Vice President Mpango wants policy review to increase funding for agriculture

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By Dickson Ng’hily

Mbeya. In a bid to increase financing for agriculture, Vice President Philip Mpango has asked the Ministry of Finance and Planning to reform Tanzania’s lending policies and regulations to encourage more agricultural start-ups commercial.

Dr Mpango issued the directive here yesterday at the inauguration of Farmers’ Week dubbed ‘Nane Nane’, saying demand for credit for agricultural activities for start-ups and operational costs in the value chain were huge.

“Credit is a key ingredient in unlocking the financial constraints that limit the performance of the agricultural sector, therefore, there is a need to put in place financial regulations related to lending to the agricultural sector,” he explained.

According to the Vice President, Tanzania’s agricultural sector contributes significantly to the economy, job creation and food security.

However, despite the country’s steady economic growth, farmers still struggle to access sufficient credit as the sector is considered a substantial risk by lenders.

Adding: “I understand that after urging financial institutions to cut interest rates on agricultural loans, they have done so and I am told that rates are now in the single digits (9%), but I think that you need to do more than that so that more farmers and businesses in the sector are enticed to borrow.

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Dr Mpango also advised the insurance sector to take advantage of the opportunity presented by the agricultural sector saying, “There is a need for agricultural insurance that will protect farmers against loss or damage to crops and livestock.” .

Adding that the insurance package has enormous potential to bring value to farmers’ and communities’ investments, both by protecting when shocks occur and by encouraging greater investment in the agricultural industry.

Earlier, Agriculture Minister Hussein Bashe said, “It is unacceptable that financial institutions are hesitant when it comes to lending to the agriculture sector, when all transactions in the sector go through banks.” .

He added that, “We have formed a special committee that will assess the financial regulations administered by the Bank of Tanzania as they are not in favor of the farmers in the country. We have to reform them if we want to develop the agricultural sector, they are very problematic.

According to the Minister, due to their high interest rates and other limiting factors such as collateral, farmers find it difficult to access credit, while banks are key players in agricultural development.

“Financial institutions play a facilitating role by accumulating the capital needed for agricultural development, storage, processing and packaging, transport, insurance and marketing of products. Therefore, we need to get to the stage where financial institutions fully play this role,” Bashe insisted.

He further explained that limited access to finance hinders farmers from adopting better technologies to improve production efficiency. Therefore, he noted, in order to improve access to formal financial services for the majority of Tanzanians, the need for comprehensive banking regulatory reform is vital.

Earlier, when Dr Mpango visited the CRDB pavilion, Mr Maregesi Shaaban, Senior Director of CRDB Agri-business said, “We have done a wonderful job in agriculture, and we continue to do so, for 2021 /2022, our agricultural loan portfolio stands at 769 billion shillings. In five years, we have lent a total of 2.6 trillion shillings across the value chain.

According to Shaaban, further, there were challenges regarding lending to actors in the agricultural sector as financial regulation considers it risky and reforms are needed for banks to perform better in the region.

The media indicates that many banks concentrate their activities in urban and semi-urban areas, with a limited presence of branches in rural areas where smallholder farmers are often found.

A limited presence in rural areas leaves most banks disconnected and unable to understand the specific needs of farmers. As a result, they view smallholder farmers as unreliable borrowers due to unstable incomes, lack of savings, and volatile productivity that depends on rainfall.

Therefore, banks need to reconsider their rural penetration strategies and develop business models that improve the provision of credit products to smallholder farmers.

Despite making up more than 70 percent of the agricultural sector in Tanzania, farmers have little ability to improve production and increase their incomes as they cling to low-tech farming techniques.

Agriculture is labor intensive and dependent on family members working the land, which can be problematic if someone gets sick or injured.

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