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ACF has fallen short of absorbing UGX 90bn meant for agricultural value addition

Published 5 months ago -


The Agricultural Credit Facility (ACF) was established by government of Uganda in partnership with commercial banks, Uganda Development Bank, Micro and credit financial institutions, which are referred to as Participating Financial Institutions(PFIs). The ACF’s main objective is to facilitate the provision of medium and long term loans to projects engaged in agriculture and agro-processing on favorable terms compared to those provided by commercial banks.

 The facility is administered by Bank of Uganda which carries out the reviews and approval of loan applications that have been appraised and forwarded by PFIs. After disbursements, it monitors and evaluates projects and reports quarterly to ministry of finance on the operation of the scheme. The maximum loan amount to a single borrower is UGX 2.1bn although it can be increased up to UGX 5bn, with a maximum loan period not exceeding 8 years and the minimum 6 months. In addition is a grace period of 3 years and an interest rate of 10% and 0.5% facility fees of the total loan amount charged by PFIs.

 In 2014, the Auditor General undertook a value for money audit of the AFC and observed a number of policy gaps in the scheme. For instance, the facility was established without knowledge of ministry of agriculture, the government line ministry responsible for agricultural development. Ministry of finance, the one in charge of fiscal policy did not approve the concept from which the scheme was formulated but it released funds to Bank of Uganda for the same. Also noteworthy is that the feasibility and baseline surveys were not carried out during the design of the facility to ascertain its viability.

This lack of preparation and planning explains the scheme’s inability to fully absorb the allocated resources.  Since its inception in 2009, the absorption capacity of funds provided by government has fallen short by UGX 90.93bn. This is indicated in the Auditor General’s report for FY2015/16, the low absorption capacity is attributed to unawareness of the public on the availability of the ACF. This is the second time the Auditor General is faulting Bank of Uganda for operating the scheme secretly and not making the necessary public awareness.  The table below shows the utilization capacity of the ACF funds.

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Financial year Amounts allocated by government (UGX Billion) Amounts remitted to Bank of Uganda (UGX Billion) Amounts un-utilized (UGX Billion)
2009/2010 30 28.51 1.49
2010/2011 30 12.06 17.94
2011/2012 30 7.5 22.5
2012/2013 30 15 15
2013/14 30 30
2014/15 30 26 4
2015/16 30 30
Total 210 119.07 90.93

Source: Auditor General’s Report on Central Government and Statutory Corporations for FY2015/16

The Auditor General also observed an increase in the number of delinquent loans by UGX 1.96bn, indicating a risk of losing funds through delinquencies. On addition to less releases of the allocated funds as shown in the table above.  The above highlighted challenges facing the scheme necessitate an urgent need for its restructuring if it is to achieve its set objective of commercializing agriculture by providing medium and long term credit for projects engaged Agricultural value addition and post-harvest handling.

The scheme should have been better suited in Uganda Development bank (main mandate is to support small, medium and large scale development projects in the primary sector of the economy, agricultural ones inclusive) instead of Bank of Uganda, whose statutory role is to supervise commercial banks and financial institutions but not to transact business with them. I highly doubt whether the central bank has the requisite expertise and capacity to supervise agricultural commercial projects.

Also, for purposes of accountability and proper monitoring and evaluation of the scheme, a program based scheme is better than funding all sorts of value addition projects in the agricultural sector. It can be value addition to one of the following; cassava, millet, maize or rice. This facilitates better program assessment and evaluation. The program based scheme has to be backed up by a functional agricultural extension system to provide support to small scale farmers.

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Over time both government and development partners’ approach to agricultural development has been geared towards large commercial scale production. Despite their approach’s aim being in the right direction of achieving high production; it falls short of some facts, such as, land tenure system and increase in population which has led to land fragmentation. This calls for reform in approach, that is supporting small scale farmers with farm in puts like good quality seedlings, oxen plough to help in opening up land, training; on fertilizers and manures use, harvest and post-harvest handling, transportation and marketing to enable increased agricultural productivity.

There is already visible value addition infrastructure in the country but with inadequate supply to agro-processing enterprises to sustain their production hence the need for more public investment in the supply chain by supporting small scale farmers to have stable supply to agro-industries.

 

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