MPs raise alarm over delayed disbursement of sh239b agricultural loans

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Bank of Uganda officials, led by deputy governor Augustus Nuwagaba, have appeared before Parliament’s committee on commissions, statutory authorities and state enterprises (COSASE). The meeting, chaired by Allan Mayanja (Nakaseke central) last week, was to respond to audit queries raised in a report for the financial year ending December 2024, particularly concerning the performance of the Agricultural Credit Facility (ACF).

The meeting followed concerns raised by the Office of the Auditor General over the low disbursement rate of funds under the facility, which was established to provide affordable credit to farmers and agro-processors through participating financial institutions.

According to the audit report, a review of loan applications compared to disbursements as of June 2024 revealed that out of 5,227 loan applications worth approximately shillings 402.05 billion received under the facility, only 373 loans amounting to shillings 162.77 billion were approved and disbursed.

This represents a disbursement rate of about 40.48%, raising concerns about whether the facility is effectively meeting its objective of improving access to affordable financing for the agricultural sector.

A breakdown of the applications showed that the highest number of loan requests came from applicants seeking between shillings.

One million and shillings 50 million, accounting for 3,974 applications valued at about shillings 38.59 billion. However, only 73 loans in this category were approved.

Applications for larger loan amounts also recorded significant gaps between requests and approvals. For instance, loans above shillings 100 million and up to 500 million attracted 422 applications worth shillings 68.13 billion, but only 160 loans amounting to 29.35 billion were approved.

Similarly, applications exceeding shillings 2.5 billion totalled 15 requests valued at over shillings 209.27 billion, with only eight loans amounting to 99.32 billion approved.

The audit also flagged delays in the processing of loan applications, noting that several cases exceeded the stipulated timelines. Under the Memorandum of Agreement governing the facility, the fund administrator is required to release the government’s contribution to participating financial institutions within 14 working days after receiving a complete request.

However, auditors observed 1,077 instances where processing time exceeded the required period, with about 50% of the applications taking more than six months to process. In some cases, approvals took close to a year.

Greald Nangoli (Elgon County) questioned why applicants seeking loans above shillings 2.5 billion appeared to have higher approval rates compared to those applying for smaller amounts, arguing that the facility was originally intended to support small farmers who often require less than 50 million.

He said the trend raises questions about the criteria used in approving loans and whether small-scale farmers are being discouraged from accessing the fund due to complicated procedures.

Nangoli further suggested that many farmers could be abandoning the process midway due to frustrations in meeting the requirements, noting that those applying for large amounts are often better positioned to navigate the system. 

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In response, Richard Byarugaba, the executive director of finance at the central bank, told the committee that the figures presented in the audit report do not capture the full picture of the programme.

“I think this table does not cover the entire story of the 15 years of this facility. We have even approved loans of about shillings 200,000 for farmers buying pesticides and seeds,” Byarugaba said.

He explained that while the central bank would prefer to support more small-scale farmers, commercial banks that partner with the facility often consider risk factors when evaluating loan applications.

“Our wish would actually be to concentrate on the lower side, but we are constrained by the commercial banks, who must manage risk,” he said.

Byarugaba noted that larger borrowers typically present audited financial statements and collateral, making it easier for banks to approve their applications. Some of the large loans, he added, are taken by grain traders who purchase surplus harvests and store them in silos under a grain trading facility introduced in 2015.

“These traders come to take large amounts because they have the storage capacity and clear financial information that banks can rely on,” he said. He also clarified that the central bank does not select beneficiaries directly.

“Bank of Uganda does not choose who takes the money. Whoever qualifies and meets the requirements can access the funds through the participating financial institutions,” he said.

Addressing concerns about delays in loan processing, Byarugaba said the main challenge is incomplete documentation submitted by applicants.

“If all the documentation is in place, the loan should not take more than 14 days to be processed. In many cases, delays arise because some applicants do not have proper records or financial documentation,” he said.

He added that the central bank has introduced a loan management system to streamline application processing and is also conducting sensitisation programmes for both farmers and commercial banks to improve awareness about the facility.

Byarugaba said the programme has grown over the years, with more than 11,000 borrowers currently benefiting from the facility, although the initial funding of about sh30 billion limited its reach when it was first introduced.