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De-risking investment in the agriculture sector

Access to credit

Uganda’s agriculture sector contributes 24% to the Gross Domestic Product, accounts for 40% of the export earnings, and employs more than 70% of the population.

Yet poor weather conditions and sharp fluctuations in temperatures, have made financial institutions reluctant to fund agricultural activities.

But to navigate this, John Makosya, the coordinator at the Agro-Consortium, says taking up an insurance policy could be one of the solutions to de-risk financial investment in the agriculture sector.

“For the agriculture sector to be more productive and sustainable, with improved returns to investment that attract more finance, insurance and other mechanisms that mitigate against the risks to the sector have to be put in place,” he said, during the 3rd Annual Bankers Conference held at the Kampala Serena Hotel on July.16.

The conference held under the theme “De-risking financing and investment in agriculture to promote decent youth employment and inclusive growth,’ sought to find solutions that would make banks be interested to lend to the agriculture sector.

However, Emmanuel Tumusiime-Mutebile, the governor, Bank of Uganda (BoU), says he is optimistic that banks will exploit the potential of bancassurance to exploit synergies with insurance to design products for the riskier borrowers.

Latest data from BoU shows that the private sector credit to the agriculture sector has increased in nominal terms from Shs241.7 billion in 2009 to over Shs1.6 trillion in early 2019.

Correspondingly, the share of lending to agriculture as percentage of total private sector credit has more than doubled from 5.2 percent to 12.9 percent during the same period under review.

However, the non-performing loans (NPLs) particularly in the agricultural sector remain a challenge averaging 9.1% in the last ten years and in some instances going as high as 18% in 2016, a trend that institutions with funds believe drives away would be sector financiers.

“While I remain uncomfortable with the high lending rates and believe that they should be reduced sustainably over time, I dare say that access to credit is not the ultimate binding constraint on economic growth,” Mutebile says.

Agriculture sector needs wholesome solution

Mutebile says proper diagnostics must reveal the problems that constrain agricultural finance before they devise durable solutions.

Patrick Mweheire, the Stanbic Bank Chief Executive, whose financial institution also offers bancassurance services said “the need for de-risking the financing and investment in agriculture is therefore real and urgent to enable channelling of more resources.”

However, he said the issue of finance alone or in isolation of other factors constraining agriculture would be missing the full picture.

“Adopting a consistent, coordinated, multi-sectoral approach, from all the stakeholders including policy makers who shape interventions required, will see the country harness the potential in the agriculture sector,” he said.

Prime Minister, Dr. Ruhakana Rugunda, re-echoes Mweheire’s views saying the sector requires innovation, mechanization and other investment by farmers, agricultural input suppliers, processors, traders, storage firms, exporters, distributors, financiers and many other actors along the agricultural value chain in order to attain full commercialization.

He, however, says the government is alert to the need to transform agriculture, from being merely a means of attaining food and nutrition self-sufficiency, into a powerful engine of economic growth and prosperity.

Some of the available agriculture insurance policies

 Drought Index insurance

Drought index insurance monitors crop water availability to determine drought and has a linear correlation with crop yield. The premium rate is 5.5%. However, this rate is not applicable to Kasese, Arua, Isingiro, Ngora areas, whose premium rates stands at 10%.

Multi-Peril Insurance Crops

This insurance covers loss or damage to growing crops directly by uncontrollable pests and diseases, drought and others. Crops under insurance include among others; coffee, maize, beans.  The sum insured for the crop is based on production costs or pre-agreed nominated value of the harvested crop based on the Long Term Average Yield.

Aquaculture Insurance

This insurance package covers drought and excessive rainfall.  It also covers, among others: pollution, theft, storm, freezing deoxygenating of water. The sum insured is based on stock projections and risk survey for new farms.

Livestock insurance

This insurance policy covers death of animal as a consequence of, among others:  snake bites diseases and surgical operation.  The sum insured for the animal is based on production costs or pre-agreed nominated value of the animal as at end insurance period.

Premium rates for livestock insurance

Animal Premium Rate Excess
Dairy Cattle 5% 10%
Exotic beef 4% 10%
Local cattle 3.5% 10%
Aquaculture 6% 15%
Pigs 6% 15%
Poultry 5% 15%


One comment

  1. Insurance is a big deal, especially when it concerns agriculture. Most farmers are not enrolled on an insurance scheme becuase they don’t have much awareness. It is important for farmers because they would then be able to venture into high risk areas of agriculture which is an off area for many. For more info on how to get insured, click here

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