delivery of agricultural credit, a role that it has performed well. However, towards the end of 1980s the performance of AFC started experiencing operational difficulties due to various factors. These included poor governance, frequent adverse weather conditions, declined trade in agricultural produce and effects of economic liberalization among others. The poor performance of AFC reached its lowest level in 200112002 financial Year when it almost collapsed. This situation called for urgent responses for the institution's survival. This study was conducted through a case study to establish the strategic and operational responses. Data was collected from both secondary and primary sources. Personal interview was carried out with senior managers. The findings were analyzed through the content analysis technique. The study established that AFC decided to undergo a fundamental strategic change. It adopted a new business model providing three lines of service: Retail lending; wholesale lending; and Apex lending. Some of the strategic responses established were; going to the money market to raise funds for core-lending program; use of market penetration strategies to increase the clientele base; development of new products and restructuring of the organization. Operational responses touched on reviewing of loan administration policies; opening of new branches; and reorganization of the internal structures. The responses have been effective that lending has resumed in all the branches, the strategic plan 2005-2010 is in use and is serving as a roadmap to the institution's vision, the repayment of loans increased to above 90% in 2004, and the corporation managed to reach 410 clients in 2002/2003 financial Year up from 1 client the previous financial Year. The study recommends that in the long run the corporation should become self sustaining with a reliable source of finance.