SPOTLIGHT: Why BoU’s Agriculture Credit Facility faces Parliament scrutiny

In 2009, Government set up the ACF in partnership with the financial sector and the Uganda Development Bank and injected over Shs260 billion in it. However, among the key grievances highlighted in the minority report was the fact that the scheme was found to benefit only wealthy farmers or companies engaged in commercial farming, without any appropriate intervention to empower the subsistence farmers.

A section of legislators have put Agriculture Credit Facility (ACF) under accountability microscope and called for its disbandment after raising strong concerns over its management.

In 2009, Government set up the ACF in partnership with the financial sector and the Uganda Development Bank. The facility was placed under management of 16 commercial banks, Microfinance Deposit-taking Institutions and Credit Institutions, with the central bank managing the funds on behalf of government.

A year later, disbursement of funds commenced after the central bank had apparently harmonised the modalities that come with lending; for instance, drawing memorandum of understanding with the financial institutions.

The facility’s maximum loan amount to a single borrower is up to Shs2.1 billion, but this amount can be increased up to Shs5 billion for projects that add significant value to both the agriculture sector and the economy as a whole.

The loan is given at a maximum of 12% interest rate per annum, while the working capital for grain is 15%, yet the maximum loan period is eight years and minimum six months with the grace period set at three years.

Government was prompted into establishing ACF after discovering that the agricultural sector lacks a good financial institution that understands, and is passionate about farming, pointing out that the financial institutions still consider agriculture a high risk sector.

At the time of inception, the main objective of establishment of the Facility was to provide medium and long term loans to agriculture and agro-processing projects on more favourable terms with the primary focus on commercialisation, modernisation and value addition of raw outputs from the agricultural sector.

Disbursement

With the ACF being managed as a revolving fund, information obtained from the central bank indicates that as at December 31, 2017, total disbursement to ACF amounted to Shs261.33 billion, having been extended to 416 eligible projects across the country.

Government is reported to have contributed Shs130.56 billion while the Participating Financial Institutions have injected in Shs130.77 billion.

The Central Bank also reported that the Participating Financial Institutions have since repaid Shs73.13Billion to Bank of Uganda, being proceeds from projects financed under the scheme.

Bank of Uganda went on painting a glossy image about the scheme registering growth in loan portfolio at 5.29% (about Shs12.92 billion) between September-December 2017 from Shs248.41 billion to Shs261.33 billion.

Repayments were reported to have also increased by 125% equivalent to Shs3.10 billion from Shs2.4 billion to Shs5.56 billion, with the central bank attributing the growth to the increased outreach in the scheme.

It is upon that basis that the central bank announced plans to hold a nationwide sensitisation drive to popularise the scheme.

But despite the glossy performance painted by the central bank, both Auditor General John Muwanga and legislators on the Budget Committee are skeptical about polished financial performance of the scheme, with calls to government to start reconsidering re-injecting taxpayers’ money into the Facility.

MPs protest management of the scheme

At the time of scrutinising the 2018/2019 Budget Framework Paper, the Budget Committee is said to have held elaborate deliberations on the effectiveness of the Agricultural Credit Facility.

Although, three Opposition MPs; Muwanga Kivumbi (Butambala County), Cecilia Ogwal (Dokolo Woman MP) and Robert Centenary (Kasese Municipality), who are members on the Committee expressed shock in their Minority report over the failure by the Majority report refusing to capture the matter, as no reference was made on the subject in the majority report.

According to the 2018/2019 Budget Estimates, government plans to improve agricultural financing through the Agricultural Credit Facility and enhancing uptake of agricultural insurance policies, but thecommittee rebels termed the intervention as inappropriate.

Among the key grievances highlighted in the minority report was the fact that the scheme was found to benefit only wealthy farmers or companies engaged in commercial farming, without any appropriate intervention to empower the subsistence farmers.

There were also accusations of regional disparity when it came to access to the funds with most loans accessed by beneficiaries from Central and Western regions, while the East and North registered the lowest access rates.

The Legislators recommended to have the Agricultural Credit Facility that for long has mainly benefited the privileged, to be dissolved and funds channeled towards establishing of a National Bank for Agricultural Transformation.

In his June 30, 2016 audit report, the Auditor General reported that Bank of Uganda had failed to absorb Shs116.94 billion that had been earmarked for ACF.

“It was noted that the loan absorption capacity for the funds so far provided by Government falls short by Shs116.94 billion……the government has allocated Shs210 billion to the facility. The funds received by loan beneficiaries so far amount to only Shs93.6 billion implying an under absorption of 56% of the envisaged funds,