Farmers need soft loans to modernise agriculture and improve production, which is vital in supporting efforts to build an industrial economy.
But according to the World Bank (WB), banking sectors in developing countries, including Tanzania, lend a much smaller share of their loan portfolios to agriculture compared to agriculture’s share of Gross Domestic Product (GDP).
Most commercial banks in Tanzania regard agriculture as a high risk business to lend, thus leaving it financially underserved.
For the WB, lending institutions should find ways to de-risk agricultural finance by addressing both individual risks as well as important systemic risks.
Individual risks are often linked to credit risk assessment, and information and systems to help.
Information can assist financial institutions in credit risk assessment by promoting credit bureaus and linkages with value chain companies.
This limits investment in agriculture by both farmers and agro-enterprises.
It also demonstrates that the barrier to lending isn’t due to a lack of liquidity in the banking sectors, but rather a lack of willingness to expand lending to agriculture.
Even when available, much of the agriculture funding tends to be informal and short-term, precluding longerterm investments. This informal funding only partially covers the financial needs of farmers and small agribusinesses, and usually at a high cost.
Similarly, most financial institutions’ lack of knowledge in how to manage transaction costs, agriculture-specific risks and how to market financial services to an agricultural clients.
The need for investing in agriculture is increasing due to a rising global population and changing dietary preferences of the growing middle class in emerging markets toward higher value foods. Demand for agriculture financing is still very large apart from the government initiative of establishing the Agricultural Development Bank (TADB).
This is a state-owned development finance institution (DFI) established as an apex national-level bank with the key role of being a catalyst for delivery of short, medium and long- term credit facilities for development of agriculture in the country.
Its establishment is among the key initiatives and national goals enshrined in the Vision 2025 to achieve food selfsufficiency and food security, economic development and poverty reduction. The TADB has so far issued 5bn/- loans as of October last year with 21,526 small scale farmers benefiting.
Agriculture dominated by small scale farming, employs about 70 per cent of the population and contributes over 30 per cent of the national economic output. Rural population in Tanzania was last measured at 69.10 per cent in 2014, according to the World Bank.
Speaking at the launch of the UTT Microfinance new board of directors in Dar es Salaam last week, the Deputy Minister for Finance and Planning Dr Ashatu Kijaji said, “The new board should look at ways to reach out to farmers in rural areas and provide them with soft loans to boost their production,” She said UTT Microfinance which is the state owned vehicle for economic empowerment for the people needs to craft new strategic plans that will help them reach out peasants in the rural areas.
She said industries to be established in the country would depend on improved agriculture for sufficient raw materials and food for the workers.
“The government wants to see its financial institutions provide soft loans to the people which will help to improve their lives,” she added.
Despite the enviable success attained in the past three years, UTT Microfinance need also to come up with strategies for providing entrepreneurship education and training so as to prepare the youth and adults to succeed in entrepreneurship.
UTT Microfinance needs also to identify and groom budding entrepreneurs to help them turn their ideas into successful businesses.
The estimates show that demand for food will increase by 70 per cent by 2050, the immense opportunity that commercial banks through lending facility to farmers in the country should capitalise.