Farmers Access to Credit for micro farming business
The agriculture sector in Uganda contributes to 30% of GDP and is the backbone of Uganda’s industrial activity, employment, household incomes and food security. Lending to the sector constitutes, however, only 7% of total private sector credit (Charles Ogwang, President, and Uganda National Farmers Federation).
Furthermore, even this low level of credit is mostly (i.e. 82.7%) constituted by short and medium (3 years or less) term loans. The financial institutions have also not helped farmers because the terms and conditions for accessing loans are not conducive for small-scale farmers: There are collateral-related challenges, interest rates are high (in some cases over 100% per annum) and there is mistrust between banks and farmers, as well as many other obstacles. To add on this, Tropical Bank has seized issuing agricultural loans sighting high risks of default by the sector in the KORD catchment area
In April 2012, UNFFE staff visited a number of districts in the eastern part of Uganda and had the opportunity to interact with several farmers, including Ms. Namukose Robina, a peasant farmer with seven children who is a member of the Tusabe Women’s Group. She borrowed 200,000/=, of which she actually received 150,000 /= in cash, while 50,000/= was paid for bank charges and relates costs. Her terms were that she pay 25,000/= every two weeks for a period of 4 months which, when translated into 400,000/=, was the equivalent of a 100% per annum interest rate or 25% per month interest rate. Ms Namukose managed to pay 55,000/= and then defaulted on her subsequent payments. She was imprisoned together with six other group members for one month, leaving behind her young one year old twins with nobody to look after them, even though one neighbor eventually decided to look after them.
Her piece of land was sold off to rescue her from prison by paying 500,000/=, with a balance of 570,000/= to be paid in order to completely drop any charges against her.
On top of this she was charged 60,000/= by the prison authorities for the 30 days she was remanded at the facility. FINCA Bank brought charges against the group on the account of the fact some of their members had defaulted. Even those that had completed their loans were taken in. She was now helpless and had nothing left with and could not take care of her children.
Amazingly, no one (not even the local authorities) had tried to look into the plight of these poor farmers. During UNFFE visit, they realized that there is need for farmers to have their own bank (Farmers bank): This came about after several revelations from bank staff who didn’t know much about agriculture and confessed that, with banks, the main issue is how much profit one makes and the terms and conditions of the loans do not, for the most part, take into account farming issues such as seasonality.
Farmers will be mobilized in groups of not more than 30 members each, members in the groups will comprise of those that live close to each other and interact regularly, will save and loan each other money that will be used to improve on their productivity. The VSLA’s will be autonomous and self managed, and all transactions will be carried out in a meeting with all members of the association present to ensure transparency and accountability. The trained groups will be provided with startup kits (e.g saving box, simple calculator, minute’s book etc). Each group will elect a committee of not more than 5 individuals who will oversee the management of the group and each group will be supported by KORD to come up with a written constitution signed by each member that will provide a framework for governance, dispute resolution and disciplinary actions.
Its anticipated that with this initiative, VSLA members will make contributions towards the group saving scheme, it’s from these contributions that they will also be able to borrow funds for either meeting their household basic needs, start daily income generating activities alongside sugarcane growing, expand and or improve on their sugarcane gardens. Members will be less burdened by the high interest rate agricultural loans from commercial banks.
The student/volunteers (s) should have a background in commerce, economics, social work or similar subjects with a passion for community development.
Community Partner Description:
Kakira Outgrowers Rural Development Fund (KORD) is an innovative partnership between Kakira Sugar Limited (KSL) and Busoga Sugarcane Growers Association (BSGA). KSL and BSGA are pioneering KORD as a new model of Corporate Social Responsibility focused on building a sustainable and mutually beneficial relationship with the community served by KORD. The KORD model of partnership promotes community development and accountability through the involvement of both KSL and sugarcane farmers in annual financial contributions to KORD.The Vision of KORD is to realize Kakira sugarcane farming community’s wellbeing that betters the national average, and the Mission is to improve the quality of life of the community within a 50km radius of KSL by improving household income and managing funding for projects that facilitate access to social-economic services.
The KORD objectives/activities include but not limited to: Construction and rehabilitation of health and education facilities (health and education support); Delivering environmental, water and sanitation community livelihood projects tailored to meet community needs; Facilitate access to credit for sugarcane farmers and vulnerable households; Rehabilitation of community feeder roads to access markets and other services; and Care and support for orphans and vulnerable children.