The Agricultural Credit Facility (ACF) is a Government of Uganda (GoU) programme that was established in 2009. A document that is published online by the Bank of Uganda (BoU), a brief for clients, explains the ACF and its purpose as follows:
“The ACF was set up by the GoU in partnership with Commercial Banks, Uganda Development Bank Ltd (UDBL), Micro Deposit Taking Institutions (MDIs) and Credit Institutions all referred to as Participating Financial Institutions (PFIs) in order to facilitate the provision of medium and long term loans to projects engaged in agriculture and agro-processing on more favourable terms than are usually available from the PFIs. Loans under the ACF are disbursed to farmers and agro-processors through the PFIs. The scheme is administered by the BoU. It operates on a refinance basis in that the PFIs disburse the whole loan amount to the sub-borrower and then apply to BoU for the 50 percent GoU contribution.”
During the Joint Agriculture Sector Annual Review (JASAR) 2016, we learned that the GoU rated its ACF as having achieved an 81 percent score – a good performance - for its physical performance for the released resources.
At the JASAR 2016 as well we learned that available to the ACF for the financial year 2015/2016 was 58 billion shillings for accessing credit on favourable terms to farmers and agro processors that were engaged in agriculture and agro-processing.
According to GoU officials at the JASAR 2016 only 14 percent of those available funds were actually utilised during the year. This means that the GoU’s score of 81 percent performance for its ACF was on the basis of analysing the utilisation of only 14 percent of the available funds. As in the GoU’s good physical performance score for its ACF was based on only 8.1 billion shillings that was actually released to beneficiaries under the ACF arrangement.
That assessment is disturbing, to say the least, for how can a programme receive a good physical performance score of 81 percent when it failed to ensure that 86 percent of the funds it was delegated to administrate were availed to the intended beneficiaries?
As in during the entire financial year the ACF did not utilise 49.9 billion shillings that it was supposed to utilise for the purpose for which the funds were intended. It only utilised 8.1 billion shillings. By all measure this is a horrendous performance, some would argue, not befitting an 81 percent score by any measure.
Even, the 53 percent performance score – fair performance – which we learned at the JASAR 2016 that the GoU gave its ACF for its overall financial performance was not a befitting one. The performance of the ACF in 2015/2016 was simply poor – it was only able to utilise 14 percent of the available funds for the purpose the funds were intended.
GoU, through its relevant monitoring unit and also the BoU, deducing from presentations made by GoU officials at the JASAR 2016, knows that the 81 percent score on physical performance of its ACF is really, well, silly to say the least. For in their presentations at the JASAR GoU officials did lay the blame for the horrendous performance of the ACF on commercial banks.
It was reported by GoU officials at the JASAR 2016 that commercial banks, even when they have the ACF money, tend to prefer to offer their clients their own bank’s commercial loans and not the kind of loans that the ACF was established for.
It was alleged, by GoU officials at the JASAR 2016, for example, that in some cases the commercial banks utilise ACF funds, but disguise them as though they were commercial loans to their clients. We learned at the JASAR 2016 that apparently, increasingly, commercial banks hide the ACF funds instead of lending them to their agribusiness clients under the provisions of the ACF.
Is it any wonder that the commercial banks would naturally prefer to promote their own commercial loans in the first place? At the time of design of the ACF, how is it that this obvious status quo was not taken into consideration by at least the multitude of economists that are employed by BoU?
Commercial banks are in it for profit and the performance of their chief executive officers is determined in terms of the profit made and not on loans disbursed. If I, a non-economist, can see this clearly, how is it that BoU, with all its economists, was unable to see this at point of ACF programme design, really?
Sadly, in addition, as reported by GoU officials at the JASAR 2016, there are so many irregularities in the ACF terms as well. For example, it was found that beneficiary borrowing documents indicated that the interest on loans that they were accessed through commercial banks was at 12 percents. In reality, however, it was found that this was not always the case.
Apparently, reported GoU officials at the JASAR 2016, this is so because in some instances for the first seven months of the loan period - the seven months when the ACF funds had not been released from BoU to the commercial banks - the latter applied a commercial rate of about 23 percent. This means, therefore, that the 12 percent rate was only charged for the remaining months minus the first seven month.
Effectively meaning that even when the commercial banks access ACF loans to the correct beneficiaries – farmers and agro processors – they seemingly negatively take advantage of their clients. Basically, the banks make a killing (pan intended), while those for whom access to credit was supposed to be eased by the ACF end up burdened with not so favourable terms, in contradiction of the intention of the ACF.
It is difficult to process that all the economists in BoU failed to appreciate the potential consequences of this structural problem that is inbuilt within the design of the ACF – channelling loans to farmers and agro processors through commercial banks, without ensuring the requisite stringent protocols that would ensure the commercial banks behave abnormally – become less profit seeking when lending to farmers and agro processors.
A particular inequality in access to financial services by farmers and agro processors that the ACF should have ordinarily ameliorated, it instead deepens. At the JASAR 2016 we learned that 56 percent of beneficiaries – those accessing the facility - are from central region; 27 percent from Western region; six percent from Northern region; and 10 percent from Eastern region.
Thus, even the 14 percent – the 8.1 billion shillings – that was accessed to farmers and agro processors in 2015/2016 by the ACF was not evenly distributed throughout the Country. As a matter of fact, more than half of it – 56 percent (4.5 billion shillings) was accessed to farmers and agro processors in only one quarter of the Country and those in the rest of the Country accessed only 3.6 billion shillings.
Regional inequality in terms of access to ACF loans, some would argue, is obviously in-built within the design of the ACF – accessing the funds through commercial banks. It is a known fact that commercial banks are dominant in central region and moreover mostly in urban settings. Even though commercial banks are beginning to have branches in other regions, in the other regions as well, they are still pretty much located in the urban centres.
Logically, it is clear that the commercial banks are located where the farmers are not; and the farmers – majority of whom are in rural areas – are located where the commercial banks are not. These are the realities that the designers of the ACF needed to have factored into the programme design. Why was it not the case?
This article is written by Norah Owaraga, CPAR Uganda Ltd Managing Director (April 2012 to date). Read more about her here. Please note that Norah’s views are not necessarily those of CPAR Uganda Ltd.
For the information for you the readers here is important learning from the JASAR 2016 which will enable you to appreciate how the Government of Uganda monitors and assesses the performance of its projects. During a presentation by the relevant unit of the Ministry of Finance Planning and Economic Development, we were educated on the Governments criteria for judging success of projects as follows:
If a project scores
- Anything below 50 percent, as in, for example, if a project was given outputs to deliver and it was unable to deliver at least 50 percent of them then that is poor performance.
- 50 – 69 percent – it is fair, it is doing something
- 70-89 it is good
- 90+ it is very good
- 100 percent is when it is rated excellent
We were further educated on what assessment process Government uses in order to arrive at the project performance scores as follows:
- Selected projects and programmes are reviewed – every month another set is chosen so at the end of two to three years the Government will have covered most of the programmes.
- Government looks at both physical and financial performance.
- In physical performance Government uses an integrated scoring system in order to establish relative importance of an output as per the approved budget. For example, if a project reports that it delivered 200 percent of maize seeds, the monitors and evaluators look further for the answer to the question: “Is that what the project was budgeted to do?”
- For financial performance the Government assess the overall programme or project.