At a glance: Bank sector sorting out agro-sector credit problems

The National Microfinance Bank was a few weeks ago setting out a new lending initiative targeting sectors like agriculture, livestock and fisheries in their respective and interlinked value chains, to receive affordable loans that started around mid-October. Most medium and bigger commercial banks have facilities for such credit, but there are key bottlenecks.

At the roll out of its new credit facility, NMB Bank said the agro-sector value chain loans are intenmded to be disbursed at under 10 per cent rate per annum, and at a weekend event, Prime Minister Kassim Majaliwa mentioned that loans are being issued at six per cent annual interest charge per annum, which has never been the case earlier. But there is an expression that not all that glitters is gold, as in many cases these credit facilities are created to suit the takers as they are, as banks have to lend to keep savings and deposits profitable. And most people and even the government would rather borrow than change things.

Borrowing needed to come back into agro-sector value chains after the 2017 debacle where surplus funds placed by key parastatals and executive agencies were withdrawn. This brought a sharp drop in working capital lending to agro-sector operators especially in horticulture, with exports plummeting by around  75 per cent in the year from mid-2017 to mid-2018. It was an auspicious manner, unintended definitely, to mark 50 years of the Arusha Declaration with its sharp restraint on commercial agriculture. Agro-sector growth fell from 13.5 per cent in the 1962 to 1966 period to 3.0 per cent from 1967 to end of 1985; it scarcely rose later, and now hardly reaches 4.5 per cent.

Looking at statistics on exports in the African Growth and Opportunity Act (AGOA) context there is plenty in agro-sector exports that Tanzania can make to the US market that isn’t forthcoming, same as EBA (Everything But Arms) arrangement with the European Union. Agro-sector growth is mainly export oriented and there appears to be a large market for all kinds of new products, while industrial sector growth needs to target the local market, and it can scarcely use commercial bank loans. It is cheaper to import than obtain loans and produce locally.

Agro-sector value chains are productive but can’t absorb the huge ‘machinga’ surplus labour force, which leads to the question of what next for this surplus group wishing to hawk, hide shops, etc. Structural change is the only way out so that foreign investors (including Tanzanians living outside) buy chunks of existing firms and produce for the local market. Banks can’t help here, except when change is in place.