Posted on August, 3, 2022 at 09:54 am
In efforts to increase funding in agriculture, Vice President Philip Mpango has directed the Ministry of Finance and Planning to reform Tanzania’s lending policies and regulations to encourage more commercial agricultural start-ups.
Dr Mpango issued the directive here yesterday when inaugurating Farmer’s Week dubbed as ‘Nane Nane’ saying the demand for credit for agricultural activities for start-ups and operational cost in the value-chain was huge.
“Credit is a key ingredient for unlocking the financial constraints that limit the performance of the agricultural sector, therefore, there is a need for financial regulations related to lending the agriculture sector,” he explained.
According to the Vice President, Tanzania’s agriculture sector contributes significantly to the economy, job creation and food security.
However, despite the country’s steady economic growth, farmers still struggle to access sufficient credit as the sector is considered a substantial risk by lenders.
Adding: “I understand that after I had urged financial institutions to reduce interest rates on agriculture loans, they have done it and I’m told the rates now stand in the single digit (9 percent), but I think you need to do more than that so that more farmers and businesses in the sector would be attracted to borrow.”
Dr Mpango also advised the insurance sector to make use of the opportunity that the agriculture sector provides saying: “There is a need for agricultural insurance which will protect farmers against loss or damage to crops and livestock.”
Adding that the insurance package has enormous potential to provide value to farmers’ investments and the communities, both by protecting when shocks occur and by encouraging greater investment in the agriculture industry.
Earlier, Agriculture minister Hussein Bashe said: “It’s unacceptable for financial institutions to shy-away when it comes to lending to the agriculture sector yet all transactions in the sector pass through banks.”
He added that: “We have formed a special committee that will evaluate financial regulations administered by the bank of Tanzania as they are not in favour of the country’s farmers. We need to reform them if we are to develop the agriculture sector, they are very problematic.”
According to the minister, due to their high interest rates and other limiting factors such as collateral, farmers find it difficult to access credit yet banks are essential players in agriculture development.
“Financial institutions play a facilitation role of accumulating the necessary capital for farm development, storage, processing and packaging, transport, insurance, and marketing of the produce. Therefore, we need to get to the stage where financial institutions play this role fully,” Mr Bashe insisted.
He further explained that limited access to finance was an impediment to farmers in adopting better technologies to improve efficiency in production. Hence, he noted, in order to enhance access to formal financial services to the majority of Tanzanians, a need for a total reform for banking regulation is vital.
Earlier when Dr Mpango visited CRDB pavilion, Mr Maregesi Shaaban, senior manager of CRDB Agri-business, said: “We’ve done a tremendous job in agriculture, and we are still doing, for the 2021/2022, our agriculture loan portfolio stands at Sh769 billion. In five years, we loaned out a total of Sh2.6 trillion in the entire value-chain.”
According to Mr Shaaban, moreover, there were challenges regarding extending loans to players in the agriculture sector as financial regulations consider it risky and that reforms are needed for the banks to perform better in the area.
Media reports indicate that many banks concentrate their activities in urban and semi-urban areas, with limited presence of branches in the rural areas where smallholder farmers are often located.
Limited presence in rural areas leaves most banks out of touch and incapable of understanding the specific needs of farmers. As a result, they view smallholder farmers as unreliable borrowers because of unstable income, lack of savings, and volatile productivity that is dependent on rainfall.
Therefore, banks need to reconsider their rural penetration strategies and develop business models that improve delivery of credit products to smallholder farmers.
Despite making up over 70 percent of the agricultural sector in Tanzania, farmers have little capacity to improve production and increase their revenues, because they cling to low-technology farming techniques.
Farming is labour-intensive and dependent on family members working on the land, which can be problematic if someone falls ill or suffers an injury.
Source: The Citizen