The value of loans offered under Uganda’s Agricultural Credit Facility (ACF) has risen by nearly Ush150 billion ($44.5 million) in five years, even though the number of active lenders on the scheme’s register has dropped.
Data from the Bank of Uganda shows that the value of loans rose to Ush196 billion ($57.6 million) as at December 2015, from Ush46.4 billion ($13.6 million) in December 2010, while the number of lenders has dropped to 18 from 32.
Lenders cite the cost of funding under the scheme as a deterrent.
ACF loans attract a fixed rate of 12 per cent per annum compared with the average 24.3 per cent per annum charged by commercial banks. This is irrespective of the Central Bank Rate — a major determinant of the cost of borrowing — which fluctuates but has remained stable at 17 per cent since the end of last year.
Equally, loan processing fees under the ACF window are restricted to a maximum of 0.5 per cent of the total loan amount, in a sector where commercial lenders charge as much as six per cent.
Though the government provides interest-free money to the ACF window, commercial banks incur funding costs on their contributions that are usually pegged on the changing CBR, according to Abdul Nsibambi, a senior executive at Centenary Bank.
Under the facility, the government and participating financial institutions — commercial banks, micro deposit taking institutions, Uganda Development Bank Ltd and licensed credit institutions — contribute equal amounts for onward lending for acquiring agricultural inputs including machinery, storage facilities and irrigation systems, as well as for grain trading.
The loans for the grain trade have a ceiling of Ush10 billion ($2.9 million). The repayment period is a maximum eight years and minimum six months.
“There are also weaknesses in the underwriting operations of some participating financial institutions under the ACF scheme that have affected the disbursement of loans, with BoU citing cases of forged financial statements and a lack of detailed records for single borrowers seeking to access loans of more than Ush2.1 billion ($617,380),” said David Kalyango, BoU’s executive director for finance.
Credit: All Africa