A Strategy to Improve the Agricultural Loan Portfolio in Finance Trust Bank

A Strategy to Improve the Agricultural Loan Portfolio in Finance Trust Bank

Luswata Rogers

Ba. Economics, Mba (Global Finance Markets) & Student Of  Masters Of Arts In Economics

DOI: https://dx.doi.org/10.47772/IJRISS.2025.909000318

Received: 16 June 2025; Accepted: 22 June 2025; Published: 09 October 2025

ABSTRACT

This study investigated the decline in the agricultural loan portfolio of Finance Trust Bank and strategies to reverse this trend. The research objectives included identifying factors contributing to the decrease in the agricultural loan portfolio of Finance Trust Bank and exploring suitable strategies for its improvement. The study adopted an exploratory research design and qualitative methodology, the study population included departmental heads, loan officers, and agricultural loan clients who were selected through purposive sampling, data was collected using semi-structured interview and analyzed using content analysis. Key findings from the analysis revealed various factors contributing to the decline in the agricultural loan portfolio, including high risks in agriculture, stringent borrowing conditions, lack of staff skills, delays in loan processing, high cost of loan processing, delays in loan processing, too much paper work, few loan officers, untimely disbursement of loans, competition from other banks among others. Additionally, the study identified strategies to increase the loan portfolio, such as training loan officers, segregating duties, improving staff salaries, simplifying loan requirements, use of guarantee schemes, monitoring loans, reducing interest rates, promoting value chain among others.

The study evaluated these options basing on their pros and cons, ultimately selecting the most viable strategies which included improving loan officer salaries, extensive marketing of agricultural loan products, monitoring loans and scaling down loan requirements. The study also developed an implementation plan of the selected options for improving the agricultural loan portfolio, the implementation plan highlighted the execution activities, responsible persons, costs, timelines, challenges and potential problems during implementation and the mitigation measures. The study acknowledged limitations, such as the absence of input from Bank of Uganda officials and the context-specific nature of the findings.  The study recommended conducting similar studies with a larger sample size and involving other commercial banks in Uganda. In reflections, the study highlights the importance of strategic policy development, improving working methods, and personal development for addressing challenges in agricultural lending. These insights contribute to addressing the operational knowledge gap in Finance Trust Bank and offer valuable implications for enhancing agricultural loan portfolios in similar contexts.

INTRODUCTION

A strategy, as per Kenton (2022) can be defined as a high-level plan crafted to achieve specific goals and objectives amidst uncertain conditions. Regarding this study in Finance Trust Bank, the strategy involves devising a plan to restore the agricultural loan portfolio to its previous volume of 60% of the entire loan portfolio. Drawing from Davis and Katchova (2020), the strategy for Finance Trust Bank Uganda’s agricultural loan portfolio restoration encompasses various elements which include setting clear goals and objectives for increasing agricultural loans, conducting thorough analysis of market conditions and borrower needs, making informed decisions on resource allocation, leveraging competitive advantages, adapting to changes in the agricultural sector, and effectively implementing the devised strategy. Considering Davis and Katchova (2020) categorization, the strategy for Finance Trust Bank Uganda involves multiple types of strategies which include corporate strategy (aligning the agricultural loan portfolio with the overall objectives of the bank), business strategy (determining how to compete effectively in the agricultural lending market), functional strategy (ensuring operational efficiency in administering agricultural loans), and competitive strategy (identifying and exploiting advantages over competitors in agricultural lending).

Highlighting Haile’s (2012) emphasis on the importance of strategy in organizational success, it’s crucial to underline that a well-crafted strategy will serve as a roadmap for Finance Trust Bank Uganda to achieve its objective of restoring the agricultural loan portfolio, this strategy will guide the bank in navigating uncertainties in the agricultural sector while working towards its goal.  Basing on Haile’s (2012) considerations, Finance Trust Bank Uganda is ought to carefully deliberate on various factors before implementing the strategy to restore its agricultural loan portfolio, these include ensuring alignment with the bank’s mission and values, managing risks associated with agricultural lending, implementing robust monitoring and evaluation mechanisms to track progress, integrating feedback loops to adapt the strategy as needed, and adhering to ethical and sustainable lending practices in the agricultural sector.

