While commodity value chain apps are credited with increased efficiency and stronger quality controls, their role in boosting access to credit among small farmers remains unclear despite the farm output data they generate.
Experts agree that commodity trade management solutions not only assist large buyers and exporters in procurement of bulk agricultural produce from several small farmers at a minimal cost but also ease the burden of acquiring quality certification for their products.
While commodity value-chain management solutions provide valuable farm output data, opportunities for easier access to credit among farmers remain thin as lenders struggle to digest benefits from new data streams amid the less than predictable weather conditions affecting several African countries.
“If you get a 10-year record of a farmer’s production patterns, expenses, incomes, assets and liabilities, any lender would be willing to assess their creditworthiness and extend them a loan if the business case is solid enough,” said Noah Kusaasira, a systems manager at Tru Trade Africa, a bulk buyer of grain produce.
But there is a catch: Reluctance to share farmers’ financial information between banks, commodity traders, telecommunication companies and village farmer groups.
“Commercial banks in particular are rigid on standards of verification attached to third party information related to their clients, regardless of its weight,” said Mr Kusaasira.
In Uganda, total agricultural credit flows recorded have averaged less than 20 per cent of total loans since the early 2000s while agricultural loans usually attract interest rates of more than 21 per cent per year.
Maximum lending rate
While the Agricultural Credit Facility funded by the government and commercial banks offer a maximum lending rate of 15 per cent, a maximum loan duration of eight years and a financing limit of Ush10 billion ($2.63 million), access to this facility is restricted to a few large scale farmers, locking out many small, rural farmers.
“We are working on a new lending facility for rural farmers in Uganda based on contract farming. But we prefer investing in farmers’ financial literacy before disbursing cash in order to avoid financial recklessness,” said Roger Gilbert Nyakahuma, project manager at Vision Fund Uganda.
Already Vision Fund is working with the Mukwano Group to provide technical advice to farmers besides guaranteeing purchase of all farmers’ produce every season. “This will in turn will minimise risks of credit default and the likelihood of attaching farmers’ collateral like land,” argued Mr Nyakahuma.
Even where the lender receives help in registering farmers and tracking the loan, as is the case with the eProd solution that enlists the help of chiefs in Coastal Kenya to witness signing of loan contracts, hunting for defaulting farmers and arresting them, they still have to contend with the uncertainty of weather.
“One of our pioneer clients signed up for the eProd solution that we had deployed to manage a small group of Kenyan farmers but a severe incident of crop failure that happened in one season made it difficult to recover any money from the farmers,” said Jan Willem Van Casteren, a director at eProd Solutions Ltd while making a presentation at the recent ICT4D Conference held in Kampala at the beginning of this month.
Another reason why access to credit among small-scale farmers in Africa remains low is poor lending by commercial banks to the agricultural sector; a factor widely blamed on scarcity of land titles in farming communities; limited production data and inadequate weather related information.
As a result, the share of agricultural credit calculated against overall private sector credit has trailed other sectors in various African economies despite significant employment opportunities offered by the sector.
Farmers are also confronted with double digit lending rates that often erode their revenue margins or induce outright loan default, leading to loss of property used as collateral.