Stanbic Bank looks to Saccos to unlock agricultural financing

Many banks are reluctant to finance agricultural projects because they consider them risky. We cast a spotlight on Stanbic Bank’s contribution to Uganda’s agricultural sector.

Agriculture remains the backbone of Uganda’s economy, and according to the Uganda Bureau of Statistics (UBOS) estimates nearly 70 percent of the country’s working population is employed in this sector, directly or indirectly.

In the Financial Year 2021/22, agriculture accounted for about 24.1 percent of GDP, and 33 percent of export earnings. However, the sector needs more funding to match its contribution to the economy.

In FY 2022/23, Shs1.45 trillion was allocated to the sector, a decrease of 13.2 percent from Shs1.67 trillion in the previous financial year. On the other hand, financial institutions deem the agricultural sector too risky to consider for commercial financing.

Mr John Gahamanyi, a former business journalist and editor, pins inadequate funding as limiting the opportunities in the agriculture sector such as the ability to employ more people, enhance production and create wealth for the population.

He says since there are more youth in rural areas grappling with unemployment, more resources need to be allocated to the agriculture sector as one of the ways to create jobs.

“With inadequate funding of the agriculture sector, the private sector, especially financial institutions such as insurance companies, banks, and microfinance institutions must intervene to fill the deficit,” Mr Gahamanyi says.

He says even when commercial banks put money in the sector, they give priority to largescale farmers, ignoring the smallholders who are the majority.

“They say smallholder farmers do not have a track record of borrowing, while others, more so smallholder farmers, have no collateral—as such, banks prefer big commercial farmers in a sector is dominated by the latter,” he says.

Changing  the narrative

Mr Gahamanyi, who is also a dairy farmer, says commercial banks must change the narrative by coming up with tangible solutions that suit this niche as well as become deliberate in training staff that attend to farmers so they can understand how the sector works.

He says there is also a need for multi-stakeholder collaboration to de-risk the sector and government can take lead by increasing agriculture’s budget portfolio to create loan guarantees.

Investing in an effective value chain with banks financing agro-processors that have a direct link to the smallholder farmers, Gahamanyi says, can also help chart a pathway that would make credit trickle down to the smallholder farmer.

“For instance, if Stanbic Bank finances Uganda Breweries to grow barley, there is a trickle-down effect to the end-line farmers to whom UBL extends financing to enable them grow more of the cash crop, we need more such partnerships,” Mr Gahamanyi  says.

Farmers also have limited access to markets and government needs to be deliberate in providing infrastructure to ease market access. That goes into constructing more feeder roads and improving the existing ones.

“When banks get to know that farmers have assured market for their produce, it gives them more confidence in lending to them,” he adds. 

Ms Anne Juuko, the Stanbic Bank Uganda Chief Executive, says the bank is aware of the criticism levelled against the financial sector on its lukewarm funding to agriculture but says her institution is leading efforts in changing that narrative through strategic partnerships to solve some of the problems.

 “We know that agriculture is the answer to most of our country’s economic growth questions and for us, with a purpose to drive Uganda’s growth, that becomes a priority sector deserving of more attention,” she says.

At the height of the Covid-19 pandemic, Stanbic Bank Uganda partnered with the United Nations and other funding agencies such as aBI Finance, International Fund for Agricultural Development to a fund to provide low-cost financing to the informal sector businesses of which agriculture is one of them.  

The Economic Enterprise Restart Fund (EERF), avails cheap funds to Small and Medium Enterprises (SMEs), Savings and Credit Cooperative Organisations (Saccos) as well as Village Savings and Credit Associations (VSLAs) to enhance their productivity and provide digital and technical support in capacity building and institutional development. 

“The EERF is helping us drive financial inclusion through the digital banking process and building sustainable economic activity that creates employment opportunities, increases consumption, and averts poverty in the rural and peri-urban area,” Ms Melisa Nyakwera, the head of agri-business banking at Stanbic Bank says.

The Sacco model proved ideal for the agricultural sector because availing financial help to individual farmers is now feasible and, as Ms Nyakwera says, has proven to be the key to financing the sector.

