The Agricultural Credit Fund (ACF) has revolutionized farming loans in Uganda. Agricultural financing in Uganda has been a big problem because of high interest rates and lack of collateral by small scale farmers.
Among the various banks involved in disbursing the fund include the Centenary Bank.
Explain why out of 538 applicants, only 16 were approved to get funding?
The fund has actually approved over 416 applications since the start in 2010.
What are the measures taken to recover loans?
The farmers deal only with the commercial banks which have to secure adequate collateral like residential houses, cars etc; before they give the loan.
They then sign a promissory note with the Bank of Uganda so that when the loan is repaid, the money is reimbursed (without interest) to the fund so that it can help other farmers.
The government has also set up an insurance scheme to cover losses.
How will the Agricultural Credit Fund affect small commercial farmers?
It will provide loans for them to buy equipment with what they are able to acquire from the fund.
How are the issues to do with weather and its unreliability taken into account?
The ACF is in place to account for the unreliability of weather for example in the dry season a farmer can take out a loan for irrigation equipment.
Explain how profit and losses are divided between the government and the commercial bank.
The commercial banks get paid back with a maximum of 12% interest and pays 50% back to the Bank of Uganda which returns it to the fund for other farmers to benefit.
What are the possible reasons for the rejection of applications?
Applications are rejected when the commercial banks that are appraising them find faults in credibility or if the applicants posses inconsistent records.
What is the rationale of leaving the fate of the farmers to commercial banks which are profit making entities that use stringent rules that smaller farmers are not capable of meeting?
The government of Uganda has not left the farmer’s fate in the commercial banks’ hands.
The commercial banks are acting on behalf of the government. They are simply partners in the fund’s work.
The government cannot contribute to the fund alone so the commercial banks are necessary because they provide 50%.
Commercial banks are practically missionaries in this endeavor because they only charge maximum 12% interest.
What is the level of government interference in the applications?
The commercial banks are fully in charge of the loans process and the Bank of Uganda simply reimburses them according to the percentage the government is footing.
The government has contributed UGX 130.56 billion to date which is in the keeping of the central bank. That is where it’s involvement ends.
What has been the trend in terms of interest rate?
When it started in 2010 it was 10 percent , the commercial banks wanted to push it to 15 percent but the government insisted on 10.
What strategy have you put in place for farmers in hard to reach areas? (people who are ignorant or unable to access commercial banks)
Some farmers are not only in lack of capital but more sensitization so as to build their business and acquire the standards to be able to borrow from Agricultural Credit Facility.
Where did Etandikwa go?
It didn’t achieve the desired target and so the Agricultural Credit Fund is a new solution to try and reach out to more people in the agricultural sector
Why can’t all this money be put in one bank?
The money can’t all be accommodated by one bank due to the need to spread the risks that come with supplying loans
How much have you lost as BoU in recovering loans?
The Bank of Uganda as an institution has not made any losses because it simply carries out the role of the bank in the transmission.
The Government of Uganda, however, has lost UGX 4 Billion in loans that have been declared in default.
How far has your sensitization reached in regards to your loans?
The scheme benefitted Irish potato growers in Kisoro to the tune of about 5 billion.
What is delaying the signing of the MOU that is going to give access to small scale farmers to use their small collateral?
The draft proposals have been approved but the key stakeholders have to sign off. The MOU is waiting on the ministry of finance to sign off on it.
Desperation causes lies. What can the small holder farmers do to make you give them loans anyway?
People should get saved to bring honesty into the loan acquisition facility.
Isn’t the fund discriminative, why isn’t the credit being extended to the lower sections?
Every business needs to discriminate in order to make profit. Discrimination is the basis of loans giving.
The commercial banks have a whole process dedicated to determining who is capable or will be capable of paying back the loan. Some people are not eligible and the banks sometimes refuse to risk their funds.
The financial reporting standard is going to make the loan acquisition process more difficult, even after the MOU for small holders is signed, what convinces you that the banks will adhere to it and give them credit?
The MOU sets a separate standard from the financial reporting standard so if a farmer applies for a loan under the ACF they get it at maximum 12perecnt interest.
Is it fair for the fund to use the money of tax payers who don’t profit from it?
The cabinet in parliament who are representatives of the people approved the Agricultural Credit Fund to use the tax payers money
Interview with David Kalyango Former Executive Director Finance Bank of Uganda
For more about ACF visit the Bank of Uganda website.