A teller counts money in a bank. Bankers have started the conversation
about lending more to the agriculture sector. the share of lending to
agriculture as percentage of total private sector credit has more than
doubled from 5.2 per cent in 2009 to 12 .9 per cent in 2019. PHOTO BY
ERONIE KAMUKAMA
Agriculture
can offer an opportunity for inclusive, economic growth, particularly
in developing countries such as Uganda. With sufficient financing for
sustainable and climate-smart production systems, experts believe that
the sector can unlock economic potential.
In response
to the above benefits, commercial banks in Uganda are positioning
themselves to use an ecosystem to increase lending to the agricultural
sector in the next five years based on their aspiration of raising
lending to agriculture to 20 per cent from the current 12 per cent.
Agriculture lending
The last decade has seen remarkable improvement in lending to agriculture. Private sector credit to this sector has increased in nominal terms from Shs241.7 billion in 2009 to over Shs1.6 trillion in early 2019. Currently, the share of lending to agriculture as percentage of total private sector credit has more than doubled from 5.2 per cent in 2009 to 12 .9 per cent in 2019
The last decade has seen remarkable improvement in lending to agriculture. Private sector credit to this sector has increased in nominal terms from Shs241.7 billion in 2009 to over Shs1.6 trillion in early 2019. Currently, the share of lending to agriculture as percentage of total private sector credit has more than doubled from 5.2 per cent in 2009 to 12 .9 per cent in 2019
The agriculture ecosystem is an
open system, whereby continuous human intervention is needed for the
maintenance of equilibrium with the aim of maximising the production
provided by a few domesticated plant (crops) and animal species.
In
an interview with Prosper Magazine last week, the chairman Uganda
Bankers Association (UBA) who is also the chief executive of Stanbic
Bank Uganda, Mr Patrick Mweheire, said by increasing lending to
agriculture, banks will aggregate farmers in groups depending on what
crops they produce such as barley, cocoa, coffee and maize among other
crops grown in Uganda.
“We have scaled up financing (lending) in specific crops grown by the farmers under the ecosystem,” he explained.
Mr Mweheire said partnerships such as the Agriculture Credit
Facility (ACF) at Bank of Uganda and other initiatives will help in
de-risking agriculture.
He said as Stanbic bank Uganda they have financed the entire value chains with Nile Breweries.
He said as Stanbic bank Uganda they have financed the entire value chains with Nile Breweries.
Mr Mweheire challenged bankers to rethink about financing agriculture.
“Bankers and financers must start seeing agriculture from another pair of lenses. We must invest in understanding the dynamic and cycles in agriculture and structure appropriate financing models that suit agriculture and its value chains,” he said.
“Bankers and financers must start seeing agriculture from another pair of lenses. We must invest in understanding the dynamic and cycles in agriculture and structure appropriate financing models that suit agriculture and its value chains,” he said.
Agriculture
contributes 25 per cent of the Gross Domestic Product (GDP) of Uganda,
and banks’ want to match lending to agriculture with the same level it
contributes to GDP.
Asked how Stanbic Bank is doing
regarding lending to agriculture, Mr Mweheire said: “At stanbic our
lending to agriculture is already at 25 per cent.”
Bankers aspire to increase lending to agriculture from the current 12 per cent to 20 per cent in the next four to five years.
Bankers aspire to increase lending to agriculture from the current 12 per cent to 20 per cent in the next four to five years.
The executive director of Uganda Bankers Association, Mr Wilbrod Owor, said, “It is a change that will take some time.”
The Rabobank Group operates in 48 countries, providing clients in every market with industry expertise, extensive experience, innovative resources - and deep local market and sector knowledge.
The Rabobank Group operates in 48 countries, providing clients in every market with industry expertise, extensive experience, innovative resources - and deep local market and sector knowledge.
Agricultural financier
Rabobank is rooted in the Netherlands and has a large network in the agricultural business, research and education sectors.
