Even as questions swirl over the real impact of increased documentation on Ugandan farmers’ ability to secure loans from banks, financial technology firms have continued to invest in the sector, ushering in easier access to credit and higher production levels.

 

Unstable weather patterns, fluctuating commodity prices, inadequate documentation among local farmers, low literacy levels evident in the farming community, and relatively high loan default rates have scared many financial institutions away from massive lending to the agricultural sector.

For example, loan default rates in the agricultural sector have averaged more than five percent per year since 2018.

While the average share of agricultural loans stood at less than 10 percent before the Covid-19 lockdown period, its relative share of private sector loans provided by commercial banks, credit institutions, and microfinance lenders has risen to around 10-13 percent.

The Agricultural Credit Facility (ACF) has disbursed more than Ush800 billion ($221 million) loans to various agricultural sector borrowers since 2012.

Loans offered under the ACF bear interest rates of less than 15 percent per year. Around Ush3.3 trillion ($911.9 million) has been disbursed so far under the Parish Development Model (PDM), an interest-free loan facility provided by the government to households engaged in agricultural production.

What is the real impact of increased documentation on loan amounts disbursed to farmers?“We do not have enough information about that initiative at this time, but it will certainly improve credit underwriting processes carried out by commercial banks. This means a bank can process a credit application faster and also disburse loans to farmers at a quicker pace because they have access to better borrower information.“A farmer will also find it difficult to claim they have 50 acres of land while the satellite mapping system has not captured such information. But I need to get my team to collect more data on the partnerships between commercial banks, fintechs, and their impact on relative access to credit within the agricultural sector,” explained David Kalyango, BOU’s Executive Director for bank supervision.

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