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Despite being the backbone of Uganda’s economy, the agricultural sector continues to be among the least attractive sectors to financiers.
The main reasons advanced for this phenomenon include; farmers are poor and un-bankable and that they live in remote areas, which are difficult and costly to access.
It’s also argued that agriculture in Africa is based on factors over which the farmer has very limited control and that the subsistence and seasonal nature of most African agriculture renders it unattractive to larger market demands.
Therefore, innovative ways of mitigating risk and reducing costs of reaching remote areas are key if farmers are to benefit from financial services.
A group of financial institutions organised under the African Rural and Agricultural Credit Association (AFRACA) recently met at Speke Resort Munyonyo to forge a way forward in addressing this issue. The meeting was under the theme: ‘Financial services intermediation for growth and wealth creation in Africa’.
The Bank of Uganda Governor Prof. Emmanuel Tumusiime Mutebile - represented by the Director for Non Financial Institutions, Mr Benedict Ssekabira at the opening of AFRACA East Africa Sub-Regional meeting - said: “Development of microfinance has been identified as one of the key aspects of improving inclusiveness.”
“This is because microfinance uses informal and social based alternatives to overcome impediments that hinder many people from accessing finance.”
The World Bank estimates that across Sub-Saharan Africa, only 20 per cent of households have accounts with financial institutions, compared to the 90 percent or more in developed countries.
Similarly, one bank branch in Sub-Saharan Africa caters to the banking needs of more than 50,000 people, compared to fewer than 4,000 people per branch in developed countries.
Mr Ssekabira said the challenge ahead of financial institutions is to identify measures that can enhance sustainability of small institutions in order to add value and create wealth for the rural poor.
Financial inclusion presents opportunities for positive effects on economic growth, financial stability and social cohesion. In Uganda, Finance Trust Bank is one of the financial institutions that have gone beyond the corporate customer to source people in the rural areas majority of whom are farmers, to increase its deposits and savings.
Mr Mathias Katamba, the managing director of Finance Trust, said: “We don’t have the exact figure of farmers but our loan portfolio is way above Shs27 billion and a large part of this is in one way or another (attributed to) the people in the agricultural value chain right from transporters, rural areas, food suppliers and those buying produce.”
He, however, said the sparse population density in rural areas makes it much more expensive for them to reach farmers along the chain. “The road networks and telecommunication infrastructure have been a major impediment. The weather patterns are also unreliable in places like Bududa. Lack of agricultural insurance makes it even harder to spread to a wider area network,” he said.
However, the BoU official thinks that once institutions are supported by enabling policy and regulatory environment, this will bring in more deposits.
“BoU is mindful of the fact that over regulation can stifle creativity, which in turn can lead to financial exclusion,” Mr Ssekabira said.
BoU, on its part as a regulator, has encouraged savings for financial institutions.
“We are working with the government to provide an environment where people can save and through regulation of the institutions, we provide insurance, safety and soundness in financial institutions,” Mr Ssekabira said.
In order to avoid a fragmented approach to financial inclusion, both at the policy and regulatory level, BoU is calling for a review of the Financial Institutions Act (FIA) 2004 and the MDI Act 2003 to be brought on board.
“The most impassive wealth creation is that which caters for all stakeholders and especially that which concentrates on the clients and a bigger majority are in the rural area involved in farming in one or another,” Mr Andrew Obara, a consultant at Friends Financial Services.
Despite being the backbone of Uganda’s economy, the agricultural sector continues to be among the least attractive sectors to financiers.
The main reasons advanced for this phenomenon include; farmers are poor and un-bankable and that they live in remote areas, which are difficult and costly to access.
It’s also argued that agriculture in Africa is based on factors over which the farmer has very limited control and that the subsistence and seasonal nature of most African agriculture renders it unattractive to larger market demands.
Therefore, innovative ways of mitigating risk and reducing costs of reaching remote areas are key if farmers are to benefit from financial services.
A group of financial institutions organised under the African Rural and Agricultural Credit Association (AFRACA) recently met at Speke Resort Munyonyo to forge a way forward in addressing this issue. The meeting was under the theme: ‘Financial services intermediation for growth and wealth creation in Africa’.
The Bank of Uganda Governor Prof. Emmanuel Tumusiime Mutebile - represented by the Director for Non Financial Institutions, Mr Benedict Ssekabira at the opening of AFRACA East Africa Sub-Regional meeting - said: “Development of microfinance has been identified as one of the key aspects of improving inclusiveness.”
“This is because microfinance uses informal and social based alternatives to overcome impediments that hinder many people from accessing finance.”
The World Bank estimates that across Sub-Saharan Africa, only 20 per cent of households have accounts with financial institutions, compared to the 90 percent or more in developed countries.
Similarly, one bank branch in Sub-Saharan Africa caters to the banking needs of more than 50,000 people, compared to fewer than 4,000 people per branch in developed countries.
Mr Ssekabira said the challenge ahead of financial institutions is to identify measures that can enhance sustainability of small institutions in order to add value and create wealth for the rural poor.
Financial inclusion presents opportunities for positive effects on economic growth, financial stability and social cohesion. In Uganda, Finance Trust Bank is one of the financial institutions that have gone beyond the corporate customer to source people in the rural areas majority of whom are farmers, to increase its deposits and savings.
Mr Mathias Katamba, the managing director of Finance Trust, said: “We don’t have the exact figure of farmers but our loan portfolio is way above Shs27 billion and a large part of this is in one way or another (attributed to) the people in the agricultural value chain right from transporters, rural areas, food suppliers and those buying produce.”
He, however, said the sparse population density in rural areas makes it much more expensive for them to reach farmers along the chain. “The road networks and telecommunication infrastructure have been a major impediment. The weather patterns are also unreliable in places like Bududa. Lack of agricultural insurance makes it even harder to spread to a wider area network,” he said.
However, the BoU official thinks that once institutions are supported by enabling policy and regulatory environment, this will bring in more deposits.
“BoU is mindful of the fact that over regulation can stifle creativity, which in turn can lead to financial exclusion,” Mr Ssekabira said.
BoU, on its part as a regulator, has encouraged savings for financial institutions.
“We are working with the government to provide an environment where people can save and through regulation of the institutions, we provide insurance, safety and soundness in financial institutions,” Mr Ssekabira said.
In order to avoid a fragmented approach to financial inclusion, both at the policy and regulatory level, BoU is calling for a review of the Financial Institutions Act (FIA) 2004 and the MDI Act 2003 to be brought on board.
“The most impassive wealth creation is that which caters for all stakeholders and especially that which concentrates on the clients and a bigger majority are in the rural area involved in farming in one or another,” Mr Andrew Obara, a consultant at Friends Financial Services.
