Access of financial credit services to small scale commercial farmers in Uganda. A case of Bubaare Sub County, Mbarara District

Abstract

This study focused on establishing access of Financial Credit Services to Small Scale Commercial Farmers in Bubaare Sub County, Mbarara District, Uganda. The study was guided by the following objectives namely; assessing the status of credit services available to farmers, examining the reasons for farmers’ participation and non-participation in credit programs, and identifying the factors leading to credit rationing of farmers by financial institutions in Bubaare Sub County, Mbarara District, Western Uganda. The study was guided by a cross sectional research design and the respondents included; heads of small-scale farming households, officials from credit institutions and officials in charge of agricultural finance from Mbarara District Local Government. Among the observations made on the status of credit services available to farmers; the Ministry of Agriculture plays a dominant role in ensuring that farmers get credit services from financial institutions, there is a big number of lending schemes and institutions which provide credit services to farmers at subsidized interest rates, agricultural lending is associated with a number risks making it unfavourable for financial institutions, and Financial credit services in rural areas are dominated by small institutions mainly SACCOs and self-help groups which offer only small amount of money to farmers. In relation to farmers’ participation in credit programs, the study found out that; Farmers participate because they want to access loans from the credit programs to invest in agriculture, expand their existing income generating activities, save money as well as learning and sharing information on farming practices. However, their nonparticipation is due to; fear of loan defaulting, unsuitable loan conditions and busy schedules, leaving them with no time to participate. In relation to factors leading to credit rationing of farmers by financial institutions by financial institutions, the study identified annual income of the family in the previous year, Value of household assets including plants and animals as well as physical assets, Ration of formal outstanding debt over income, and Distance from the location of the financial institution as the factors leading to factors credit rationing of farmers. The study made the following recommendations; there is a need to implement adult financial literacy programs, strengthening farmer cooperative organizations, which could provide a collective capital and social collateral for small farmers, Formal MFIs should be encouraged to substitute physical collateral for social collateral through group liability strategies, encouraging farming households to take on alternative livelihood activities, as well as finding market smart strategists to deal with challenges facing small farmers in accessing credit.