Why farmers have failed to access agricultural loans in Uganda

Why farmers have failed to access agricultural loans in Uganda

 

By Prossy Nandudu.

 

In the last financial year, government has earmarked another 30 billion shillings as a revolving fund for farmers to borrow and increase production. This was an addition to the 60 billion revolving fund released earlier on.

 

However some financial institutions and analysts are not happy with the way the money is being handled.

 

Much as government is setting aside this money through commercial banks, farmers have failed to access the funds.

 

In an interview with the Abdul Kyanika Nsibambi the manager, Agricultural
Lending Centenary Rural Development Bank says that farmers have failed to access the finances because they come with many conditions.

 

For example, they may talk about a loan amount that will need some one borrowing 50 million or they are only lending to production or commercial farmers.

 

He said that in Uganda there are no many big commercial farmers who would have qualified for the loans. They are mainly small holder farmers.

 

According to Kyanike, conditions that accompany the facility are mainly for commercial farmers.

 

“And if you channel these funds in traditional banks that don’t have a microfinance component, most likely they will demand for what they demand from other big farmers or corporate clients, which a small holder farmer may not have,” said Kyanike.

 

He adds that other financial institutions demand for land titles, bank statements of two years, which our farming community don’t have.

 

“So when we say the funds have not been utilized, we should see what are the terms and conditions, which bank is administering these funds, doesn’t it have the capacity to administer the funds, does it have products targeting the kind of farmers we are talking about? ,” adds Kyanike.

 

He also said that even if a bank wanted to finance farmer’s organizations, there is need to revisit the past where farmer groups like cooperatives collapsed and are just coming on board.

 

The other option of starting out an efficient managed farmer group, to administer such funds, there is need for the funder to have few groups that can access such funds.

 

He however dismisses claims the notion that banks don’t want do agric financing  because its not that they don’t like but the terms for a farmer to qualify for the money may be stiff, explains Kyanike.

 

Also banks don’t want to carry out agriculture lending; because they consider it risky in terms of the weather partners, extended drought, climate change, small scale production and also some farmers don’t have a good credit history and collateral, for accessing such loans.

 

Even if banks wanted to finance organised groups, most of them lack collateral because evidence shows that most organised SACCOs have weaknesses in data management, keeping records, managing their portfolio, how to follow up their portfolio, bank statements etc.

 

He however advises that in order to help farmers access these finances, financial institutions should consider the following.

 

-First the bank should have an inclination to agriculture.

We should see that the bank has an inclination to finance agriculture, has the capacity, and has the portfolio. Some banks may have a misleading portfolio there fore it’s important to examine their transactions keenly.

 

-They should be able to identify which farmers is accessing the loan because they tell you they are financing agriculture when they are financing a company like Mukwano in processing, which is far beyond the small holder farmer we are looking at here.

 

-The money must be channeled through financial institutions that are  friendly to the common man, in this case the farmer in the rural area so that it can accessed by all farmers.

-Institutions lending out this money should have the technical know how of assessing the small scale farmer or any enterprise related to small scale farmers and advice accordingly what loan amount they should go for, depending on the type of farming they are engaged in.

 

-Finally, all banks interested in accessing this money and lending it out to farmers must be prequalified to examine whether they have the capacity to handle agriculture loans, before they access these funds to lend out.

 

Through linkages with other service providers, farmers can be helped to keep their records of all harvests. Opening up and management of savings accounts, managerial skills for those in farmer groups. That’s way, the bank will be able to give loans basing on the information availed by the farmer.

 

Ends.