The present study is centered on Finance Trust Bank, recognized as the sole successful agricultural bank in Africa owing to its core competencies and distinctiveness in lending to enterprises within the agricultural value chain, which engages over 80% of the Ugandan population. Notably, more than 60% of the bank’s clientele are involved in agricultural production and agribusiness, establishing the bank’s unique position in the market, given that other banks often perceive agricultural lending as too risky. However, recent efforts to expand have blurred the bank’s distinctiveness, resulting in a decline in the agricultural portfolio to 15% as of 2020(Finance Trust Bank, 2020).

Problem statement

Finance Trust Bank has experienced a notable decrease in its agricultural loan portfolio from 60% in 2018 to 40% in 2019 and to 15% in 2020, which has resulted in an increase of the loan loss provision by 2.5%, increase of 1.1% in credit impairment and 5.5% decline in total loans which has negatively affected the financial performance of the bank which reflects a decline in total revenue from UGX 56,346 million in 2018 to UGX 47,321 million in 2020.

Justification for the study

About 80% of Ugandan households are engaged in agricultural activities (Uganda Bureau of Statistics, 2020). A decline in the agricultural loan portfolio of FTB from 60% in 2018 up to 15% in 2020 implies a decrease in the number or amounts of agricultural loan portfolio advanced to the households. The decline in the agricultural portfolio translates into a drop in the financial performance of FTB since limited interest will be generated from the low volume and amounts of agricultural loan portfolio yet there is a yawning market of 80% of Ugandan households. Therefore, this study was implemented to aid in developing a strategy to restore the agricultural loan portfolio to 60% and to tap more into the existing large agricultural households in Uganda which may dramatically improve the financial performance of FTB.

Research questions

1.What factors account for the decrease in the agricultural loan portfolio?

2.What strategies are suitable for increasing agricultural loan portfolio at Finance Trust Bank?

Purpose of the study

The primary purpose of the study was to develop a strategy to restore the agricultural loan portfolio of Finance Trust Bank to the previous volume of 60% of the entire loan portfolio

Research objectives

The primary research objectives of the study were as follows:

1. To identify the factors accounting for the decrease in the agricultural loan portfolio
2. To explore the suitable strategies for increasing the agricultural loan portfolio at Finance Trust Bank.

Significance of the study

This study focused on researching the problem and developing a strategy that can be adopted by the management of Finance Trust Bank as a mechanism to restore the agricultural loan portfolio to 60% of the entire loan portfolio. This study generated relevant information pertinent to the factors accounting for the decrease in the agricultural loan portfolio and reviewed measures that can be taken to reverse the trend which can be used by the management of FTB to increase their financial performance through improving Centenary’s Bank agricultural loan portfolio. This study also provided new knowledge to the already existing body of knowledge about the factors accounting for the decrease in the agricultural loan portfolio and created mechanisms for reversing the trend which may be used by future scholars as a literature review point.

Scope of the study

This study was carried out at the regional main branches of FTB located in Kampala, Kapchorwa, Lwengo, and Mbarara branches. This study only covered the agricultural loan portfolio in Finance Trust Bank particularly it was limited to; identifying the factors accounting for the decrease in the agricultural loan portfolio; and exploring strategies to be undertaken to increase the agricultural loan portfolio. In addition, it mainly focused on developing a strategy to restore the agricultural loan portfolio of Finance Trust Bank to the previous volume of 60% of the entire loan portfolio. This study considered literature between 2011 and 2020, as this is the period within which FTB enjoyed a momentarily increasing agricultural loan portfolio and tremendously started registering a decline in agricultural loan portfolio coupled with a decline in financial performance in the aspect of revenue.

LITERATURE REVIEW

Factors accounting for the decrease in the agricultural loan portfolio

Loan default/delinquency

The issue of loan delinquency/default among banks and Microfinance Institutions has been discussed in many public lectures and seminars as one of the reasons why commercial banks have not shown much interest in financing Micro, Small and Medium Enterprises (MSMEs). There are three broad types of delinquency indicators: collection rates which measure amounts paid against amounts that have fallen due; arrears rates measures, overdue amounts against total loan amounts; and portfolio at risk rates which measure the outstanding balance of loans that are not being paid on time against the outstanding balance of total loans (Addae-Korankye, 2014: 37).

