More Than 2,000 Farmers Access Non-Collateralized Loans from Bank of Uganda

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Ugandan Banks See Steady Asset Growth in 2022/2023, Despite Concerns
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In a recent report from the Agricultural Credit Facility, it was revealed that more than 2,113 farmers accessed low-cost loans from the Bank of Uganda-managed agricultural fund within the five years leading up to June 2023. These loans, granted without the requirement of collateral, are part of the Agricultural Credit Facility’s efforts to promote the commercialization of agriculture.

The UGX 13.5 billion loaned through the Block Allocation arrangement, as per the report, represents the government’s commitment to advancing the commercialization of agriculture. This amount is a portion of the UGX 818.29 billion disbursed through the Facility since its establishment in 2009. The primary goal is to facilitate access to credit in areas where communal land tenure systems prevail.

Specifically, the UGX 13.5 billion was disbursed through the Black Allocation arrangement, which primarily aids micro and smallholder farmers who have limited access to credit due to the absence of collateral.



The annual report of the Agricultural Credit Facility, as of June 2023, disclosed that out of a total of 3,455 projects funded over 14 years, 61 percent were non-collateralized. The Block Allocation arrangement, introduced in 2018, has progressively expanded credit accessibility to smallholder farmers by easing collateral requirements for participating financial institutions, including PostBank, dfcu, Centenary, Equity, Housing Finance Bank, and Pride Microfinance.

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Under this arrangement, participating financial institutions can bundle small loans (UGX 20 million and below) into a block of UGX 1.5 billion, which is then submitted as a single application to the Bank of Uganda for refinancing. The report emphasized that while this arrangement may not necessitate registered collateral, alternative forms such as cash flows, chattel mortgages, borrower credit ratings, banking history, and unregistered land may be considered. Eligibility is assessed by participating financial institutions, followed by loan disbursement, and then applications are sent to the Bank of Uganda for reimbursement. This streamlines loan processing, with each borrower limited to a Shs20 million loan to mitigate default risks, as the loans are essentially unsecured.

The report also highlighted that the majority of beneficiaries were farmers from western and northern Uganda, accounting for 44.8 percent and 31.9 percent of the financed projects, respectively. The Agricultural Credit Facility, established in 2009 and jointly operated by the government and participating financial institutions, continues to evolve to provide credit to non-collateralized smallholder farmers.

In the year ending June, the Facility disbursed at least UGX 123.38 billion, reflecting an 18 percent increase from the previous year. The number of new loans increased significantly, with 1,125 new loans in the same period, representing a 48 percent rise in the cumulative number of loans disbursed.



As of June, outstanding loans with participating financial institutions amounted to UGX 128.78 billion, and distressed loans stood at UGX 4.04 billion, with a non-performing asset ratio of 0.98 percent. This is in stark contrast to the aggregate non-performing asset ratio of 5.93 percent for commercial banks.



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