1.1 Trends in Lending and Leasing in

Transcription

1 In the warehouses, hundreds of ladies sort coffee. 1.1 Trends in Lending and Leasing in Section 1: Background 8 As shown in Diagram 1, agricultural lending by regulated commercial banks, credit institutions and microfinance deposit-taking institutions (MDI s) increased substantially in by over 60 percent. The overall contribution of agricultural lending to total formal lending also increased, from 7 percent in 2010 to 9 percent in The significant increase in agricultural lending was mainly a result of increased volume of warehouse receipt products mainly in the coffee value chain - with two financial institutions accounting for much of this increase. The warehouse receipt product in these two financial institutions contributed over 26 percent of total agricultural lending. Without this business, the increase in agricultural lending in 2011 would have been substantially less than the 60 percent noted above. It is believed that borrowing for speculation on food may have also contributed to the increase in agricultural lending in 2011, 1 Author: Irene Sekamwa Kajoro, BoU/GIZ FSD Programme 2 As in the 2010 Yearbook a caveat is in order. Despite strenuous efforts, there is still reason to believe that some scope exists for improvement in the quality of data being collected in this area. It is hoped that as the situation improves, the future will see more reliable time series and comparative analyses, for publication in subsequent editions of the Yearbook.

2 given the opportunities for this type of activity prompted by the soaring food prices experienced in mid The information on advances to agriculture by regulated financial institutions was first compiled for and presented in the 7 Agricultural Finance Yearbook and subsequently followed in the 8, 9 and 2010 editions. This, the 2011 Agricultural Finance Yearbook, is the 5th edition and builds on the previous work. The format used for the compilation of the data has not changed. That is, it tracks the new advances to the agricultural sector rather than the outstanding portfolio. This approach provides a more dynamic view of movements in lending to the agricultural sector. As with the 2010 Yearbook, the information on leases to the agricultural sector has also been captured. Diagram 1 below shows the pattern on a quarterly basis. It reveals a generally downward trend of agricultural lending from 7 to 9, until 2010 and 2011 when the trend reversed. That is, total agricultural lending increased from UShs 5 bn in 2010 to UShs 566 bn in Although the increase in 2010 (22 percent) did not match up to the decrease in 9 (2 percent), the increase in 2011 (60 percent) significantly surpassed the increase in 2010 (22 percent). Agricultural lending significantly and continuously declined from 7 to 9, as shown in Table 1. However, in 2010 it picked up, increasing by UShs 62 bn from UShs 291 bn in 9 to UShs 5 bn in In 2011 it increased further, by 21 bn from UShs 5 bn in 2010 to UShs 566 bn in As in the 2010 Yearbook, the figures in the Annual Totals column also include leases to the agricultural sector. 01 Policy Diagram 1: Total Agricultural Lending 2 Advances in Billions of UShs 0 Q1 Q2 Q Q Q1 Q2 Q Q Q1 Q2 Q Q Q1 Q2 Q Q Q1 Q2 Q Q Period in s 9

3 Table 1: Agricultural Lending by Regulated FIs and MDIs between 7 and 2010 in bn of UShs. Agricultural lending in 7 Agricultural lending in 8 Agricultural lending in 9 Agricultural lending in 2010 Agricultural lending in st nd rd th Annual Totals The increase could be attributed to a number of reasons some of which have already been mentioned in the 1st paragraph. Other reasons could include: An increase in operations of the 8 new regulated financial institutions which acquired licenses in 8, 2010 and 2011, as a result of the lifting of the moratorium on new banking licenses. The continued increase in government investment to the agricultural sector in 2011 through provision of the Ushs 0 bn Agricultural Credit Facility, the objective of which was to increase agricultural productivity and incomes, and thereby stimulate lending to the agricultural sector. Section 2: Regulated financial institutions in Uganda by category Commercial banks still constitute the biggest percentage of the total number of regulated financial institutions in Uganda. The numbers within the tiers are as shown in Table 2 below. The total number of regulated financial institutions increased from 28 in 2010 to 0 in There were 2 new entrants: Imperial Bank which gained a licence at the end of 2010 to operate as a Tier 1 institution, and UGAFODE Microfinance Ltd., which was granted a licence at the end of 2011 to operate as a Tier institution (MDI). 10 Table 2: Regulated Financial Institutions in Uganda Year Tier Tier Tier Note: Tier 1: Commercial Banks; Tier 2: Credit Institutions; Tier : Microfinance Deposit taking Institutions Total

