Like many of their peers in the other industries, most small companies in the agriculture sector saw their revenues wiped out as the coronavirus disease pandemic suppressed demand, a recent study showed.
About 82 per cent agri-SMEs reported a severe decline in business activity arising from the outbreak of Covid -19 and the subsequent containment measures, the study by the Economic Policy Research Centre shows. The study is yet another pointer of the grim outlook that small businesses involved in commercial agriculture face, especially when it comes to accessing cheap credit.
The study findings were shared at the launch of the tenth edition of the Agricultural Financial Yearbook that was held recently at Imperial Royale hotel in Kampala.
Titled Digitalisation and Agricultural Financing Uganda, the study was premised on the fact that limited financial investment in agriculture has for long been one of the major bottlenecks to improved agricultural productivity and hence commercialization in Uganda.
Speaking at the event, Micheal Atingi–Ego, the deputy governor of Bank of Uganda, applauded EPRC for spearheading the publication of the Agricultural Yearbook every year since 2014/15, and more so now that the Covid-19 pandemic has caused disruption in access to finance in the sector.
“This launch comes at a time when the world is grappling with the strategies that will mitigate the adverse effects of the Covid-19 pandemic, including its impact on access to finance. Amidst the disruption brought on by the pandemic, digitalization has emerged as a winner. The theme was chosen to reflect the potential and prospects for digitalization to spur agricultural finance,” Atingi–Ego said.
The Bank of Uganda says only 12.9 per cent of private sector credit is offered to the agricultural sector despite the sector’s enormous contribution to rural employment, food security and exports. About three out of four people in Uganda are involved in the agriculture sector.
The above status quo has since been aggravated by the recent emergence of the global Covid-19 pandemic, where inadequate access to finance in the form of credit, leases, attractive saving regimes, equity as well as long-term finance has constrained improvement in the agriculture sector, according to the EPRC.
While the emergence of the Covid-19 pandemic opened farmers’ eyes to alternative financing options, digitizing financing shone through in offering immediate solutions to the inaccessibility that was caused by the lockdown.
According to the EPRC, digitizing financing of the agricultural sector offers plausible options to overcome some of the adverse effects of the pandemic on access to finance for investment into the sector.
“Digitalization is critical in farmer profiling and data aggregation, developing of credible information system along agricultural value chains and documenting land inventories, something that financial institutions have been tapping into to boost the agricultural sector,” a brief by the EPRC on the study stressed.
Ann Marie Mwaka Sabano, the head of agribusiness at aBi Finance, says digitization is something inevitable and should be high on the agenda if they are not to get caught off-guard by unforeseen circumstances like Covid-19.
“We at aBi have been passionate about digitalization as far back as 2017. In the last two years, just to demonstrate how committed we have been to the cause, we have managed to digitize 200 Saccos and by the time Covid-19 hit, we were glad that we were already on this journey because the Saccos we were supporting, demonstrated some sort of resilience. This showed us that we were on the right path,” Sabano said.
Despite the step being made by some financial institutions like aBi in laying the groundwork or the digitalization of agricultural financing, a lot more work has to be done in a sector that is mostly dominated by smallholder farmers.
Banks seem to be slow in coming to the party of fully digitalizing of agricultural financial products. The move, according to some sector players, is deliberate. Different commercial banks have unique relationships with their customers and have, therefore, invested time in building capacity and relationships in order to tailor products that are better suited to help the larger base of farmers who are smallholders in order to leave a lasting impact in the sector.
In the case of Stanbic bank, more effort is being put in the relationship between the bank and smallholder farmers, who, according to the bank, had been previously ignored. Melissa Nyakwera, the head of Agribusiness at Stanbic bank, says the bank had to go to the drawing board to rely on data fully to find financing and productivity solutions for the farmers.
“Financing is a challenge but there are several other issues around the agronomic practices, such as access to markets, issues around them not having storage capacity and the like. All these are issues we have had to find a way to deal with to get the farmer into a better space,” Nyakwera said.
The EPRC insists that while digitization supports risk assessment, credit scoring of clients has helped farmers to improve the quality of their output. It has also helped speed up the lending process, therefore, cutting down the costs the financial service providers incur.
With digital finance services said to be in their nascent stage in Uganda, a lot of effort has been put into legal and regulatory frameworks. Several legislations such as the Data Protection and Privacy Act, 2019, the Electronic Signatures Act 2011 and the Electronic Transactions Act 2011 have come up but enforcement remains a big problem.
The looming risks caused by issues surrounding data security and the inability of the smallholder farmers to use the technology effectively are something Stanbic bank is looking into, according to Christian Karamagi, the country lead of One Farm Digital, a product by Stanbic that connects farmers, aggregators and the bank.
“The digitization of agricultural value chains is an emerging opportunity in developing countries. The foundation for One Farm platform is an innovative smallholder lending solution powered by an alternative lending model that utilizes relevant data to power dedicated smallholder credit bureaus and decision-making with active risk management that goes beyond banking,” Karamagi said in a statement.