Agricultural Finance Yearbook 2008

“Less finance, but a greater variety of products” sums up 2008 as far as financial services for the agricultural sector are concerned. This publication, the Yearbook on Agricultural Finance for 2008, seeks to reflect the main issues, actions, successes and failures experienced in Uganda during the year, in the overall area of financial sector support to agriculture – one of the areas with so much to contribute to achieving the goals of the National Development Plan.

The past year, 2008, has not been an easy one for those working in agricultural value chains, and seeking financial services – not only loans for working capital but more especially longer term finance for investment purposes. Data from the Bank of Uganda, presented in the chapter entitled ‘Trends in Agricultural Finance’, suggest that the overall volume of lending to the agricultural sector contracted slightly compared with the previous year. However, to some extent this was compensated by a substantial increase in the volume of leasing contracts for agricultural machinery.

Indeed, leases are one of the newer financial products now making their mark on agricultural value chains. The article in the Yearbook, ‘Will Leasing Boost Agricultural Finance?’ explores the advantages of this financial product, but also highlights urgent actions needed on the part of government to improve the effectiveness of leasing in boosting investment in farm production and in downstream processing.

Another notable new product is term finance for draught oxen purchase and for the acquisition of ox-drawn implements. The experience of one commercial bank that is a pioneer in this area of lending is covered in the article, ‘New Term Lending Products: Animal Traction Investment”.

Several articles cover the growth of structured finance products, where the existence of linkages other than finance facilitates the lending/borrowing process. Examples range from small-scale sugar and tea growers to a large cotton ginner/exporter. A related example deals with the largely negative experience of a seeds company using a novel financing model.

Turning now from products and mechanisms to institutions, the dilemma as to how best to ensure servicing rural areas with efficient and honest financial services for the benefit of farmers has yet to be solved. The record here is indeed patchy. One article shows how a successful SACCO has focused on agricultural lending; another deals with harnessing technology as a means of addressing structural weaknesses and operational inefficiencies in SACCOs. Despite a few bright spots, the overall task ahead to strengthen SACCOs is enormous – as suggested in the article on training SACCO managers, staff and directors. Again on the institutional side, two of the early articles in the Yearbook take a critical look at the effectiveness of fiscal incentives designed to encourage commercial banks to lend to individuals and companies in agricultural value chains. The result has not been encouraging, but the articles point out how policy changes could be developed in a more fruitful manner – by involving intended beneficiaries in the formulation process.

The need for greater consultation before policies are introduced is perhaps the over-riding lesson from 2008. It is hoped that the changes being introduced by government in 2009 will encourage rather than stifle the very necessary improvements in this area.

Finally the Yearbook includes articles from the Bank of Uganda on the ongoing study geared to calculating Domestic Resource Costs of a wide variety of commodities, and also from the World Food Programme on experiences with the domestic sourcing of foods such as maize.

Related Resources