COMMERCIAL LOANS: Why agric takes lion share

COMMERCIAL LOANS: Why agric takes lion share

 ABDUEL ELINAZA

THE agriculture sector has become the most lucrative industry for commercial lenders in

the country, thanks to monetary policy measures rolled out by the Central Bank last July.

Some key players and analysts in agriculture have attributed the sector’s largest share of credit to decrease in risks, farming mechanisation, digital platforms, financial literacy, commercialisation, subsidies and investors’ confidence created by the government.

In the year ending January this year, 47.4 per cent of the loans went to agriculture according to the Bank of Tanzania (BoT) monthly economic review, which was slightly higher than a quarter of the country’s budget of 41.48tri/- for this financial year.

Agricultural sector attracted over 12tri/- out of the total stock of credit extended to the private sector of around 27tri/- in the year ending January, 2023.

The government last year injected 1.0tri/-to support commercial banks’ lending to agriculture to reduce the cost of funds to investors in the sector. In this initiative banks are granting loans at a single digit—of up to 9.0 per cent.

Thus, marrying low-interest agri-loans with subsidies—seeds and fertiliser and modern irrigation infrastructure and digital financing not only propelled the increase of loans, but also reduces risks to the field once regarded by banks as a no-go sector.

CRDB Bank Head of Agribusiness Mr Maregesi Shaaban told the ‘Daily News’ on Wednesday that risks went down due to proper links among actors in the agricultural value chain and in turn helped them to ring-fence cash flow, get reliable access to markets and minimise chances of defaulting.

“Mechanisation in farming, livestock keeping, forestry, fishing and commodity trading has improved productivity resulting into high returns to investor” thus muscles to pay back,” Mr Shaaban said.

CRDB is currently making a holistic evaluation of agricultural value chain opportunities available, aiming at tapping more opportunities in this potential sector through strong value chain linkages among actors with more focus on value addition.

CRDB’s exposure in the agriculture sector was standing to the tune of 801bn/-(some 334 million US dollars). The amount loaned out by one of the largest lenders in the country translates to over 43 per cent of total agricultural financing in the country.

According to the Bank of Tanzania (BoT), credit to the agriculture activities dominates the portfolio at 47.4 per cent year-on-year to this January, from -4.8 per cent in January last year, trailed by the manufacturing sector at 28.6 per cent, while mining and quarrying at  24.7 per cent, personal loans at  22.4 per cent and trade by 20.5 per cent. The rest of the sectors are less than 20 per cent.

Overall private-sector credit recorded an annual growth of 23.1 per cent in January compared to 10 per cent last January.

“The outturn was on account of supportive monetary and fiscal policies and ongoing recovery of economic activities from adverse effects of global shocks,” BoT’s Monthly Economic Review showed.

Alpha Capital Head of Research and Financial Analytics, Imani Muhingo urged that the government support to agriculture has banks’ confidence of the sector and sectorial borrowers, while the potential of the sector is increasingly becoming apparent that serious players are getting involved.

“I think the risks associated with agriculture are not eliminated but rather alleviated by the critical support from the government such as the 100bn/- monthly subsidising of fertilisers,” Mr Muhingo said.

As agriculture becomes increasingly commercialised, agricultural companies understand the importance of organisation, records and good governance, hence raise they financial feasibility, while reducing defaulting.

Additionally, the loan increase to the sector was attributed to policy improvement—pro-business and anti-export ban policies.

Tanzania Pulses Network, National Coordinator, Zirack Andrew said since assuming the ministerial position of agriculture docket, last January, Mr Hussein Bashe has been categorical in protecting the freedom of doing agriculture-related business, by repetitively insisting that the government will never involve itself in imposing export bans of agri-commodities.

“This stands to have increased confidence to those in and out of the sector to perceive it as a less risky sector,” Mr Andrew told ‘Daily News’.

Also, uncalculated government intervention in 2018, whereby the govt tried to dictate the cashew nuts buying price from farmers, led to many players pulling back from the sector altogether thus reducing the credit to the sector.

Now, Mr Andrew said, the minister’s comments must have inspired confidence in many people that agribusiness in Tanzania is predictable and operates commercially like any kind of business.

Dr Hildebrand Shayo, an economist said another aspect that plays an important role in an agricultural role is the fact that most subsidies in the agricultural sector in a way have been re-introduced and here seeds and fertilisers as recently given in the country.

“These subsidies have created incentive in modernising the agricultural sector in Tanzania and is providing an opportunity for new entrants as opposed to the time when securing loans was challenges,” Dr Shayo said.