The European Union (EU) has announced a trial equity fund of $30 million (about Shs78 billion) meant to finance small and medium sized farmers and boost food production and household incomes.
Announcing the fund on Tuesday in Kampala, the head of the EU delegation in Uganda, Mr Kristian Schmidt, said the support was in response to limitations faced by small and medium agribusinesses owners in accessing capital that is needed to boost their businesses despite the sector contributing to 24 per cent of Gross Domestic Product.
“In Uganda, agriculture is a strategic sector….accounting for over 47 per cent of export revenues and employing 73 per cent of the population. Much of the industrial activity is agro-based…accounting to 40 per cent of total manufacturing,” Mr Schmidt said.
The 10 to 15 year fund, with a possibility of extension in case of success, will be accessible by farmers with agribusiness investments of €200,000 (about Shs68 million) to €2m (about Shs6.8 billion) and a maximum of 35 per cent of the target companies’ investment and equity.
How the fund works
The EU will partner with the International Fund for Agriculture Development (IFAD) to manage the fund.
The fund is premised on a profit-sharing and equity participation of IFAD who are the managers of the fund and the farmers to replace interest on the fund.
The advantage with the fund is that the uncertainties in agriculture that make commercial banks reluctant to lend to farmers are avoided. Both the EU and farmers participate in activities and use their joint capital to generate surplus, profits and losses are shared according to equity ratio.
Finance minister expresses optimism
Finance minister Maria Kiwanuka was optimistic that since the financiers themselves are involved in the management of the fund with no government bureaucracies, the scheme will be a success and will enable her ministry to get the much needed taxes, provide electricity, irrigation and fight poverty.
The fund comes in handy as the government is looking for possible ways of boosting agriculture through increasing efficiency of Naads by the proposed takeover by the army.