Rabobank is rooted in the Netherlands and has a large network in the agricultural business, research and education sectors.
Rabobank
— a global leader in food and agriculture financing — has played an
important role in developing Dutch agriculture and horticulture, both
businesses in the Netherlands.
Rabobank was founded in
the 1890s by farmers as a small cooperative of banks serving their rural
communities. The cooperative model was designed to provide a fair and
reliable source of credit to local customers through a system of shared
liabilities, pooled resources and reservation of profits.
Rabobank expanded its business scope and geographic presence throughout the 20th century, adding a broader range of banking and financial services to meet the needs of its customers in the Netherlands and internationally.
Rabobank expanded its business scope and geographic presence throughout the 20th century, adding a broader range of banking and financial services to meet the needs of its customers in the Netherlands and internationally.
Here
in Uganda, Rabobank is supporting agriculture through the Netherlands
Embassy. In dfcu bank, it is giving technical assistance on issues
related agriculture financing.
Ms Marianne Schoemaker, the managing director, Rabo Partnerships, explained how banks can de-risk agriculture to promote decent youth employment and inclusive growth.
Ms Marianne Schoemaker, the managing director, Rabo Partnerships, explained how banks can de-risk agriculture to promote decent youth employment and inclusive growth.
In
an interview with Prosper Magazine, on how banks in Uganda can increase
their lending to agriculture, Ms Marianne said banks should understand
the business of their clients.
“They
(banks) need to have an understanding of the business that they are
servicing well; for instance, fish supplier trend, logistic inputs for
the case of crops and the risks,” she said.
Ms Marinne said government needs the knowledge on how to blend financing for that particular product.
Sharing her knowledge on how Rabobank has operated effectively in agriculture financing, Ms Marianne said their operation is based on knowledge, network and finance.
Sharing her knowledge on how Rabobank has operated effectively in agriculture financing, Ms Marianne said their operation is based on knowledge, network and finance.
“These three are crucial because it provides the insights on our operational models,” she
Marianne added: “Use the knowledge and come up with the financing solutions for clients. You need a network that provides information to you whether to provide financial support or technical assistance,” she explained.
Marianne added: “Use the knowledge and come up with the financing solutions for clients. You need a network that provides information to you whether to provide financial support or technical assistance,” she explained.
Agriculture Insurance
During the Financial year 2016/17, government of Uganda established the Uganda Agriculture Insurance Scheme (UAIS) as a pilot project whose objective is cushion farmers from risks associated with losses from natural disasters while attracting financing to agriculture.
During the Financial year 2016/17, government of Uganda established the Uganda Agriculture Insurance Scheme (UAIS) as a pilot project whose objective is cushion farmers from risks associated with losses from natural disasters while attracting financing to agriculture.
Agriculture
Insurance encourages commercial banks to lend to the agriculture sector
given that the risks associated with agriculture are mitigated through
appropriate insurance covers, improving access to agriculture loans.
The
scheme provides an insurance cover for crops and livestock, for both
small and large-scale farmers. Under the scheme, government provides
premium subsidy funds, and in collaboration with industry players also
undertakes publicity, sensitisation and training of farmers.
The
Insurance Regulatory Authority of Uganda (IRA) provides the regulatory
oversight and quality control, Bank of Uganda on the other hand, manages
the drawdown on UAIS Account, while monitoring and evaluation of the
scheme is done by the UAIS Technical Working Committee.
Started
on July 1, 2016 with Shs5 billion, the Uganda Agricultural Insurance
Scheme (UAIS) is a Public Partnership arrangement, which covers five
years.
The Acting Commissioner Financial Services in
the Ministry of Finance, Mr Ira Kirungi John Byaruhanga, said the number
of farmers accessing the agriculture insurance scheme has grown.
“In
the last one year, we have seen uptake in this scheme increasing.
77,000 farmers are accessing the funds through the scheme,” he said.
