Abdallah Okao, a grain trader in Lira – the marketing hub of the grain trade in Uganda, is confident in the growth of his business and the sector as a whole as more banks become interested and become adaptable to the financing of the actors of the sector.
One of the main challenges of the agro-industry remains the change of harvesting and planting seasons which translate into high and low seasons, making it difficult and expensive for actors to borrow and maintain long-term loans. .
According to Okao, “The bank’s funding has been timely, especially when we have all the requirements the bank needs. We have seen a reduction in processing time and the way this facility is structured as an annual facility that is split into two parts. Every six months you can use it and turn it over and rewrite to apply for a new loan facility and it is released within just four days. So the processing time is low and the requirements are not so strict as long as the security value is secured. “
Equity Bank Uganda recently joined the list of banks currently offering structured commodity trade finance whereby agro-industry owners can now borrow against their agricultural inventory which can be used as collateral for security and repayment. , undermining conventional means of lending and borrowing.
“Funding for commodities has yet to be tried and I think it is sustainable. Sometimes the loan facilities we borrow may not be sufficient to handle the available volume of products in stock due to bumper crops. We have already asked the banks to come and support us in terms of equity financing and I am happy that this is something they have taken into consideration. This is possible because we will have the Bank on one side and the Aggregator on the other, working closely together, ”Okao says of the new loan structure.
“If there is a price fluctuation, the bank is aware of it. If there is a problem with the speed of aggregation and you need to sell before a certain time, the bank will be notified. For example, there is a situation like this year where soybean prices have continued to rise. It started from Shs1,000 and is currently at Shs2,300. You can therefore engage the bank and offset the loan with the profit made. However, if prices fall, the borrower can get the bank to agree on what happens to the agreed interest rate or the length of the loan repayment period, ”Okao explains.
“The challenge really comes when there is a bumper crop like we experienced last season. We have sufficient storage space, for example ours can store up to 10,000 metric tons, but there are some that can only carry 1,000 metric tons, so they are under capacity but they could operate a larger one. ability with this type of arrangement with financial institutions.
The farmer’s challenge
James Odur, Director of Business Development at Equity Bank branch in Lira, notes: “With commodity finance, most of our clients who trade in the agribusiness have a collateral challenge. The financing of raw materials addresses this problem and the repayment period of loans. The longer a loan facility, the more expensive interest is paid. The biggest challenge we have in explaining this to them is getting them to understand that first of all, this facility is a short term financing solution that fits into their business cycle at low interest rates. Most of them are used to the conventional way of borrowing and do not realize the risk involved in long term borrowing. We decided to give them this structure so that, during the period when they do not need the money, they are not indebted to the bank. “
Clean and lubricate seed and fertilizer drives and metering units and replace defective parts. Check the seed and fertilizer tubes making sure they are in good condition and not blocked and replace them if necessary.