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Badilisha Lugha KISWAHILI

Survey depicts how lack of finance hampers agricultural development

6th January 2012

People working in the agricultural industry need more access to a better focused range of financial products and services, although the figures show that nearly half of agricultural businesses identified are served by either formal or informal financial services.

A closer inspection reveals a more complicated story: a third of processors and service providers are not served by the financial services industry at all and, perhaps more worrying, over half of producers have no access to any kind of finance.

Access to finance is crucial to keep a business on track and allows it to grow without it, producers are vulnerable, is hard for them to buy seed, fertilizer or equipment, when the return will only come after harvest.

This is according to a recent launch of survey results of the 2011 Agricultural Finance Markets Scoping (AGFIMS) on demand for and supply of financial services to the agriculture sector in Tanzania.

It underlined that paying for labour and transport costs can also be difficult as cash flow is inevitably variable, friends and family, though commonly used, are not always in a position to raise sufficient capital for the investments needed.

There has been seen the type and depth of information, as well as insights into the financial and agricultural sectors that this survey provides and the study has also examined the barriers to accessing and supplying financial services in agriculture”.

The survey gives a chance to see both the current situation regarding financial access and those issues that shape the agricultural sector, when it is repeated in the next two or three years, it will provide this country with an opportunity to track the major changes that may have occurred over that period.

Affirming on the AgFiMS results, it shows the division between the people who work in agricultural activity in Tanzania into three main categories: producers, service providers and processors whereby the point of the research is to boost the supply and increase access to finance for all these people, so that they can expand their productivity and improve their businesses.

“This aim is directly in line with the Government’s Kilimo Kwanza initiative…in addition, initiatives such as the Southern Agricultural Growth Corridor of Tanzania (SAGCOT) and the commodity exchange markets will also benefit greatly from the findings of this study”.

There is a need for more and better financial products with increased access for all people who work in agriculture; this survey will help the financial services industry to plan and progress whereby we need to encourage growth and efficiency in the sector; it will help guide the Government, donors and other agencies to develop new and more effective policies and programmes.

There is a need to understand what is wanted by the people who work in the agricultural industry; more investment in the industry; this will encourage potential investors to make more informed decisions and take well calculated risks.

The question remains on what messages are we taking from the results we have seen so far, and how do we respond in terms of policy initiatives and actions?

The results confirm that availability of financial services in many rural areas is both limited and patchy while distance is the predominant barrier, the perceived costs and complications involved in banking, together with the lack of appropriate products offered, also pose significant problems.

The financial industry needs to spend more time talking to both existing and potential customers in the agricultural sector, of those businesses and individuals who use formal services, the survey results suggest that they are being underserved by both commercial banks and insurance companies.

Products currently offered are not sufficiently tailored or varied to meet the needs of potential or existing customers and there is a great opportunity here for commercial bankers: there are many potential customers out there who you are not currently reaching, or not yet serving with sufficient attention to their particular needs.

However, only a tenth use credit products from the formal sector, most of the rest turn to small informal providers, including their family and friends, customers, money lenders, or savings groups and few qualifying producers, processors or service providers have any kind of savings in formal institutions, and almost none use insurance products.

Noted that the importance of the informal sector in providing services to agri-businesses as their only means of financial access, the informal finance provides access to finance in almost the same proportion as banks, and clearly more than semi-formal channels and since the informal sector is making such an important contribution to financial access for agri-businesses, we need to assess how this might be supported to become more effective.

Others also should be strongly advised to take time to understand the main findings of this AgFiMS and assess how they can put them to good use and readily see that AgFiMS can also be a valuable tool for information in policy-making in a number of ministries, departments and government agencies.

The Government has to continue developing and implementing policies and deliver enabling environments that promote access to finance, markets and information.

It is clear from the AgFiMS results that these need to cover not only banking, but also embrace the whole concept of innovation to increase the yields and delivery of the requisite support services.

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