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FINANCIAL WATCH: Financing the agricultural sector
2005-05-25 08:24:20
By Theo Mushi
Agricultural sector contributes 80 percent of employment in rural areas and 45 percent of GDP as well as 50 percent of export earnings.
The area under agricultural is about 11 percent of all arable land in Tanzania.
This means with more agricultural mechanization and use of new technology, including modern small and large irrigation schemes, the production of food and cash crops can be increased significant.
This will not only increase forex earnings from coffee, sisal, cotton, tea, cashewnut and other cash crops but also will lead to self-sufficiency in food and reduce dependence on food aid.
In times of food deficit a lot of foreign exchange is spent to import food, something which could be avoided if there were good plans to finance the agricultural sector.
In the early 1960 there was the Agricultural Credit Agency which specialized in giving loans to small farmers to expand areas under cultivation.
The agency was later transformed into cooperative bank whose lending was mainly to the rural sector and especially primary cooperatives to buy farmers’ crops.
Cooperative and Rural Development bank was formed in 1970 and its mission was to lend to cooperatives and Ujamaa villages. Service of the loans was not paid and hence the huge portfolio of non-performing assets before it was privatized to become the CRDB Bank.
Farmers will only go into agri-business if they have access to credit to buy better farm implements, including tractors, fertilizers pesticides and other agricultural inputs.
This is one area which need public – private sector partnership to modernize the agricultural sector.
The government has started the Agricultural Inputs fund which will enable businessmen to borrow at concessionary interest rates and import agricultural inputs including irrigation pumps sold to farmers.
The fund needs a boost from the government and willing development partners in order to have a big impact for development of small-scale farmers to increase acreage and productivity per hector.
In the 2004 – 2005 government budget, it was announced in Parliament that the government will start an Agricultural Development Fund which will later be transformed into a bank.
The government should learn from mistakes made by the Agricultural Credit Agency to ensure there is loan recovery in order for the revolving fund to be sustainable.
Microfinance has a role to play in the rural areas by lending to farmers through SACCOS and also to finance SMEs engaged in agro processing, especially food processing.
This will have an effect of adding value to exports and to reduce post harvest, which is estimated to be 40 percent.
Already NMB, CRDB Bank, AKIBA and Exims Bank have played their role in National Microfinance policy by lending to cooperatives and buyers and exporters of cash crops.
The initiative by the government to establish the Export Credit Guarantee Scheme has increased banks confidence to lend to stakeholders in agriculture, including farmers, processors and exporters to breach the gap between supply and demand for food and cash crops.
On its part the government should invest heavily in rural roads which will enable farmers to transport their crops to the urban markets.
When the government will eventually start a development bank it should give priority to the agricultural sector.
The development bank will borrow funds from international financial institutions like KFW, CPC, EIB, ADB and administer credit to the stakeholders in the agricultural sector.
It is against this background that the idea of having an agency to specialize in financing the agricultural sector is vital.
The Tanzania Chamber of Agriculture and livestock (TCAL) in a meeting held in Bagamoyo recently floated this idea.
They noted that despite having the Agricultural Development fund there is a need to give incentives to investors in the agricultural sector, especially large-scale commercial farms.
There is a need for BoT to sensitize people to start community banks in all regions because they have a vital role to give loans to small scale farmers where they operate.
Farmers in term should buy shares in these banks to boost their capital base and hence the ability to lend to the sector.
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