Several factors have been highlighted to result in loan delinquency among farmers which include but are not limited to a lack of willingness to pay loans coupled with diversion of funds by borrowers, willful negligence and improper appraisal by credit officers, loan shortages, delay in the time of loan delivery, small farm size, high-interest rate, age of farmers, poor supervision, non-profitability of farm enterprises and undue government intervention with the operations of government-sponsored credit programs (Addae-Korankye, 2014: 37).

According to Balogun and Alimi (1990) as cited by Addae-Korankye (2014: 36), loan default can be defined as the inability of a borrower to fulfill his or her loan obligation when due. High default rates in MSMEs lending should be of major concern to policymakers in developing countries, because of its unintended negative impacts on loan financing. Financial institutions all over the world including Uganda are faced with the challenge of loan default/delinquency. This has continually accounted for the decrease in the agricultural loan portfolio.

Bank of Uganda (2020: 7) conducted a bank lending survey and concluded that on a net basis, banks expect the default rate on loans to enterprises to increase with the majority expecting no change; similarly, they expect the default rate on loans to households to increase on a net basis in the coming three months to December 2020. The expected increase in default rate on loans to enterprises is mainly attributed to the: unfavorable economic conditions experienced during the last couple of months, the conditions were partly manifested through high borrowing costs (interest rates), which reduced disposable incomes of households and individual borrowers.

A study undertaken by Addae-Korankye (2014: 40) revealed that of the25 Micro Finance Institutions (MFIs), 10, representing 40%, are experiencing a default rate of <1-3% which is consistent with the internationally accepted rate of default. Eight, representing 32% have a default rate of > 3-6%, 4(16%), experience a default rate of >6-10%, and three, representing 12%, have a default rate of more than 10%. The implication is that 60% of the MFIs have default rates more than the internationally acceptable rate of 3% which culminates in increased risk portfolio ratio and collapse of financial institutions (Addae-Korankye, 2014: 40).

Relatedly, Haile (2012: 28) argues that loan delinquency and loan default are critical problems for agricultural loan portfolios in low-developing countries due to poor loan repayment. Based on such findings, banks may therefore reduce their loan portfolios, and this affects the agricultural loan portfolios because of the higher rates of defaults since they are faced with the majority of the uncertainties.

Deregulation of commercial banks

Deregulation of commercial banks can be conceived as the removal of government restrictions on the operations of commercial banks to increasethe efficiency and effectiveness of the banking industry (Kenton, 2022).Deregulation of commercial banks has been associated with the following benefits: stronger economic growth; better access to financial resources; and lower loan rates to borrowers (Davis & Katchova, 2020: 2).Within the agricultural context, deregulation of commercial banks is linked with lowering agricultural loan costs and thereby leading to positive outcomes in terms of agricultural loan sales and revenue (Davis & Katchova, 2020: 2).

A study carried out by Park (2011: 17) revealed that banking deregulation affects bank balance sheets and loan portfolios through loan commitments. The researcher added that, due to the deregulation of commercial bank branching, banks issue more loan commitments after interstate banking deregulation, which lowers agency costs. In addition, the study also revealed that the ratio of total unused loan commitments to total loans increased in most states after interstate banking deregulation.

Likewise, Subramanian and Yadav (2012: 4) showed that when branching restrictions were lifted due to the deregulation of interstate commercial banking, loan losses and operating costs fell sharply, and the reduction in banks’ costs was largely passed along to bank borrowers in the form of lower loan rates and enhanced performance of loan portfolio. Thus, it can be deduced that although deregulation has some benefits in the banking industry, it also engenders negative outcomes which lead to the downsizing of the agricultural loan portfolios of commercial banks.

Competition for Loanable Funds

The competition for loanable funds has an effect on the cost and availability of loan funds to agricultural borrowers. Borrowing costs go up as lenders attempt to transfer some of these higher costs incurred in acquiring funds to borrowers. Loan funds to agricultural borrowers may be curtailed, for example, as banks seek to match their interest-rate-sensitive liabilities with interest-rate-sensitive, non-loan assets. Banks might increase security requirements or decrease the term of the loan. Banks might also opt to increase the supervision of the loans to increase performance. However, because increased supervision is costly to the bank, loans may only be extended to those borrowers with a more than “usual” likelihood of repayment, thus excluding many potential farm borrowers (Subramanian and Yadav, 2012: 8).

