GROWING
CONFIDENCE IN AGRICULTURAL LENDING
By Moses Paul Sserwanga
Media/communications Consultant
Advoacte of High Court of Uganda
Advoacte of High Court of Uganda
A new World Bank report “Growing Africa: Unlocking
the Potential of Agribusiness,” says that Africa’s farmers and agribusinesses
could create a trillion-dollar food market by 2030 if they can expand their
access to more capital, electricity, better technology and irrigated land to
grow high-value nutritious foods.
The potential of agriculture to reduce poverty and catalyse development
in Africa is appealing but the reality to date points to several factors
impeding African agribusiness and
market development. In Uganda, the Agricultural Business Initiative Trust (aBi
Trust[1])
currently in its third year of operation has identified low smallholder
agricultural productivity, inadequate agricultural finance, poor marketing
strategies and inadequate trade opportunities as factors that are holding back
that potential.
This is in
addition to inadequate storage facilities and assembling points, limited
agro-processing and manufacturing (low value-addition activities), less
consultative government policy formulation and policy reversals, poor quality
standards of agricultural commodities, and slow pace of agricultural export
diversification.
The financing for agriculture in Uganda has improved
over the last several years as illustrated by the growing confidence of
institutions that have worked with different partners to improve financial
services for agribusiness. However, a lot still has to be accomplished.
FINCA
Uganda Limited (MDI) was the first licensed Microfinance Deposit-taking
Institution (MDI) in 2004; it provides life-changing financial services to
Uganda's lowest-income entrepreneurs with the aim of creating jobs, building
assets, and improving their standard of living.
In January 2010, FINCA Uganda signed onto the Agribusiness Loan
Guarantee Scheme, under aBi Trust. In its three years
of operation, FINCA Uganda’s has registered remarkable overall
performance on the scheme standing out in terms of
volume and value of loans. It is this performance that formed the basis for
raising the MDI’s limit to accommodate its wide scope of financial products. It
is important to note that due to a slowdown in the economy and particularly
difficult market conditions, 2012 was not a good year for the financial
sector.
The regulated financial services sector faced some challenges that
led to a slower than anticipated growth coupled with changes in technology to
help improve its efficiency.It specifically recorded a decline in portfolio
quality; illustrated by an increase in the ratio of NPA from 1.6 in June 2011
to 3.9 in June 2012, a deterioration that was largely driven by the construction
sector.
A positive lending trend,
however small, in a sector which is still perceived to be one of the riskiest
in the financial services industry has had a positive impact and led to some
tangible results. aBi Trust Annual Report 2012 records several success stories
that point to change in attitude among financial institutions. This increase in
confidence goes hand in hand with some other positive trends such as
competitiveness and investment as the following case study that profiles Mr.
Willy Oloya illustrates.
A
Trader’s Tale
Mr.
Willy Oloya is a trader and rice processor with over 22 years ‘experience in
the rice trade. A resident of Gulu in Northern Uganda, Willy Oloya has other
agricultural interests including maize and oil seeds to a smaller extent though
his primary trade is in rice.
Oloya
opened his account with FINCA in 2009. At the time he had a 10 ton rice huller
machine and wanted to access credit to acquire a 60 ton rice huller machine to
build a rice factory. His asset base and profits have since grown from USh 10M to
USh 50M. As the demand for rice grew Mr. Oloya quickly recognized that he did
not have the capacity to open up more land for the raw material, and that he
would have to rely on the farmer communities to produce and supply to him. In
order to sustain his growing business Willy has collaborated with several
farmer groups, which he has categorized according to the volumes they deliver.
In turn, he has linked other commercial farmers to FINCA to access credit to
increase productivity.
Trading
as M/S NILE SAFARI MILLERS, Oloya reports that the loan has enabled rice
production financing at different stages hence increasing rice output and
production from 25,000 metric tons (2011) to 200,000 metric tons (2012)
since he works with many more suppliers than those he has linked to the MDI. He
currently associates with 2,280 members from 108 farmer groups, located in
three Districts of Gulu, Amuru and Nwoya to whom he provides the following
services:
i.
Identifies stage at which they are for most suitable financing needs;
ii.
Supports their crop selection process, primarily rice which has
more stable prices than other cereals e.g. maize;
iii.
Has a permanent staff to provide farmers with relevant information
on the enterprise they are promoting;
iv.
Hires consultants and Agricultural extension workers to guide
farmers on best practices in rice production and post-harvest handling
trainings and advice;
v.
Avails farmers small machinery at a fee to support the land
opening process;
vi.
Provides, at a fee, hulling and storage facilities.
To
ensure that he is the farmers’ primary trader, Mr. Oloya has set up buying
centers nearer to where the groups are located and contracts farmers on a
seasonal commission basis. In addition, he offers farmers other services like
planting, weeding, harvesting, storage and marketing. He states that these
interventions explain why 99% of the farmers fulfill their commitments to him.
The farmer groups identified by Mr. Oloya are in turn approached
by the MDI which trains them three to four times on various aspects of
agribusiness - saving, accessing finances and record keeping. It also appraises
them for facilities which are sometimes simultaneously done with the training.
Finally, the MDI identifies those who are ready for financing either in groups
or individually and finances them.
In 2012, 16 groups were identified by Mr. Oloya, out of which the
MDI financed 10 groups with 292 members, with the rest being further developed.
Out of these groups, five[2] were visited and the
findings from the visits are mixed results.
