By John Odyek
The Government has been asked to consider establishing an agricultural development bank to improve financial access to smallholder farmers.
Despite several government interventions in agricultural financing, access to credit by smallholder farmers has remained low.
Researchers from the Makerere University Economic Policy Research Centre said this is a frightening prospect for food security, health, income generation and economic development.
They observed that weak coordination has affected previous agricultural financing interventions by the Government.
“This could be blamed on the policy failures of government agricultural financing initiatives, poor response of formal commercial banks to agricultural lending and weak regulation of the microfinance institutions to effectively deliver credit to smallholder farmers,” the researchers noted.
This was contained in a report resulting from an investigation on the extent of access and use of credit by smallholder farmers in Uganda.
“While previous interventions were well designed, they faced policy challenges such as political interference and lack of institutional framework for funding, monitoring and implementation.”
The researchers suggested that if the Government is to succeed in promoting access to financial services by smallholder farmers, there has to be a strong institutional framework.
According to Bank of Uganda, access to credit for farming remains limited through formal commercial banks.
Bank of Uganda reports that since 2000, less than 10% of total private sector credit has annually been allocated for agricultural production and produce marketing.
The report said improved access of rural credit services has a significant potential contribution to the development of the agricultural sector, poverty eradication and economic growth and development.
“Of the few farmers who access loans, over 70% access loans through informal sources, which are weaker sources of credit. Commercial banks have not taken a deliberate effort to understand small-scale farming and the type of financial products farmers require to improve access,” the study said.