KAMPALA – PostBank Uganda was named Best Financial Institution in advancing Agricultural Financing in the country under the Bank of Uganda Agricultural credit facility program.
This was revealed during the awards ceremony for the best performing participating financial institutions under the ACF scheme. The award ceremony was held at Kampala Sheraton Hotel on Thursday May 2019.
The Minister of Finance Hon. Matia Kasaija was the guest of honour.
Other dignitaries included the Deputy Governor Bank of Uganda, Louis Kasekende, Prof. Mondo Kagonyera, Wilbrod Owori CEO Uganda Bankers Association and CEOs of the participating financial institutions.
According to award organisers (Bank of Uganda), the ceremony was intended to recognise the significant efforts that have been made by different Participating Financial institutions in the operationalisation, advancement and uptake of the ACF funds. In addition, the awards were designed to recognise the efforts of best performers in achieving the scheme objectives while mobilising support and growth in Agricultural lending.
Minister Matia Kasaija applauded PostBank Uganda for taking the lead role in advancing agricultural financing to the people of Uganda. PostBank Uganda beat all the participating financial institution to emerge the overall Best performing financial institution in extending credit facilities under the ACF program.
Post Bank also emerged winner in the following categories;
Winner in having the highest outreach to small borrowers as evidenced by the number of loans disturb used.
Winner in having the highest National coverage in terms of the number of loans Disbursed at march 31st 2019
Winner in having the highest Absorption rate in terms of Number if loans Disbursed
Winner in showing interest in the scheme as evidenced by the number of loans applications submitted to Bank of Uganda as at 31st March 2019
Mr Benon Rukundo the Executive Director Credit and Business growth said that the value of loans disbursed under the ACF scheme total to 26,749,278,627 UGX. He further noted that agriculture lending takes 25% of the bank’s loan portfolio. This implies that the bank is focussing on consolidating as a preferred financial institution in agriculture lending.
Background of Agricultural Credit Facility (ACF)
ACF was set up by the Government of Uganda in partnership with Commercial Banks, UDB and MDIs and Credit Institutions, all referred to as Participating Financial Institutions(PFIs). The scheme’s operations started in 2009, with the aim of facilitating provision of medium and long term financing to projects engaged in Agriculture, Agro processing, and mechanization, focusing on commercialization and value addition.
Loans under ACF are disbursed to Farmers and Agro processors through the PFIs at more favourable terms than are usually available under conventional loans. The scheme is administered by BoU and its operations guided by an MoU signed by all stake holders. Uganda Bankers Association has signed on behalf of Banks and the other institutions signed separately.
The scheme operates on a refinance basis in that the PFIs disburse all the loan amount required by a client and seek for a re-imbursement from BoU.
Acquisition of Agricultural Machinery like tractors, Agro processing equipment like milling machines, Post-harvest handling equipment-silos, threshers etc.
Agricultural inputs that include fertilizers and pesticides, land opening, paddocking.
Biological assets that include; banana suckers, fruit seedlings, chicks, piglets, cows and goats for restocking the farm, Purchase of grain (mainly in produce trade).
Working capital required for operating expenses is also considered provided this component does not exceed 20% of the total project cost for each eligible borrower. E.g. are wages for hired labour, overhead costs like utilities and installation costs and hiring of specialized machinery for farm activities. The maximum loan amount to an eligible borrower for biological assets shall not exceed UGX 80 million
The scheme is not used for financing working capital for purchase of land, forestry, refinancing existing loan facilities (paying off existing facilities) and trading in agricultural commodities with the exception of grain.
Terms and conditions
The PFIs disburse the total loan amount (100%) to the final borrower on the following terms;
The maximum loan amount to a single borrower is up to UGX 2.1 billion but can be increased to UGX 5 billion on a case by case( for eligible projects that can add significant value to the agricultural sector and the economy as a whole). There is no designated minimum loan amount to the final beneficiary but BoU can only reimburse a minimum of UGX 10 million to PFIs.
The loan period can go for up to 5 years and minimum is 6 months. Grain trade is given for only 24 months
Grace period: Grace period is given depending on the established cash flows of the client.
Interest rate The interest is up to a maximum of 12% per annum. The 70% GoU contribution is disbursed to the PFIs at zero interest (interest free). That means the Bank’s funds are lent at almost 48%, far above the normal lending rates thus making this scheme very viable.
Facility fees; Loan processing fees charged by PFIs to eligible borrowers should not exceed 0.5% of the loan amount. Legal documentation and registration costs are borne by the borrower.
The primary security is the equipment/machinery purchased, where applicable and any other marketable security provided by the borrower. PFIs may seek additional security based on the risk profile of the project financed. The Bank shall ensure that the loan is adequately secured as per the credit policy to protect their interest and that of the BoU and GoU
The MoU V clause 5(a) states that the reimbursable percentage for MDIs and Credit Institutions (including Post Bank) will be 70% to the capital value of the loan disbursed to the borrower. Other PFIs will be entitled to 50%.
Note: Under the grain facility, all PFIs will be entitled to 50% GoU contribution
In case of default, the GoU guarantee remains 50% of the outstanding principle amount for all PFIs
Financing the Grain Trade
As mentioned the scheme provides financing for Working capital and infrastructure for projects engaged in grain trading. The terms will be as follows:
The maximum financeable amount to a single borrower will be UGX 10 billion and the GoU contribution shall be 50 percent of the eligible amount.
The maximum tenure of a loan for working capital for an eligible project under the grain facility shall be 24 months from the date of disbursement to the borrower.
The maximum tenure of a loan for capital expenditure for an eligible project under the grain facility can be up to 5 years from the date of disbursement to the borrower with grace period determined basing on the cash flows of the client.
The applicable interest rate for loans advanced to finance grain trading under the scheme shall be a maximum of 15% per annum.
The applicable interest rate for loans advanced to finance capital expenditure under the scheme shall be a maximum of 12% per annum.
Process of Accessing the ACF Loan facilities:
The borrower/ client will submit a loan application along with a business plan to any of the Bank’s branches.
The branch will then advise him/her on the terms under the ACF.
A detailed bankable project proposal/feasibility report may be required (depending on the loan amount applied for).
Issues to do with the security/collateral will be negotiated between the borrower and the bank and not with BOU.
If the Loan application meets the requirements of the ACF, the bank will sanction the application and forward it to BOU for a no objection and approval.
BoU reviews the application for compliance in accordance with the guidelines governing the administration of the scheme;
On approval by BoU, the bank will disburse the funds to the client and request BoU for a re-imbursement.