12 SNV-supported dairy cooperatives receive UGX 6.4B (EUR1.46M) in loans from Uganda Development Bank

Uganda’s dairy sector has continued to grow earning over USD 150 million in export earnings in 2018-19. The growth in export earnings however has not been matched with an increase in agricultural loan disbursements to farmers. Southwestern Uganda that contributes about 43% of the total national milk production has continued to lag with limited access to formal banking facilities for dairy farmers in the region.

In 2016 Dairy Development Authority in partnership with SNV, Uganda Crane  Creameries Cooperative Union and District Local Government conducted a cooler census in 6 of The  Inclusive Dairy Enterprise (TIDE) project districts (Kiruhura, Mbarara, Isingiro, Ntungamo, Bushenyi, Sheema. The census showed average daily milk collection of 1,687,149 litres and 767,938 Litres during the wet and dry season respectively from 308 milk collection centres, most of which are managed by cooperatives. At an average price of UGX. 800 per litre of milk, dairy farmers were earning UGX 18.8 Billion (EUR 4.3Million) every two weeks. Despite this potential, financial institutions have remained predominantly risk-averse in developing farmer-centric agricultural loans. Within the mainstream commercial banking institutions, a few of the loans are made only available to milk transporters and bulking agents while many dairy farmers only access the little credit available through SACCOs, and rotating savings and loan associations that charge high interest rates of up to 48% per annum.

In 2020, SNV partnered with Agriterra through the TIDE Project to strengthen the capacities of cooperatives to become bankable enterprises. The TIDE project made a deliberate effort to categorize cooperatives into different levels and structured tailored support towards helping them develop strategic plans to address governance issues, management deficiencies, and farmer services provision gaps. Additionally, a platform for collaboration with financial institutions (Uganda Development Bank Limited (UDBL), Microfinance Support Centre, and DFCU Bank) was created. This was aimed at exploring agricultural loans that have affordable interest rates, with a longer repayment period through the Agricultural Credit Facility (ACF). The financial institutions which are also participating institutions under the Agricultural Credit Facility were linked to cooperatives to offer Agricultural loans at an affordable interest rate, with a longer repayment period.

At the start of 2020, a Memorandum of Understanding was made between UDBL and SNV/ Agriterra Uganda and by year-end, 12 cooperatives supported by the project had received loans worth UGX 6.4Billion (EUR 1.46Million). The loans are geared predominantly towards supporting productivity improvements such as restocking in-calf heifers, investment in on-farm infrastructure, pasture gardens and to provide working capital for on-lending to farmers at 14% per annum through their cooperatives. A total of 960 members of the cooperatives accessed the loans. This initiative is to be extended to 180 functional cooperatives in SouthWestern Uganda and will potentially benefit 18,540 farmers by 2023.

To sustain this transformation, the project with funding from the Netherlands Embassy in Kampala is supporting the cooperatives to diversify their operations beyond just selling raw milk to value addition initiatives (such as yoghurt production) to enhance their incomes as well as that of their members. The aim is to demonstrate that with the right approach more cooperatives can relatively quickly, make the transition into competent and bankable entities that contribute to sustainable dairy intensification and offer inclusive business models that create shared value for different dairy sector actors.