A TOTAL of 53 commercial banks are currently operating in Tanzania, the highest number in the East African region but agriculture sector remains under served in as far as loan disbursement is concerned.
Although considered as the backbone of the national economy, agriculture accounts 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 but banks are not yet convinced.
Various agro-economists and banking experts have come up with a range of answers to this paradox which Tanzania Bankers Association (TBA) believes agriculture is one of the riskiest sectors to lend money in the country.
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 in the country 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 noted also that a meagre three per cent of agricultural households in the country 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.