opinionBy Alvar Mwakyusa
WHILE agriculture remains the backbone of the national economy, accounting for over 25 per cent of the national gross domestic product (GDP), over 27 per cent of exports earnings, and 80 per cent provider of jobs, there is a total of 53 commercial banks currently operating in Tanzania, the highest number in the East African region.
With the buoyant banking sector in place, and given the centrality of the agricultural sector in the country's socioeconomic development, one wonders why the sector is not a major beneficiary of the financial services. Various agro-economists and banking experts have come up with a range of answers to this paradox.
The Tanzania Bankers Association (TBA), for example believes that agriculture is one of the riskiest sectors to lend money. According to TBA, although there is much potential in agriculture as a viable investment opportunity for banks and other money lending institutions, the sector also has a good number of inherent shortcomings that tend to put off many of the would be financiers from taking the leap.
Key to this, the association asserts, is the tendency of many farmers to lean towards subsistence farming where the primary goal is to feed their own families and, by extension, their communities. In other words, generating surplus production and subsequently enhanced incomes, which would have necessitated the use of banking services, is usually accorded low priority by producers.
In this regard, "Funding agriculture only makes sense if the financing is used for commercial purposes and not for subsistence or consumption", says TBA in an overview report on opportunities available in the agricultural sector. The Economic and Social Research Foundation (ESRF) argues that high interest rates charged by financial institutions on agricultural loans are the basic reason why investors are shying away from the sector.
ESRF further notes that since land in rural areas is not surveyed at household level, farmers can't use it as collateral to secure bank loans. Further, available data shows that agricultural activities enjoy a mere 10 per cent of total loans disbursed by commercial banks operating in the country.
The report notes also that only a meager three per cent of agricultural households have direct access to credit and other key financial services.
Furthermore, an independent analysis of the problem conducted by a local team of agro-finance experts concludes that all boils down to a lack of willingness on the part of local banks and microfinance institutions (MFIs) to extend their services to the sector.
The experts' comprehensive study report asserts that there is indeed ample capacity amongst the many types of lending institutions in the country to avail more funding to agriculture, if only they could be persuaded to do so.
The study, known as the Agricultural Finance Markets Scoping (AgFiMS), was done under the auspices of the Financial Sector Deepening Trust (FSDT), which appointed local consultancy firm AYANI to conduct field work on the supply of financial services to the agricultural sector, and Synovate (now IPSOS) on the demand side survey.
FSDT was incorporated in Tanzania on July 1st, 2004 with an overall aim to develop a deeper financial system that can provide greater access to finance to more Tanzanians.
The study applied several methodologies including surveys in the form of interactions and one-on-one interviews with various agrifinance service providers for the supply side and structured interviews with the producers, processors and service providers for the demand side.
They also took into account the findings of previous research studies on the subject which were conducted by the government and other stakeholders. The agribusiness sector , as per AgFiMS Tanzania 2011 definitions, has a total of 2,036,474 players.
Out of these, 1,921,121 (94.3 per cent) are producers, 27,758 (1.4 per cent) are processors, and 87,595 (4.3 per cent) are service providers.
AgFiM's recommendations include; the need to improve insurance cover for lenders against the various risks that can be associated with investments in agricultural activities; the need to: Tailor the services to the demands of the sector, through giving borrowers favorable terms like loner grace periods before the repayment of loans begins, low interest rates, soft collateral conditions.
"Marketing and access to clients is also crucial", the researchers further assert, noting that some microfinance institutions already have strategies in place to create awareness amongst agricultural stakeholders about what they can offer in this area. Some of the strategies proposed for incentivizing the potential borrower include provision of training on how to run a successful agribusiness venture.