Series One: Financial Policy on Agricultural Loan

Access to capital in every business becomes a crucial factor in bringing productivity, effectiveness and value addition. Agriculture can be financed by individuals, public or private as well as through borrowing. Taking into consideration, 80% of Tanzania’s population lives in villages. Tanzania’s main economy activity is agriculture that contributes 24% of GDP and 35% of foreign exchange earnings; the initiatives that aim at transforming the sector contribute to poverty reduction.  The poor are in rural areas, where 60% if their livelihood depends on agriculture but productivity less than 1% which is due to hand hoe use, and limited resource to accelerate their production. At the same time the level of investment in agriculture is very low due to demand for collateral and high interest rates in loans charged by financial institutions.

tomatoes produces

Consequently access to funds has become a long process, and looking the fact that most of the current farmers are older people who do not have collaterals. The potential age cohort of borrowers for agriculture sector is in the age of 18-45 bracket, most of whom do not have legal ownership of assets such as land. Thus, financing agriculture need to target the youth as a way of motivating them, reducing rural-urban migration and creating jobs through adding value to produce.


Agriculture sector development programme (ASDP) aims to commercialize small holder crop and livestock production in order to increase small-holder famer’s income, reduce poverty and achieve food security. Government through the ASDP aims to expand the area under irrigation from 345 hectares to 1.5mil hectares (out of a total of 29million hectares) in order to reduce vulnerability and weather risk. A mechanism through which small-holder farmers can access loans needs to be established. This is anticipated with the establishment of Agricultural Bank, where special funds are allocated to the bank to serve the interest of the smallholder farmers, which is now known as the Tanzania Investment Bank (TIB).  Stakeholders, smallholder farmers as well as young farmers in particular enthusiastically await the agricultural development bank to kick off and address the bottlenecks related to repayment period, interest rates and collateral (flexible) demands by the current banks establishments. Current challenges in financing for agriculture include;
•    Rural land is neither recognized not accepted as collateral by banks
•    High transactional  costs
•    short repayment period - the agricultural circle takes at least six months on average whereas banks provide only short-term (3-6months) loans
•    Returns on rural economic activities are low due to small size of land and low-level technology.
•    Dysfunctional cooperative unions which leave a limited room for smallholder farmers to have an economic grouping that would help them get loans and find markets for their produce.