New Financing Program Launched for Uganda’s Smallholder Farmers
Stanbic Bank Uganda, Alliance for a Green Revolution in Africa and Kilimo Trust Announce US$25 Million in Loans to Smallholder Farmers and Agribusinesses that Support Them
KAMPALA, UGANDA (26 November, 2009)— Stanbic Bank Uganda, the nation’s largest financial institution, has teamed up with the Alliance for a Green Revolution in Africa (AGRA) and Kilimo Trust to create an innovative US$25 million fund for Africa’s smallholder farmers and small- and medium-sized agricultural businesses previously considered too risky for lending.
“Hunger and poverty are the two most significant challenges facing Uganda,” Mr Philip Odera, MD, of Stanbic Bank said. “Smallholder farmers’ limited access to finance contributes to low yields and low growth in our nation’s agriculture. This agreement opens a major avenue for farmers and other entrepreneurs in the agricultural sector to invest in their farms and seed prosperity.”
“Affordable financing can help tilt the scales in favour of smallholder farmers’ and entrepreneurs in the agriculture sector as they work to transform their subsistence farms and enterprises into sustainable, viable commercial activity.” said Dr Akin Adesina, AGRA’s Vice President of Policy and Partnerships. “Given the same opportunities of farmers in other world regions, Africa’s smallholder farmers will feed their countries and help feed the world.”
In Uganda, 80 percent of the workforce relies on farming. Yet, just 30 percent of smallholder farmers use improved seed, and most use an average of only 6 kilograms of fertilizer per hectare, a small fraction of the global norm of 100 kg/ha. The lack of affordable financing has been a major obstacle for farmers who wish to invest in such basic inputs to raise farm productivity and generate profits. Similarly, commercial financing has been largely unavailable to entrepreneurs seeking to build businesses that could boost Uganda’s food production and enable farmers to earn a profit.
The fund is one of the largest earmarked for agriculture in Uganda. AGRA and Kilimo Trust are providing a US$2.5 million loan guarantee fund, and in turn, Stanbic Bank is making US$25 million available for lending over five years. The three partners signed a memorandum of understanding governing the initiative today in Kampala, Uganda.
The new program targets efforts related to five food crops: maize, sunflower, barley, rice, sorghum, beans and soybeans. The loans will be available to smallholder farmers and the entire value chain of the five crops, from primary farm production, to post harvest handling, storage, processing, transportation and trade in agricultural inputs and produce.
“We hope that through accessing commercial financing, a large proportion of farmers and agricultural businesses can build assets, enhance their credit rating and build self-sustaining, profitable enterprises,” said Professor Nuhu Hatibu, CEO Kilimo Trust.
How the Loan Program Works
Sixty percent of loan funds will go to farmers’ associations and groups? of smallholder farmers organized by agricultural marketing companies (also referred to as intermediaries). The remaining 40 percent will go to other agribusinesses in the value chains. In addition, agribusinesses of all sizes can access the facility when they have collateral and/or are otherwise creditworthy.
Smallholder farmers will access the loans through their own associations or through intermediaries, which could include large cooperatives; contractual buyers of farmers’ produce; warehouse groups; processors and millers; and exporters.
Based on the plan, a farmers’ association or intermediary will receive a bank loan. It will then disburse inputs, such as seeds and fertilizers, to smallholders, in exchange for delivery contracts on the farmers’ produce. Working through large groups will enhance the buying power of individual farmers, providing them with cost-effective access to input materials, and increased price stability.
AGRA, the Kilimo Trust and other partners will provide technical support to farmers and other enterprises within the value chains through specialized organizations, to increase their opportunities to succeed and reduce the risk of loan defaults.
“AGRA’s integrated programs in seeds, soil health, market access and policy support provides a strong foundation for farmers’ success,” Adesina said. “Partnerships with NGOs and grantees will provide knowledge smallholders can use to improve soil health, meet grades and standards, and improve their farming as a business.”