In addition, Subramanian and Yadav (2012: 9) argue that a commercial bank is likely to allocate less money to agriculture relative to its total assets in areas where other agricultural lenders or players are more active and other competing commercial banks are very active.

The World Bank (2020) also reported that despite the availability of loanable funds, commercial banks are faced with a myriad of loan products which culminates in the distribution of the available loanable funds across different loan products. Further, it is observed that commercial banks with less priority in agricultural lending tend to have low agricultural loan portfolios compared to banking institutions that prioritize agricultural lending (World Bank, 2020).

Tightening of credit standards by the economic sector

Credit standards encompass elements such as loan size determination, credit monitoring and credit screening.  Credit standards have been reported as a positive significant predictor of loan portfolio performance (Aromorach, 2013: 15). A study undertaken by the Bank of Uganda in 2020, reported that banks had tightened credit standards for the majority of the sectors of the economy on a net basis in the quarter to September 2019.

The following sectors recorded a net tightening; Building, Mortgage, Construction and Real Estate (11.0%) followed by Transport and Communication (9.7%), Trade (5.9%), Manufacturing (5.]1%), Mining and Quarrying (4.3%), Agriculture (2.7%), Electricity and water (1.3) and Business Services (0.3) while Personal and Household and community, social and other services eased with 13.8% and 0.7%, respectively. The major reason given for the net tightening for the Building, Mortgage, and Construction and Real Estate sectors was the increased price fluctuations within the sector; Transport tightened because of the increased risks of accidents; Trade recorded a net tightening due to the slowdown in economic activities. The tightening of the agriculture sector was attributed to the declining prices of produce due to bumper harvests with constant demand e.g., sugar. This significantly decreased the agricultural loan portfolio.

Thus, it can be argued that improvement (tightening) in the credit standards undermines the performance of agricultural loan portfolios which is quite contradictory to the findings of Aromorach (2013: 15). This divergence in findings may be attributed to the notion that when credit standards have been tightened, many potential agricultural borrowers are unable to meet the tightened credit standards by commercial banks.

Lack of collateral security

Collateral security is used by banking institutions as a safety measure to reduce or eliminate the risk of loan defaults. Land is the most commonly used collateral security among farmers in the acquisition of agricultural loans (Abbas, Yuansheng, Feng, Abdul,  & Dan, 2017: 4). One expects collateral to be significant in the classification of applications to ensure that enough security is provided. Previous research has also considered this aspect in different forms, especially land tenure because the applicant owns the land (Motsoari, Cloete & van Schalkwyk, 2015: 14). This is also reflected in the results where applicants in the ‘other than good’ category are less likely to be classified in the approved category (p < 0.01). The result is a good indication that the credit institution has to ensure that enough security is provided to cover the loan or total debt exposure, should the client default. This confirms the thought of Ghosh et al. (1999) as cited in Henning, Bougard, Jordan and Matthews (2019:34) that collateral is a prerequisite for formal institutions and poor farmers may therefore struggle to access credit capital.

In Bolivia, the law does not permit the pledging of small plots of land for a mortgage. This forms part of the agricultural law reform which intends to protect farmers from becoming over-indebted. At the same time, it adds to the exclusion of small farmers from access to loans. If farmers possess a small piece of land in Honduras, land titles are very difficult to obtain as county borders are not clearly defined throughout the country. The National Institute of Agriculture, however, can only extend land titles for land that is used exclusively for agriculture and is bigger than 1 ha. Small farmers therefore find it difficult to obtain legally certified property rights from their county administration (Eschborn, 2004). It is therefore worth noting that collateral security is a major factor leading to the decrease inthe agricultural loan portfolio. Comparatively in Uganda, titles cannot be obtained for land less than 12 decimals yet most horticulture farmers in cities carry out farming on smaller pieces of land. On the other hand, the process of land titling is very expensive, and the bureaucracy involved deters many farmers.

