Bank of Uganda’s agricultural credit facility needs to be revised

’Why is Bank of Uganda adopting a politicians’ language’? Is the question my colleague at work asked as she read reports about the BoU’s urge to invest in a labour intensive export sector. According to her, the bank must either act or desist from playing the political card.

She bases her argument on the fact that the Central Bank has the capacity to propel such sectors as Agriculture, where labour- intensive export crops can be grown, providing employment along the value chain. Citing findings on the value chain in the cotton sector, she argues that Uganda only needs to produce 30 per cent of her textile needs locally, to reduce unemployment by 57 per cent.

The Central Bank’s Agricultural Credit Facility, which, on the surface, is meant to boost the sector has performed dismally on account of its stringent terms and conditions of access:
-The participating banks and microfinance institutions must co-finance it 50 per cent. These have easier and higher yielding portfolios where to invest their cash than this ACF, whose interest rate is at 10 per cent.

-The majority of the farmers, who are meant to be the target beneficiaries, have no collateral.
-The Fund does not finance start-ups, yet start-up capital is a bottleneck.

The Central Bank, may need to take a leaf from a simple microfinance institution in a neighbouring country. This rural MDI finances rabbit farming and runs a marketing cooperative jointly with the farmers, linking them to hotels and restaurants. The entire value chain is well structured, managed and predictable. This is the bane of Uganda’s Agriculture. Yet the solution is that simple.

Matsiko Kahunga, Rugaaga, Isingiro