Agricultural financing dropped by 25 billion in 2008

A survey by the Bank of Uganda and Plan for Modernization of Agriculture (PMA) shows that in 2008, lending to the agriculture sector reduced by 25 billion Uganda shillings.
The survey, published this month in the Agricultural Finance Year Book 2008, indicates that while lending to agriculture amounted up to 450 billion in 2007, in 2008 it came down to 425 billion shillings.
The research compiled data from commercial banks, microfinance institutions as well as rural credit institutions.
Loans to agricultural production were over 30 percent of all the loans, while agro-processing received the least amount, at less than 20 percent.
It points out that lending to agriculture remains largely low, at 12 percent of all loans given out in 2008. Commercial banks and microfinance institutions see smallholder agriculture, which is the most predominant countrywide, as too risky and costly to service, the study says.
The study recommends the need for financial policies that can foster lending to the agricultural sector, to improve its commercialization, which would be a great contribution to economic growth.
It however portrays a glimmer of hope for lending to agriculture, in a case study of Kayonza Tea Estate in South Western Uganda, with the Rural Savings Promotion and Enhancement of Enterprise Development Project. Over 4000 tea out-growers accessed over 100 million shillings in the form of fertilizers from Centenary Bank, through the Kayonza Microfinance SACCO.
Framer-founded lending associations that give credit to their members at low interest rates are also making agricultural financing easily accessible in other rural areas.
Lillian Kabazeyo, a poultry farmer from Bumbaire, Bushenyi, explains that she is able to borrow from her group at only 2 percent interest rate.
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Kabazeyo established her poultry farm with 50 local chicken 2 years ago, but has been able to build more litter houses with the loan. Her farm now has 800 chickens and she earns about 100, 000UShs from egg sales per day.
The survey thus says that when farmers organize themselves in groups, they eliminate the assumed risk of lending to smallholder farms and can even be able to borrow from larger commercial institutions.