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More farmers now accessing BoU non-collateralised loans
The Agricultural Facility has been key in supporting farmers to access credit to purchase farm inputs to support commercialisation of agriculture. Photo / File
What you need to know:
- The loans accessed through the Block Allocation arrangement are part of the Agricultural Credit Facility that seeks to commercialise agriculture
At least more than 2,113 non-collateralised farmers have accessed low cost loans from the Bank of Uganda managed agricultural fund in the five years to June, according to the Agricultural Credit Facility.
The report, which highlights performance of the Agricultural Credit Facility, indicates that between June 2018 and June 2023, 2,113 farmers without collateral borrowed Shs13.5b from the fund, signalling government’s determination to commercialisation of agriculture.
The money, which is part of the Shs818.29b disbursed through the Facility since it was established in 2009, is part of government’s larger plan to commercialise agriculture by unlocking access to credit in regions with communal land tenure systems.
The Shs13.5b, the report indicates was disbursed through the Black Allocation arrangement, which largely benefits micro and smallholder farmers who are excluded from the credit ecosystem due to lack of collateral.
In details contained in the Agricultural Credit Facility annual report, Bank of Uganda indicated that in the 14 years to June 2023, a total of 3,455 projects were funded, of which 61 percent were non-collateralised.
The Block Allocation arrangement has progressively expanded credit access since it was introduced in 2018 and has unlocked access to finance by smallholder farmers by easing restrictions on collateral requirements by participating financial institutions, among which include PostBank, dfcu, Centenary, Equity, Housing Finance Bank and Pride Microfinance.
The Block Allocation arrangement, allows participating financial institutions to bulk small loans (Shs20m and below) into a block of Shs1.5b, which is submitted a single application to Bank of Uganda for refinancing.
“This arrangement may not require the registered collateral, but alternative collateral such as cash flows, chattel mortgages, borrower’s credit rating, banking history and unregistered land may be considered,” the report reads in part, noting that participating financial institutions appraise eligibility, after which they disburse loans, before submitting the applications to Bank of Uganda for reimbursement.
This, the report noted, quickens loan processing with the amount extended to each borrower under the Block Arrangement capped at Shs20m to minimise the risk of default since the loans are essentially unsecured.
The report notes that the biggest beneficiaries were farmers from western and northern Uganda, with a share of 44.8 percent and 31.9 percent of projects financed, respectively.
The Agricultural Credit Facility, which was established in 2009, is a shared credit source operated by Bank of Uganda through contributions from government and participating financial institutions.
The facility has been evolving to provide credit to smaller holder farmers, majority of whom are non-collateralised.
During the year ended June, at least Shs123.38b was disbursed through the Facility, which was an 18 percent increase from the Shs74.88b disbursed in the same period in 2022.
The facility also experienced a large increase in new loans, which during the period ended June increased by 1,125, accounting for a 48 per cent increase in the cumulative number of loans disbursed.
The report indicates that outstanding loans with participating financial institutions stood at Shs128.78b as of June, while distressed loans remained at Shs4.04b with a non-performing asset ratio of 0.98 per cent compared to the aggregate non-performing asset ratio of 5.93 per cent for commercial banks.
Non-collateralised
The Agricultural Creidt Facility has been evolving to provide credit to smaller holder farmers, majority of whom are non-collateralised.
During the year ended June, at least Shs123.38b was disbursed through the Facility, which was an 18 percent increase from the Shs74.88b disbursed in the same period in 2022.
The facility also experienced a large increase in new loans, which during the period ended June increased by 1,125, accounting for a 48 per cent increase in the cumulative number of loans disbursed.
The report indicates that outstanding loans with participating financial institutions stood at Shs128.78b as of June, while distressed loans remained at Shs4.04b with a non-performing asset ratio of 0.98 per cent compared to the aggregate non-performing asset ratio of 5.93 per cent for commercial banks.
