Banks still don't trust farmers with agriculture loans

SMALL holder farmers have to look for alternatives of financing if they are to increase production and upgrade to commercial farming. 

This is so because they still find it hard to access agriculture loans from financial institutions. 

Amos Keitana, a farmer from Bushenyi, growing Irish potatoes, bananas, vegetables, beans but has failed to access an agriculture loan from financial institutions in his area. 

During an agriculture sector review meeting, Keitana said due to lack of finance, small holder farmers cannot upgrade and produce for commercial purposes. 

"If we can access the money, we can buy equipment to help us in transporting the food from the farm, process so that they don't go bad before getting to the market," said Keitana. 

Keitana is one of the many small holder farmers failing to access loans to improve their agriculture production. 

Status of agriculture financing in Uganda 

Information from the Uganda Agricultural Census survey 2008/2009 shows that at national level, only 11.3% of the 3.9 million agricultural households in Uganda access credit.  

Of this, 61% access credit informally, 29% through semi-informal and 10 percent through formal financial institutions. 

Across the region, western Uganda has the highest number of households accessing loans at 16% followed by Eastern at 11%, Central at about 9% and Northern Uganda at only 7%. 

Why farmers are not getting the loans 

Richard Wangwe, the head of agriculture finance at Stanbic bank explained that it is still risky to lend to small holder farmers because most of the them lack collateral. 

He adds that Uganda's agriculture is mainly rain-fed therefore is easily affected by adverse weather effects that on many occasions led to a complete loss to a farmer. 

Besides, seasonal price fluctuation of agriculture farm produce often eats up the profitability of farming especially at the beginning of the harvest season. 

Therefore providing credit to small holder farmers involves large transaction costs for a financial institution, said Wangwe. 

"This makes it hard to assess a farmer who is relying on his farm as collateral to get loan because he or she may not be sure of what he will get to pay back the loan, making it more risky," added Wangwe. 

Recently government through the Central Bank launched the agriculture credit facility, to be accessed by farmers through commercial banks at affordable interest rates. 

But the managing director of Centenary Rural Development Bank, Fabian Kasi, said government's Agriculture Credit Facility targets equipment for production, post-harvest handling equipment, storage and Agro processing machinery, which may not help smallholder. 

He however adds that they making it easier for farmers to access agriculture credit through sensitization of various agriculture loan products. 

Through sensitization meetings, farmers are taken through the requirements for one to access the loan, which include financial card, a farmer has no outstanding loans, have a savings account with the Bank, he said. 

He also advises farmers interested in such loans to consider the following: the project for which financing is sought must be within the agricultural value chain. 

Clients seeking production finance should be owners or tenants of the land on which agricultural production is undertaken.

Collateral that could include chattels like cows, goats, sheep; registered and unregistered land (Kibanja) and business equipment/tools must be provided. 

They should also have records of performance for at least two seasons experience in the project being undertaken.