Saccos as “small Stanbic Banks”

Previously seen as a bank for corporate clients and big businesses, partnering with Saccos is helping Stanbic Bank undo the wrong impressions by showing that it can operate at the grassroots level of the Ugandan economy almost going back to its UCB days, as some have put it.  However, the bank also knows, from its 116 years in business, that Sacco financing is a  risky undertaking with its problems mostly arising from misgovernance, poor bookkeeping practices, and weak operational efficiency, all of which bog them down.

“So, before we give Saccos money, we first build their capacity through training, build their governance structures, and digitalise their operations through FlexiPay, the goal is to make them operate with efficiency and be like ‘small Stanbic banks” in their respective areas of operation,” Ms Juuko.

Mr Patrick Twinamatsiko is the Manager in charge of the bank’s Sacco financing and capacity-building programme and says that since its launch in 2021, “we have partnered with over 5,000 Saccos, which have a combined membership of nearly 2 million people, most of whom are involved in smallholder agriculture.

Without requiring any collateral, agricultural-based Saccos are now accessing as much as Shs200m for the first time and thereafter, Shs 500m at an interest rate of 10 percent per annum, which they can then lend to their members supported by FlexiPay to effect digital disbursements.

“Digital disbursements through FlexiPay support Saccos to keep better and organised records which help them grow a solid track record that enhances their relationship with the bank,” says Mr. Twinamatsiko.

The bank is also working closely with Operation Wealth Creation and extending its expertise to support the implementation of the Parish Development Model (PDM), the government of Uganda’s latest strategy to boost household wealth through enhanced production.

Saccos leadership hail Stanbic

Kabonera Coffee Farmers’ Cooperative Society based in Masaka District is one of those that have partnered with Stanbic Bank and is full of praise for the lender.

Established in 2014, the coffee farmers’ group with over 500 members enjoys an annual turnover of close to Shs800 million the group buys the produce from its farmers and sells it to the market. Despite having an impressive turnover, several of the Sacco’s attempts to get bank credit had failed.

Mr Muluya Luyombo Phillip, the chairman of the cooperative, says they started working with Stanbic Bank in 2021, through Apex NUCAFE, under One Farm programme.

“They identified our Sacco as one worth getting financial support and we received training after which we were recommended for an unsecured loan facility of Shs40m,” says Mr Edrisa Lugemwa Kisubika, the Saco manager, adding that at the time, it was unheard of to access a bank loan without collateral.  With the Stanbic Bank loan facility, the Sacco stocked fertilisers and loaned farmers up to 200 bags worth of inputs to invest in their farms, as well as investing in its own office structures effectively saving the Shs 2 milion previously spent on rental fees, according to Mr  Luyombo.

“Apart from funding, the bank also digitised our operations by giving us a solar panel since we were not connected to the national grid. This has improved our operational efficiency and enabled us to serve our members better,” he says.

Ms Claudia Kazinga Mulindwa, a member of the Sacco, says being a member meant she could get a fertiliser loan, which boasted her output and thus earnings.

Located some 81km from Masaka, Kabula Dairy Farmers Cooperative Society is another group that is working with Stanbic Bank to boost milk production and local supply chain.

Started on April 20, 2010, the Sacco has 16 branches within Lyantonde District and another in Sembabule District; these buy milk in bulk, chill milk for their members, and then sell it to processors and consumers,  says Mr Aaron Kumarwa, General Manager.

“From simply saving with them, we started getting other financial assistance such as overdrafts. In 2018, we got our first loan of Shs100m and two more of the same, Shs500m up to the most recent of Shs800m in total, we have accessed as much as Ush1.6bn in unsecured credit,” he says.

Mr Kumarwa says while the first loan received was at 26 percent, all these were unsecured loans with the first being at 26 percent and payable in three months but the bank has since brought these down to 12.5 percent making it easier for them to expand support to their members.

The Sacco’s partnership with Stanbic Bank has increased the appetite of more dairy farmers to join the group and draw resultant benefits, according to Mr Kumarwa, membership has grown from  309 with 508 and the prospects are positive.