A special credit facility that was designed to extend credit to Ugandan farmers at about half the market interest rates on loans has recorded immense success, according to officials from the Bank of Uganda.

BoU's Director of Research Adam Mugume said the 10 percent interest rates that were charged on loans under the Agricultural Credit Facility (ACF) greatly encouraged investors in agriculture to borrow cheaply and invest into farming and acquisition of equipment. He made the comments during BoU's monthly press conference on economic and financial indicators for May.

In the last financial year, the government set aside Ushs 30 billion and asked commercial banks to set aside an additional amount to be lent out to farmers at lower rates. In her recent budget speech, Finance Minister Syda Bumba said that Ushs 54 billion had been disbursed by banks under the credit facility.

Mugume said the funds were swiftly taken up because the terms of the facility were deemed as manageable by farmers and other stakeholders in the agriculture sector. So far, sketchy information shows that the facility benefited large investors who used it to boost their investments.

BoU said investors used the facility to purchase tractors, planters and other farm inputs, irrigation systems, milk processing equipment; maize and feed mills; tea processing plant and machinery, refrigeration equipment for meat processing, flower and horticulture equipment.

It is however not clear who and how many people benefited from that credit facility. A similar programme called Apex Fund that had been supported by the European Investment Bank to lend to developmental projects like schools and hospitals, was tainted by allegations that top government officials used it for their own selfish ends. Some of the money was never repaid and the facility was later withdrawn.

Still, despite announcing the facility, the government has not been very transparent on the procedures for accessing the money, especially by ordinary people.

Very high interest rates charged by commercial banks in Uganda is considered a big disincentive for investment. The agricultural sector has become an even riskier venture for lenders especially following the enactment of the land law that complicated issues of land ownership. Coupled with price volatility and exposure to environmental vagaries the sector faces some of the highest interest rates on loans.

Analysts argue that the remarkable performance of the ACF scheme vindicates those who have always argued that extremely high interest rates charged by Uganda's commercial bans are a drag on the development of agriculture - which is Uganda's most important economic sector.

Mugume also hailed recent positive developments in the agricultural sector which he said have helped to revive the economy that was slackening back in 2008.

"In 2008 the average growth rate of the economy was declining, but with increased returns from the agriculture sector in the past 2 years, the average economic growth has got a 3 per cent boost from positive developments in the sector," said Mugume.

BoU won't intervene

The introduction of the ACF represented the government's effort to force banks to lower rates. It also came in the wake of failed measures by the BoU to try to get banks to lower their rates, even if bank officials admitted the high interest rates represented an enormous challenge to the management of monetary policy.
Policy  to restrict migrating workers

Meanwhile, the central bank is formulating a policy that will contain guidelines on workers of financial institution. The policy, according to BoU's Director of Public Relations Juma Walusimbi, will contain regulations on migration of people from one financial institution to another. He said the policy is aimed at controlling the negative implications associated with the practice.

Walusimbi noted that the policy is aimed at tackling unethical behavior of some employees who defraud bank clients using the loopholes in the existing working conditions in financial institutions.

The advent of more than ten new financial institutions in Uganda over the last two years sparked a huge exodus of workers from banks who joined the new banks. At the same time, the industry was rocked with fraud that was in many instances traced back to workers in their own banks. blog comments powered by Disqus

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