In
developing Uganda’s agricultural sector to the desired level, which
attracts high credit services from the commercial banks, the governor
Bank of Uganda, Mr Emmanuel Tumusiime Mutebile, said potential areas of
further investment for government and the financial sector include
roads, cold storage, transport, support for farmer organisations,
agricultural extension and out grower schemes.
“Bank
of Uganda will continue working with government and commercial banks in
promoting affordable agricultural finance through the Agricultural
Credit Facility, which we encourage all eligible borrowers to take
advantage of,” he said.
Agriculture Credit Facility
The Agriculture Credit Facility (ACF) cumulatively disbursed Shs332 billion by 31st March, 2019, to finance 551 eligible projects. This enabled borrowers to establish large capacity agro-processing facilities, expand grain trade and investment in warehousing and expanding farm infrastructure.
The Agriculture Credit Facility (ACF) cumulatively disbursed Shs332 billion by 31st March, 2019, to finance 551 eligible projects. This enabled borrowers to establish large capacity agro-processing facilities, expand grain trade and investment in warehousing and expanding farm infrastructure.
However, 15 loans valued at Shs9.4b financed under the ACF were due for write off as at March 31, 2019.
The
Netherlands’ Ambassador to Uganda, Henk Jan Bakker said di-risking
agriculture finance is of critical importance to the development of
Uganda’s economy. Ambassador Henk observed that commercial interest
rates are still high. “Money cost is very expensive in Africa as a
whole,” he said
Going forward, Ambassador Henk advised that to develop Uganda’s agriculture system government, donors and private sector have a role.
Going forward, Ambassador Henk advised that to develop Uganda’s agriculture system government, donors and private sector have a role.
INVESTMENT AREAS
In developing Uganda’s agricultural sector to the desired level, which attracts high credit services from the commercial banks, Mr Mutebile said potential areas of further investment for government and the financial sector include roads, cold storage, transport, support for farmer organisations, agricultural extension, and out grower schemes.
Mr Mutebile said it is also necessary to address information asymmetries, for example, by matchmaking international firms and local suppliers.
“Only through boosting agricultural development through inclusive rural-urban links will we effectively harness the agriculture sector as a dominant source of employment. I applaud the UBA for rising to this challenge and call upon Government to join the bankers in the modernization of agriculture for job-creation and inclusive economic growth,” he said.
In developing Uganda’s agricultural sector to the desired level, which attracts high credit services from the commercial banks, Mr Mutebile said potential areas of further investment for government and the financial sector include roads, cold storage, transport, support for farmer organisations, agricultural extension, and out grower schemes.
Mr Mutebile said it is also necessary to address information asymmetries, for example, by matchmaking international firms and local suppliers.
“Only through boosting agricultural development through inclusive rural-urban links will we effectively harness the agriculture sector as a dominant source of employment. I applaud the UBA for rising to this challenge and call upon Government to join the bankers in the modernization of agriculture for job-creation and inclusive economic growth,” he said.
De-risking agriculture
Several other initiatives have been introduced to harness opportunities while combatting obstacles including de-risking lending to the agricultural sector with schemes such as the ACF at Bank of Uganda, the agri-business development & guarantee scheme at aBi Trust, the Ugandan agricultural Insurance Scheme, farmer skills empowerment programmes to enable them undertake agriculture as a business.
Several other initiatives have been introduced to harness opportunities while combatting obstacles including de-risking lending to the agricultural sector with schemes such as the ACF at Bank of Uganda, the agri-business development & guarantee scheme at aBi Trust, the Ugandan agricultural Insurance Scheme, farmer skills empowerment programmes to enable them undertake agriculture as a business.
More
recently, there have been increased points of access to financial
services through agent banking and use of other digital infrastructure
to speed up financial payments and money flows through technology.
Without
incentives, farmers are limited in their ability to invest the time and
capital to change agricultural practices and overcome technical,
cultural or financial barriers to sustainable production.
These
incentives encourage farmers to protect and deliver more services
through better management of crops, livestock, forest and fisheries, and
conservation of endangered species and protected habitats.
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