Le and Nguyen (2018:4) conducted a study on collateral quality and loan default risk in Vietnam and found out that the financial market in Vietnam is dominated by thebanking sector, but commercial banks heavily rely on collateral-based lending. While the relationship between collateral and implied credit risk is still in debate, this paper provides additional empirical evidence regarding the heterogeneous effects and transmission channels of collateral characteristics on loan delinquency. Applying instrumental probitregression analysis to assess the relationship between internal loan accounts and collateral quality using a unique dataset of 2,295 internal loan accounts in Vietnam, the study found that the significantly negative impact of collateral quality on the probability of default of consumer loans, supporting the dominance of borrower selection and risk-shifting over lender selection effects. The finding implies that high-quality collateral not only signals more credible borrowers but also fosters good behavior in using loans, enabling banks to mitigate adverse selection and moral hazard problems.

Most banks across the world prefer immovable collateral assets. For example, although Thai law allows lenders to accept a broad range of assets as collateral, in practice the majority of loans continue to be secured against immovable assets in the form of land, houses, and other built structures because these generally meet all four criteria for desirable collateral, whereas many other non-real estate types of property satisfy only one or two of these (Hirankasi, 2021).

Hirankasi (2021) further posits that if lenders continue to depend on traditional forms of collateral, this may generate an increased risk of problems within the financial sector, including for banks themselves since farmers and businesses, especially SMEs, have only limited access to the kind of real estate collateral that banks demand, their ability to access credit may be restricted. Moreover, for players in the new economy, such as IT startups, company value is overwhelmingly in the form of intangible assets, and under the current lending paradigm, it is very hard to secure loans against these.

At the same time, banks’ insistence on receiving only traditional types of loan security may further add to their exposure to risk because industries that are closely linked to real estate markets and that can use this as collateral typically see an unusually high rate of businesses entering and exiting the market, while at the macroeconomic level, collateral taken in the form of real estate typically also accelerates procyclical swings within the financial system.

However, this result is contradictory to the research of Motsoari, and van Schalkwyk (2015: 594) who found that ownership of land (providing security) has a negative relationship with access to credit. The authors provide a possible reason for their finding in that most of the borrowers participated in government programs, which do not require ownership (security) for approving loans. These results will have quite a serious impact on smaller and emerging farmers who do not necessarily have the resources to provide collateral or security for a new loan. Especially when there is no specific credit products from institutions aimed at smallholder and/or emerging farmers whereby collateral is provided or considered in different forms.

A report by the Agricultural Credit Facility asserts that the use of more flexible collateral in agricultural financing leads to successful agricultural loan portfolios. Notably, the usage of collateral in agricultural loans has also been construed to eliminate lenders’ loan portfolio risks (Bank of Uganda, 2021:3). Thus, it can be deduced that the absence or deficiency of collateral requirements by farmers increases the loan portfolio risks of banking institutions which underscores the performance of agricultural loan portfolios. In addition, it can be inferred that banking institutions that use rigid collateral systems are most likely to experience a decrease in their agricultural loan portfolio performance.

Weak management systems in commercial banks and agricultural institutions

Weak management systems in terms of risk allocation and risk management have been reported to significantly influence the performance of loan portfolios inclusive of agricultural loan performance (Aromorach, 2013: 14). Financial institutions with poor risk allocation and risk management systems have a higher likelihood of experiencing poor agricultural loan performance due to higher chances of default rates (Bob et al., 2017: 4).

Similarly, Area (2016: 38) proffered that weak management systems such as inadequate customer or client management relationships by financial banking staff culminate in a declining loan portfolio performance with agricultural loan portfolios not being exceptional. In addition, the scholar also pointed out that ineffective monitoring of borrowers by financial banking institutions increases the rates of loan defaults which undermines the performance of agricultural loan portfolios within a banking institution (Area, 2016: 38). In addition, many African banks have been observed to suffer from weaknesses in legal systems and institutions. Greater financial development may only translate into more growth after a threshold of legal and institutional development is passed (Oleg & Romero-Avila, 2013: 14). For instance, an increase in financial activity through agricultural loans cannot spur growth due to corruption in the banking system that may divert credit to unproductive activities (World Bank Group, 2014).

