Access to farmer-friendly financial services realised through the best-EAC project, UGANDA

Through a consortium managed by Kilimo Trust, a grantee of the UK funded FoodTrade East & Southern Africa programme, smallholder farmers are now able to access finances and invest in bean production. Through the project dubbed “BEST Beans Project”, 10,000 smallholder bean producers will be supported to operate profitable enterprises and grow to become consistent, reliable and competitive suppliers of raw or semi-processed beans to buyers serving national, regional and international markets.

FoodTrade ESA has piloted a number of models aimed at promoting structured trade across East and Southern Africa. The GSoko system, an online grain trading platform developed in partnership with the Eastern African Grain Council (EAGC), will be key to ensuring that surpluses produced from the different projects have a guaranteed market. Strategic partnerships are central to the success of all these models. In the Kilimo Trust led consortium, Ayella Pe Agro-Services Ltd. is the lead firm (market off-taker) for the Northern Uganda Beans Consortium (NUBECO), while Equator Seeds Ltd. supplies farmers with seeds and other inputs. Both partners in the consortium have been struggling with the burden of having to pre-finance farmers with inputs to produce market demanded bean varieties. This is financially strenuous for the companies which had to rely on bank overdrafts and savings, affecting their liquidity. The issue is compounded when as a result, farmers have to contend with inadequate inputs and/or late planting due to liquidity issues. This challenge has necessitated emergent creative alternatives in efforts to ensure farmers are not affected.

Emerging Solutions
In the Eastern Region Beans Consortium which has Ocean Group Traders as the lead firm, a number of farmer groups tried to start Village Savings and Loans Associations (VSLA) with little success. Four main challenges were attributed to the poor performance of the VSLAs, including low levels of individual contributions, a large number of farmers requesting for loans at the same time, short grace periods (in some cases one month), and low repayment rates.

This narrative was replicated across consortia partners that Kilimo Trust is working with in Kenya, Rwanda, Tanzania and Uganda. A further evaluation of suitable alternatives was needed. This eventually meant initiating the process of bringing on board financial partners who would understand the unique financial needs of the partners in each consortium. A number of financial institutions operating in Northern and Eastern Uganda were engaged; they were invited to make presentations during the formative stages of the consortia and during subsequent consultative meetings.

dfcu bank stood out as the most “agri-centric” financial institution following a thorough assessment of its capacity and programs for smallholder farmers. The bank implements a project dubbed “Furthering financial inclusion and agri-finance in Uganda” that targets farmers and smaller enterprises in rural areas.

The projects seeks to accelerate the transformation of dfcu into a leading bank in Uganda with a clear rural orientation that taps into a new customer segment, smallholder farmers in rural areas. dfcu is actively engaged in availing financial services to players along agri-business value chains including input suppliers, farmers, agri-processors and traders/exporters. Using their suite of flagship products, dfcu offers loans and working capital facilities for production, the collection of commodities (bulking), warehouse receipt finance and the purchase of equipment and storage facilities. For traders, they offer trade finance solutions including Letters of Credit, Documentary Collections, Invoice Discounting, Bid Bonds and Bank Guarantees. All these are at very competitive rates. Additionally, to increase accessibility the bank offers mobile and internet banking solutions.

The unique aspect of this partnership with dfcu bank is that farmer groups can only benefit from its products through a formal recommendation by the BEST-EAC project and the lead firm confirming that the market for the farmers’ beans is guaranteed. The premier loan product for the farmer groups is “Save-for-Loan”. The requirements for its access are so simplified that a group can open an account with dfcu bank and apply for a facility the same day. The group only needs to be registered by the local government, have savings in their account, and provide proof of a guaranteed market through the recommendation letter. With these simple requirements and the satisfaction of other borrowing criteria, a group can access a loan worth more than three times its savings, up to a maximum of 50 million Uganda shillings (approximately USD 14,000).

The project is playing a critical role in ensuring access to finance and linking farmers to financial services, providing relevant and practical solutions that will promote participation of smallholder farmers in structured trade.

Building close partnerships between the farmers and the bank will support increased productivity and improved quality by ensuring timely financing for purchase of inputs and payment of farm operations. In addition, the farmers will be encouraged to practice collective marketing as there will be funds for payment on delivery. Taking financial services to farmers’ doorsteps benefits them by cutting the cost and time used to travel long distances to reach the banks.

“It has demystified commercial banks as unreachable and bureaucratic,” says Mr. Christopher Kinyera, dfcu bank Regional Manager for the North.
“We are going to say goodbye to theft of farmers’ hard-earned savings,” says Michael Okot, Secretary General of Alero Labala Cooperative, referring to the frequent stealing of farmer group savings which are usually kept in boxes by the group treasurers.

As the partnership with dfcu bank grows, it is expected that the farmer groups will eventually be able to acquire capital assets such as tractors.

Mr. Onono Moses, a committee member of Cwero Cooperative explaining their financial needs to Ms. Susan Lakop, dfcu branch manager, Gulu.
Mr. Onono Moses, a committee member of Cwero Cooperative explaining their financial needs to Ms. Susan Lakop, dfcu branch manager, Gulu.

 

 

 

 

 

 

Mr. Francis Nyeko, Paicho Subcounty Agricultural Officer addressing committee members of Cwero Cooperative during the meeting with dfcu Bank
Mr. Francis Nyeko, Paicho Subcounty Agricultural Officer addressing committee members of Cwero Cooperative during the meeting with dfcu Bank

 

 

 

 

 

 

Mr. Francis Nyeko, Paicho Sub county Agricultural Officer addressing committee members of Cwero Cooperative during the meeting with dfcu Bank
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