Government reviews agricultural financing systems
Agriculture Minister Hussein Bashe told the Guardian yesterday that the ministry had already formed a special committee, which will be tasked with reviewing all financing of the sector by banks and financial institutions.
“The committee, which will be inaugurated by President Samia Suluhu Hassan, will be responsible for designing appropriate agricultural finance products, including procedures, terms and conditions,” he said in a telephone interview.
Minister Bashe, who spoke about Mbeya, where he is attending an ongoing agricultural fair (NaneNane), responded to the Guardian on recent data from banks and Bank of Tanzania (BoT) calculations which indicated that a growth annual agricultural lending had reached 42% in the year ending June this year compared to a contraction of 10.7% in June 2021.
The minister said that despite the positive growth data, lending to agricultural activities, which create jobs for the majority of Tanzanians, is very minimal, defying monetary policies not to support a farmer to the fullest.
“It is fortunate that for the first time in history, total lending to agricultural activities has reached 2,000,000,000/-, out of 25,000,000/- total bank lending to the economy, i.e. a share of 8.3 percent in the year ending June this year, up from 7,000,000 percent in 2021, and that’s the result of recent President Samia’s political will to expand funding agriculture,” he said.
He said the major impact has been seen in the higher loan rates unlocked for the sector, but the amount to finance the sector, especially at the production stage, is still small, to create a major impact. on the sector, which contributes a third of the gross. Domestic Product (GDP).
“There is no direct correlation between increased bank lending and a farmer’s transformation,” he said, noting that currently the most beneficial activities are crop trading and not the entire agricultural value chain.
Bashe, who is fighting for sector transformation in Tanzania, said the agricultural production system is facing financing shortages as the majority of farmers do not have access to loans for land preparation, the acquisition of machinery, purchase of seeds, purchase of fertilizers and pesticides as well as other agricultural needs.
He also challenged the new accounting standards adopted by banks, the International Financial Reporting Standards (IFRS-9), saying that they were an obstacle to extending financing to agriculture, because farmers need more time to start repaying their loans, contrary to its demands.
He said that under IFRS-9, if a farmer fails to repay an installment, an acquired loan becomes an impairment loss; and to clean this up in a bank’s income statement, a farmer must repay at least four installments, which he says requires four farming seasons.
Recent data from banks and the Bank of Tanzania showed that lending to the sector recorded a strong annual growth of 42% in the year ending June 2022, compared to a contraction of 10.7% recorded during for the year ending June 2021.
“It’s not a question of growth rate, but what we should be asking is how much is going to agriculture,” he replied.
Annual growth in credit to agriculture was nearly three times the growth recorded in the year ending May at 14.7%, according to BoT and bank data.
Growth outpaced mining and quarrying activities which rose 36.5% in June this year compared to a 4.6% contraction in June last year, dominant personal loans which increased by 27.5% against growth of 17.9% respectively.
The other sectors recorded strong growth during the period under review, namely trade which increased by 25% after a contraction of 0.7% respectively and the manufacturing industry which increased by 23.5% after a contraction of 0.7%. contraction of 4.4% respectively.
BoT data shows that personal loans that involve small and medium-sized enterprises (SMEs) account for 38.2% of all banks’ loan portfolio, followed by commerce with 16.4% and manufacturing in third place with 10.4%.
This shows that despite contributing a third of the economy and more than 65% of employment, agricultural activities still receive a small share of loans from the banking system, which also hampers its growth.