Munyambonera, Nampewo, Adong and Mayanja (2012: 21) conducted a study about access and use of credit in Uganda by smallholding farmers using secondary data to shed light on the extent of the problem and further used successful studies in agricultural financing to demonstrate how improvements can be achieved. The major problem established from available information is that despite several agricultural financing initiatives and other reforms in the financial sector in the last 20 years, access to credit by smallholder farmers in Uganda has remained very low in the region of about 10 percent. Munyambonera et al. (2012: 25) suggested that the problem was largely attributed to weak institutional framework and policy inconsistency on agricultural financing over the years, notwithstanding household demand factors. Although the National Development Plan (NDP) and the MAAIF Development and Investment Strategy (DSIP) emphasize increased access to agricultural financing as a fundamental input to the sector transformation, this may not be achieved if the institutional and policy factors are not well streamlined along the credit market chain to solve the demand factors as given at household level. The institutional problem could be demonstrated by the level of credit allocation through the formal commercial banks to agriculture production which has remained in the proportion of less than 10 percent of total credit allocation in the last 10 years (Bank of Uganda, 2011: 5).

The policy inconsistency argument is demonstrated by the unimpressive performance of a number of Agricultural financing initiatives such as endandikwa, prosperity for all, agriculture credit facility (ACF), the medium-term competitive strategy and rural financial services program among others, which have been implemented by the Government since the 1990s (MFPED). Although the aim of these initiatives was to improve access and use of credit by farmers, and largely smallholders, this has not been satisfactorily achieved due to the lack of an “Effective Institutional Framework for Coordination, financing and Implementation”.

Based on the literature delineated herein, one can assert that weak management systems pertinent to the following dimensions: policy inconsistency risk allocation, risk management, inadequate client relationship management coupled with ineffective monitoring of borrowers culminate into decreasing agricultural loan portfolio performance due to the higher chances of defaulting agricultural loans.

Limited access to formal credit by farmers

Lack of finance is one of the fundamental problems hampering production, productivity, and income of rural farm households. Since access to institutional finance is very limited, the majority of the poor are forced to search for financial services through informal channels. It has been postulated that access to credit for farmers has been influenced by a number of factors. It is presumed that there exists a relationship between agriculture productivity and poverty alleviation (Terfa, 2018: 12), and hence the critical need to address inadequate credit facilities in rural areas that are a key constraint to farmers’ investments.

Given that the major economic function of financial institutions includes addressing the restraints imposed by inadequate access to financial services; it is argued that these institutions are well-positioned to deal with these financial constraints including access to credit. Limited access to credit has not been an exception to the clientele of Finance Trust Bank and thus it’s prudent that this study be carried out now to address the factors leading to a decreasing loan portfolio at Finance Trust Bank. Evidence from Asia and Latin America illustrates that the major constraint for accessing credit was product design; as such products need to be tailored specifically to the needs of the borrowers Meyer (2002) cited by Mbuga (2013: 14). According to Mbugua (2013: 4) the poor require flexible and inexpensive products that match their capacity to borrow and address their needs for them to cope with crisis thus there is a strong need for credit. The challenge for MFIs is to design credit products tailored to respond to different client needs. Similarly, these products should be easily accessible (opening hours and proximity), with reasonable interest charged and more attractive terms than what they already access informally (Mbugua, 2013: 4). Finance Trust Bank has increased its opening hours from 7.00am to 7.00pm, however, the high-interest rates and rigid product design remain a challenge.

Mbugua (2013:3) asserts that the business of Kenya is agriculture – the principal source of income for 75% of the nation’s population. However, despite the fact that a bigger percentage of Kenya’s population lives in rural areas and that 80 percent are involved in farming activities, there is little effort by commercial banks and other financial institutions to facilitate credit to this industry which is crucial in rapid development of this dominant section of the population. There is no bank that caters to specific credit and saving needs. The available piecemeal credit services are operated by small credit schemes, which are limited in scope and have specific target groups. The inadequacy in financing and credit arrangements in rural Kenya and in specifically the spread of this study impede the development of agriculture and rural sectors.

Lemessa and Gemechu (2016: 43) conducted a study that focused on the analysis of factors affecting smallholder farmers’ access to formal credit. As credit is one of the most important factors required for smallholders’ input utilization, it is important to have sustainable agricultural development. A two-stage sampling method was employed. A total of 148 farm households were selected randomly using probability proportional to size. Descriptive statistics and a legitimate model were used for analyzing quantitative data. The output from the study indicated that 51 (34.5 percent) of the sampled farm households were formal credit users, whereas the remaining 97 (65.5 percent) were non-users. It was also found out that credit access to female-headed households is still limited and the difference between the wealth groups in accessing credit from the formal sources was also statistically significant.

