The government has banned the use of tea farmers’ funds as collateral for bank loans, tightening government oversight of the ailing tea sector to shield smallholders from financial abuse and mounting debt.
- •The move will affect KTDA, which manages tea processing and marketing for more than 680,000 smallholder farmers.
- •It follows growing concern that factory-level borrowing practices were exposing farmers to liabilities they neither approved nor directly benefited from.
- •According to a Tea Board of Kenya (TBK) audit, factories in the West Rift region account for KSh 21.6 billion, or 83%, of outstanding inter-factory debt, compared with KSh 4.45 billion owed by factories in the East Rift.
“We have seen it is time to streamline the tea sector. I have informed KTDA that using our tea farmers' produce as collateral for loans should be stopped,” said Agriculture Principal Secretary Paul Rono.
In a report submitted to a parliamentary committee on agriculture, some tea factory boards had even borrowed to finance bonus payments, effectively saddling farmers with debt linked to payouts unsupported by underlying earnings.
The government has also ordered a restructuring of KTDA’s banking arrangements, requiring factories to streamline accounts to improve transparency and traceability of cash flows. The changes are part of a broader push to restore confidence in a sector that remains a key source of export earnings but has increasingly been dogged by governance disputes.
"Each factory will have its own account, and similarly, if it is sold in dollars, the factory directors themselves will know the exact exchange rate. We will also know the exact amount spent on operational costs,” PS Rono stated.
The reforms coincide with a forensic review of factory finances and lifestyle audits of current and former directors, reflecting official concerns that years of weak oversight allowed mismanagement to flourish. Investigations are expected to focus on borrowing practices, operational spending and the handling of foreign-exchange proceeds from tea sales.
“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,” Rono said.
Central to the overhaul is the gradual dismantling of KTDA’s inter-factory loan system, a long-standing mechanism that allowed factories with stronger cash positions to lend to those facing liquidity shortfalls. While originally designed to smooth cash flow and cover operational costs, the program became a source of imbalance as debts accumulated unevenly across regions.
KTDA has begun reconciling the outstanding balances and is shifting factories toward commercial bank financing under stricter regulatory scrutiny. Officials say the transition is intended to impose clearer credit discipline and reduce opaque internal lending.
The shake-up comes amid frustration among farmers over declining bonus payments last year. KTDA has attributed the weaker payouts to global tea market conditions and currency movements, noting that the strengthening of the Kenyan shilling reduced shilling-denominated returns despite stable international prices.
However, the imbalance of bonus payouts between different tea-growing regions in the country prompted the government to claw deeper into the sector. An inquiry established that while the global market trends play a role in the local sector dynamics, a great deal of the challenges emanate from internal mismanagement in KTDA factories.