Stimulating a Revolution on Agricultural Lending
Across sub-Saharan Africa, there is excess liquidity in commercial banks, but this rarely goes to agriculture. Although the sector generates 50 percent to 70 percent of national incomes, it receives less than 3 percent of total commercial lending. And, the majority of this money has gone to large-scale agriculture, leaving smallholders with few opportunities to invest in their farms.
African financial institutions have typically avoided lending to smallholder farmers and to the agriculture sector for a number of reasons, including: farmers’ lack of usable collateral; the high costs associated with servicing remote clients; and interrelated risks such as unreliable rainfall, lack of irrigation, pests and diseases, and price fluctuations.
The Uganda loan program is part of a wider regional partnership between AGRA, Standard Bank (with which Stanbic Bank Uganda is affiliated), and other partners. It is providing farmers and agricultural businesses in Uganda, Ghana, Mozambique and Tanzania with US$100 million worth of affordable finance, leveraged through credit guarantees. AGRA’s Innovative Financing Initiative has set up separate agreements with commercial banks in Kenya and Tanzania, and aims to mobilize US$4 billion in affordable credit in support of Africa’s agricultural development.
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About Stanbic Bank Uganda
Stanbic Bank Uganda, SBU, is a member of the Standard Bank group, an international financial group based in South Africa. Standard Bank, with headquarters in Johannesburg, has total assets of over US$120 billion and employs about 50, 000 people worldwide. Its network spans 18 sub-Saharan countries (including South Africa) and extends to 21 countries on other continents, including the key financial centres of Europe, the United States, South America and Asia.
In Uganda Stanbic Bank has 73 branches and a growing network of ATMs currently standing at 148. The bank’s branch network is divided into 4 regions namely Central (23 branches), Eastern (15), and Northern (15) and Western (18). Our business in Uganda is divided into two areas: Personal & Business Banking and Corporate and Investment Banking. Stanbic Bank is the largest bank in Uganda with assets exceeding Shs 1 trillion and employs 1400 workers.
Over the years, Stanbic Bank has introduced products that proactively meet the needs of our customers. On an ongoing basis, Stanbic Bank supports Agri-Businesses in the form of Asset Finance, Working Capital and Business Banking Relationship Management. For further information, visit www.stanbicbankug.com
About Kilimo Trust
Kilimo Trust is a specialized resources mobilization and management non-profit organization that facilitates wealth creation and poverty reduction through agriculture and agri-business development in the member countries of the East African Community (EAC) – Burundi, Kenya, Rwanda, Tanzania, and Uganda. Its mission is to expand market-led sustainable agriculture for development in the region. It does this by supporting the development of well integrated agricultural value chains at regional and national levels, by nurturing innovations, enhancing economies of scale in production systems, and mobilizing private sector investment.
The Trust is registered in Uganda and headquartered in Kampala. The Chairman Board of Trustees is Dr. William Kalema from Uganda and the CEO is Prof. Nuhu Hatibu from Tanzania. The Trustees come from Uganda, Kenya, Tanzania, South Africa and Britain. For further information visit: www.thekilimotrust.org
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About the Alliance for a Green Revolution in Africa (AGRA)
AGRA is a dynamic partnership working across the African continent to help millions of small-scale farmers and their families lift themselves out of poverty and hunger. AGRA programmes develop practical solutions to significantly boost farm productivity and incomes for the poor while safeguarding the environment. AGRA advocates for policies that support its work across all key aspects of the African agricultural value chain from seeds, soil health and water to markets and agricultural education.
AGRA's Board of Directors is chaired by Kofi A Annan, former Secretary-General of the United Nations. Dr Namanga Ngongi, former Deputy Executive Director of the World Food Programme, is AGRA's president. With support from The Rockefeller Foundation, the Bill & Melinda Gates Foundation, the UK's Department for International Development and other donors, AGRA works across sub-Saharan Africa and maintains offices in Nairobi, Kenya, and Accra, Ghana.