Ugandan farmers to benefit from $12m fund

A farmer waters her seedlings. Ugandan farmers will access affordable credit to boost food production. PHOTO | FILE 

By DICTA ASIIMWE

In Summary

• The selected enterprises will get between Ush958.3 million ($264,080) and Ush7.7 billion ($2.1 million) at interest rates to be determined on a case-by-case basis. The fund also provides for grants as well as equity holdings in the businesses.
• Deloitte and Pearl Capital Partners Uganda will manage the Yield Fund and offer it to about 20 small and medium-sized enterprises.  The beneficiary companies will be allowed to access between Ush958.3 million ($264,080) and Ush7.7 billion ($2.1 million).

Uganda has launched a new fund to ease access to affordable credit by enterprises involved in value addition in the agricultural sector.

The Ush46 billion ($12.7 million) Yield Fund targets 20 enterprises and is supported by the National Social Security Fund, the European Union and the International Fund for Agricultural Development (IFAD).

The selected enterprises will get between Ush958.3 million ($264,080) and Ush7.7 billion ($2.1 million) at interest rates to be determined on a case-by-case basis. The fund also provides for grants as well as equity holdings in the businesses.

Under the fund, Deloitte and Pearl Capital Partners Uganda (PCP) will inject another Ush49.8 billion ($13.7 million) from venture capitalists.

“Much of our industrial activity is agro-based, with food processing alone accounting for 40 per cent of total manufacturing,” said Matia Kasaija, Minister for Finance and Economic Development at the launch.  

The launch comes at a time that the government has recapitalised the Uganda Development Bank (UDB) to enable it to provide short and long-term financing at affordable rates of lower than 14 per cent. The lending rates offered by commercial banks stand at above 21 per cent.

The government started recapitalising the UDB in the past financial year, with an initial investment of Ush7 billion ($1.9 million). In the 2017/18 financial year, the government promised Ush50 billion ($13.8) annually, to boost UDB’s capital.

The UDB leadership has promised that once its capitalisation goes above Ush1 trillion ($275.1 million), the lending rates will be lowered to 9 per cent.  

Kristian Schmidt, the European Union ambassador to Uganda, said the Yield Fund will provide different options including grants, private equity and affordable credit to businesses.

“In creating this fund, the EU has listened and is responding to the needs of Ugandan agribusiness. This fund will offer long-term capital to agribusiness companies while providing quality financial returns for investors,” he said.

The fund targets agriculture related businesses like the supply of agricultural inputs, production and agro-processing, post-harvest storage and distribution. Other activities like transport, communication and certification will also have access to the funding.

Together, the Yield Fund and a fully capitalised UDB will have at their disposal about the same amount of money that commercial banks lend out in any given year. Data from Bank of Uganda shows that in the year ending 2015, commercial banks lent out Ush1.8 trillion. Net credit extensions had remained below Ush1 trillion between 2011 and 2014.      

Twenty firms

Deloitte and Pearl Capital Partners Uganda will manage the Yield Fund and offer it to about 20 small and medium-sized enterprises.  The beneficiary companies will be allowed to access between Ush958.3 million ($264,080) and Ush7.7 billion ($2.1 million).

Uganda Bankers Association (UBA) chairman Fabian Kasi said that these initiatives will reduce the competition for credit, putting pressure commercial banks to lend their funds to short-term borrowers at lower interest rates. 

He said that cumulatively, commercial banks have lent a total Ush13 trillion ($3.6 billion).

Previously, government partnerships with commercial banks have faced several challenges. For instance, the Agriculture Credit Facility, a project that the government launched in 2009 to solve the problem of high interest rates failed.

“The ACF had some challenges,” said Emmanuel Gyezaho, press and information officer at the EU.

Once the interest rates dropped to around 20 per cent, commercial banks withdrew from the partnership. The government reacted by stopping funds to ACF until last year 2016/17 financial year, when calls for agriculture bank prompted the resumption of this project.