Agricultural financing still a problem in Tanzania #tanzania

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.