Why poor agrifinance hits TZ

Dar es Salaam. Credit growth has been lower than in agriculture than in other sectors.

That has been the trend despite agriculture’s high socioeconomic potential.

A Bank of Tanzania (BoT) bulletin has shown that the sector’s credit grew by 0.2 per cent during the second quarter of this year, from zero per cent during a similar quarter in 2016.

The sector, whose credit growth has never gone beyond six per cent, accounts for about 30 per cent of the economy, 67 per cent of the country’s employment and a quarter of exports earnings.

The share of agricultural credit to all major economic activities has also remained at seven per cent since last year, lower than personal loans, trade finance and manufacturing sector.

Personal loans and trade finance account for big chunk of credit issuance by banks.

The BoT monthly economic review for June indicated that the credit to agriculture grew by -4.3 in April this year.

In May the growth was -9.3 per cent. In May 2016, the sector’s credit grew at six per cent, which was the highest.

“The changing of an agricultural crop marketing policy and bad weather have torpedoed efforts of providing credit to agriculture,” banking credit expert Dominic Nombo told The Citizen yesterday.

He said the changing of agriculture crop marketing policy from individual buyers to co-operatives had reduced the number of borrowers from the sector. He said the government last year prohibited individual traders from buying commercial crops, leaving co-operative unions to do so.

“Previously, commercial banks used to lend to individuals crop buyers, but since they were prohibited from doing so, the number of borrowers has shrunk,” he said.

Since these potential borrowers were prohibited to buy crops directly from farmers, their ability to repay loans has substantially been affected, which increased more risks to banks balance sheets.

Most affected crops, which have had huge number of individual buyers were commercial, mainly tobacco, cashew nuts and cotton. Many farmers now sell their produce directly to co-operative.

“Loans repayment has been affected to a great extent because the abilities of borrowers were ruined as they are no longer doing crop businesses,” he said. “Banks core capital has dropped and risk on agrifinance now stands at 12-15 per cent.”

The other factor that has caused the shrinkage in agrifinance, according to another banker who did want to be mentioned, was last year’s unfavouable weather condition, especially in Lake, Western and Central zones.

“Drought hit most parts of the country last year.”