Access and Use of Credit in Uganda: Unlocking the Dilemma of Financing Small Holder Farmers

Type Working Paper - Economic Policy Research Centre (EPRC)
Title Access and Use of Credit in Uganda: Unlocking the Dilemma of Financing Small Holder Farmers
Author(s)
Issue 109
Publication (Day/Month/Year) 2014
URL http://dspace3.mak.ac.ug/bitstream/handle/10570/4010/munyambonera-eprc-res.pdf?sequence=3&isAllowed=​y
Abstract
The study investigates the extent of access and use of credit by small holder farmers in Uganda. Despite several interventions in agricultural financing by government, access to credit by smallholder farmers has remained very low and stagnating over the years. In understanding the extent of the problem, the study uses information from the various agricultural financing initiatives government has implemented over the years including prosperity for all (PSA) of 2008, the national agricultural advisory services (2001), entandikwa scheme (1996), the recent agricultural credit facility (ACF) and microfinance support centre (MSCL), among others; it uses the Uganda Census of Agriculture dataset collected in 2008/09 to provide some insights on access to credit by agricultural households and examines two successful models of Centenary Rural Financing Scheme and Uganda Cooperative Alliance-Area Cooperative Enterprise (ACE) in promoting access to financial services to the rural poor. On the previous interventions by government in agricultural financing, the study observes that weak institutional framework for co-ordination, financing and implementation could have affected their impact. Insights from UCA (2008/09) data show that access to credit by agricultural households remain very low at 11.3 percent. This could be blamed on the policy failures of the various agricultural financing initiatives that government has implemented over the years, poor response of formal commercial banks to agricultural lending and weak regulation of the microfinance institutions at (Tier-4) to effectively deliver credit to small holder farmers. A critical review of two successful models in prompting access to financial services by small holder farmers suggests that if government is to succeed in promoting access to financial services by small holder farmers, there would need to have strong institutional framework for agricultural financing. Exploring the establishment of a rural or agricultural development bank could be a better option for Uganda.

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