4 Section : Agricultural lending by category of financial institutions As shown clearly in Diagram 2, commercial banks remain the biggest contributors to agricultural lending, accounting for 95 percent of the total amount lent out for agriculture in 2011 (as in 2010, 9, 8 and 7). They are followed by Tier MDIs and Tier 2 credit institutions, in that order. Diagram 2: Agricultural Lending by Category of Institution 7 and 9, it increased in 2010 and even more significantly in A divergence to this trend was noted in lending to agricultural processing, which went up already in 8. From 9 to 2011, lending to agricultural processing continued to steadily increase. Diagram indicates that in 2011 lending across the value chain significantly increased. The increase in lending to agricultural 01 Policy 2% % 95% Commercial Banks Credit Institutions Micro Finance Deposit Taking Institutions Lending in agricultural value chains It is noted from Diagram that although lending to agricultural production and marketing steadily declined between the year production was more evident than that for other value chain stages. Lending to agricultural production increased by over percent in 2011 for reasons already explained in Section 1. Diagram : Agricultural Finance Lending by Activity Total Advances in Billions of UShs Agricultural Production Agricultural Processing Agricultural Marketing Agricultural Leases 11

5 Lending to agricultural processing increased by almost 1 percent while lending to agricultural marketing increased by over 7 percent. In terms of contribution of each stage of the value chain to total agricultural lending, agricultural production contributed the highest ( percent). Agricultural marketing contributed over 2 percent, while agricultural processing this year contributed the least (over 22 percent). Although leases for agricultural machinery increased by over 21 percent in 2011, they contributed only percent to total agricultural lending, indicating a reduced contribution of 1 percent from percent in Section : Agricultural finance lending by repayment period Diagram illustrates that as was in 9 and 2010, most of the lending was medium term (1- years) with short term lending (< 1 year) also following closely. Medium term lending contributed percent of the total agricultural lending to the sector, short term lending contributed percent while long term lending (+ years) contributed the least. Section 5: Total agricultural lending From Diagram 5, agricultural lending in 2011 progressively increased from the 1st to the rd and decreased slightly in the th. It is important to note that regulated institutions are among the many other providers of credit to the sector. Many agrobased individuals access credit from informal sources like individual money lenders, and many agro-based industries also access credit from their overseas head offices or from cheaper capital markets abroad, as mentioned in the 9 and 2010 editions of the Yearbook. For obvious reasons, data on these advances from outside of the regulated Ugandan financial sector are not presented in this article. Diagram : Agricultural Finance Lending by Repayment Period 12 Advances in Billions of UShs Short Term Medium Term Long Term Totals Agricultural Production Agricultural Processing Agricultural Marketing Agricultural Leases

6 Diagram 5: Total Agricultural Lending Compared 2 Lending in Billions of UShs 1st 2nd rd th 01 Policy Section 6: Conclusion From the 2011 statistics, there has been a very substantial increase in formal advances to agricultural value chains. Agricultural lending as a percentage of total financial institution lending has also increased up from 7 to 9 percent. Though significant, the 9 percent figure is still low in relation to the importance and size of the sector in the national economy. So there is some way to go. Given the very positive effect on lending of the Warehouse Receipts legislation, this has to be noted as a significant policy success for the Government. It also underlines the role of innovation in bridging the gap between the financial and agricultural sectors, so that both sides see profitable business opportunities through new types of banking products, coupled with access on both sides to better information. The Yearbook series is clearly one important tool in making worthwhile innovations better known and in furnishing information about investment opportunities to the financial sector, while at the same time explaining financial products to farmers and others who earn their living in agricultural value chains. 1