Challenges faced by wholesale lenders in agricultural financing: A case of ABI-TRUST

Abstract

The study examined the challenges wholesale lenders face in financing the agricultural sector in Uganda, case of Abi-Trust. Whole sale lenders channel resource into productive agriculture investments in agriculture sector through agricultural financing to achieve economic growth and development. Pecking order theory supports agricultural financing. The study was guided by four research objectives; to examine the influence of government policy or regulations on agricultural financing; to analyze the influence of risks associated with lending to agriculture on financing the sector; to examine the influence of governance and management structures of the borrowing institutions on agricultural financing; and to analyze the influence of collateral security and other lending requirements on agricultural financing. The study used a qualitative cross-sectional research design and the unit of analysis was aBi Trust. The unit of inquiry were managers at aBi Trust. Primary data was collected from 23 participants using the interview guide and analyzed with ATLAS.ti: Version 20 Qualitative Data Analysis. Results revealed that Micro-finance support center implements the government policy or regulations enacted in form of fiscal policy, monetary policy and supply-side policies to regulate Tier 4 financial institution, providing extension services, duration of credit, training of borrowers, ware house security, interest charges and determine repayment mechanism in agricultural financing by whole sale lenders. Challenges were limited joint farmer inputs, agric-risk management, ware house storage system, blended financing structure, interest rate on the credits advanced in whole sale lending in agriculture sector. The government established micro-finance support center, rural financial support center, government private sector program like MYOGA and NAADs advocacy policy to support agricultural financing. Strategies were price estimation, data recovery, data modelling, data integration, production ware house, marketing forecast to manage risk in the agricultural financing. The required collateral security includes conversion financing, satisfactory governance and management process, at least 3% of loan portfolio and debenture of 120% on performing loan portfolio. The recommends that whole sale lenders should have sound cooperate governance, follow clear vision and references, valuing the security, loan recovery terms, strong warehouse storage and implementation of agric- risk management policies to effectively manage agricultural financing.