Posted on April, 26, 2016 at 09:23 am
By Martin Luther Oketch
Kampala — The deputy governor Bank of Uganda (BoU), Dr Louis Kasekende, has given new insights regarding agricultural financing, suggesting the smallholder farmers will need a range of financial services beyond the provision of credit, to support their efforts to modernise.
In a speech delivered for him by the BoU executive director supervision, Ms Justine Bagyenda, last week at Protea Hotel during a meeting on Developing Approaches for Financing Smallholder households in Uganda, Dr Kasekende said these services will include savings and insurance products.
He said insurance is especially important to mitigate the risks that arise from possible crop failures and the volatility of farm gate prices which are a deterrent to commercialisation.
"I don't think it is likely that commercial banks will be the main vehicle for providing financial services to smallholder farmers, because the banks' business models entail transactions costs which are too high to make serving customers with micro-savings and micro-loans commercially viable," he said.
Dr Kasekende added: "Instead other types of financial institutions which can access customers at lower cost and develop lending models which can mitigate the risks of lending to customers with little formal collateral are more suited to providing financial services to the smallholder sector."
The vast majority of farmers in Uganda are smallholders and they produce almost all of the country's agricultural output. Ninety six per cent of total farm output in Uganda is produced on farms of five hectares or less in size.
Dr Kasekende said there is no feasible route to agricultural modernisation which does not place the smallholder at its centre.
To tackle the multiple constraints to the modernisation of smallholder agriculture, he said there is need to adopt and persevere with a holistic long term approach having four components including agricultural extension, strengthening land rights, good rural infrastructure and improved access to finance.
Need for research
"Agricultural extension services must be supported by good agricultural research. The dissemination of agricultural knowledge from one farmer to another means that social benefits exceed private benefits." - Kasekende
Source: www.allafrica.com