13 May 2008
editorial
Warehouse receipts that farmers could receive following the inauguration of Agroways commodity warehouse by Uganda Commodity Exchange could finally solve the agricultural financing puzzle.
A warehouse receipt guarantees the existence and availability of a given quantity and quality of a commodity in storage for safekeeping and therefore farmers can use it as collateral for borrowing.
Absence of acceptable collateral and the risks associated with agricultural production have always presented an obstacle to financial institutions keen on financing agriculture.
By handing over the receipt to a particular financial institution, the owner is bequeathing his rightful ownership of the commodity stock in the warehouse to the financial institution and therefore the institution turns into the rightful owner and can sell it off to recover the loan once the borrower fails to pay.
That is why the system if well executed could bring hope to hundreds of farmers currently struggling with financing.
The receipts will also most likely reduce interest rates on agricultural loans since interest rates are often associated with the risk of loan recovery.
The fact that the holder can sell the receipt in cash and futures transactions instead of delivering the physical goods or commodities, will save farmers of transport costs and reduce production costs. Such a streamlined system of trade is what the country as it prepares to turn into a regional food basket.
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