Lemessa and Gemechu (2016: 44) asserted that the physical distance of farmers from lending institutions, family size, farm size, experience in credit use from formal sources, Sex of household head, education level of household head, participation of households in extension package program, attitudes towards Risk, farmers’ perception of Loan repayment period, farmers’ perception of Lending procedures, lack of opportunity to take a second loan, and membership of farmer’s multipurpose cooperatives were important factors influencing formal credit use of smallholder farmers.

In Uganda, access to agricultural credit by the rural community where over 80 percent are smallholder farmers, has remained very low and stagnating in the range of 10-20 percent in the last ten years (Munyambonera, Nampewo, Adong & Mayanja, 2012:1). A number of factors affect access to and demand for credit, which in turn leads to a decrease in the agricultural loan portfolio. According to Sisay (2008), they are classified into three categories, namely institutional factors, socio-economic factors and environmental factors. Institution factors include culture, government policies and extension services while household socioeconomic factors are the size of land holding, age, education and finally, the environmental factors include, the national resource endowment, presence of technology to invest in and financial institutions. The framework shows that when more profitable resource-conserving or improving technologies are available and the presence of financial institutions, farm households may ably demand credit. Enabling policies (e.g., secure rights to land), and access to markets and institutional arrangements (e.g., credit services and extension systems) create incentives to demand financial services that expand future production and consumption possibilities.

High costs of loan products

Tangible and intangible costs associated with obtaining products significantly influence access to credit (Mbugua, 2013: 16). Transaction costs incurred by households such as time spent to gain access to credit; commission charges, and transportation costs to financial institutions are among the cost of loan products that affect agricultural loan portfolio performance (Mbuga, 2013: 17). For example, a survey on women in Kenya by Anderson and Baland (2002) cited by Mbuga (2013:15) found that majority of women joining informal funds groups were aimed at saving and borrowing to keep their money away from commercial banks to avoid costs and commissions charged.

The physical distance of farm households from formal lending institutions is one of the factors that influence access to formal credit. According to Hussein (2007) cited by Mbuga (2013: 18), farm households are discouraged from borrowing from the credit sector if it is located farther. This is because both temporal and monetary costs of transactions, especially transportation costs, increase with lender-borrower distance which raises the effective cost of borrowing at otherwise relatively lower interest rates in the sector. This is evidently in line with the current researcher’s view that opening rural branches is a strategy to increase the agricultural loan portfolio of the Finance Trust Bank.

High-interest rate

Miller (2013:5) urges that interest rates take on a dual function rationing credit and regulating the risk composition of the lender portfolio. Relatedly, a study carried out by Nyaboke (2018:30) in Kenya revealed that interest rates and the level of loans advanced by commercial banks are correlated. The scholar indicated that the higher the interest rate, the lower the uptake of personal loans and the lower the interest rate, the higher the uptake of personal loans. In conclusion, at low interest rates, the demand for personal loans increases and at high interest rates the demand for personal loans reduces (Nyaboke, 2018: 35).

In a study carried out by Nakayiza (2013:53) at the Finance Trust Bank branch in Entebbe, it was discovered that high-interest rates make it difficult for loan borrowers to repay agricultural loans. The scholar also pointed out that agricultural loan performance was influenced by the extent to which the bank can recover loans which can be achieved by establishing favorable interest rates such that the demand for the loans increases. Relatedly, Mwirotsi (2012: 47) in her study which was undertaken in Kenya, revealed that lending rates had a positive correlation with total loans and advances, total loan accounts and total nonperforming loans. However, only the nonperforming loans had a significant relationship with the lending rates.

The main conclusion was that the high nonperforming loan portfolio in the Kenyan commercial banks is as a result of the increasing lending rates occasioned by the increases in the Central Bank Rate and the high exchange rates. Similarly, a study undertaken by Amono, Acquoah and Asmah (2003: 36) in Ghana revealed a negative relationship between interest rates and credit demand. The researchers concluded that high interest rates negatively affect credit management which reduces the loan portfolio of a commercial bank. EFTB (2007: 163) suggests that low-interest rates increase banks’ appetite for risk. In addition, low interest rates are found to reduce credit risk in the very short run since they reduce refinancing costs and increase borrowers’ net worth, thereby lowering the credit risk of outstanding bank loans.

As the volume of outstanding bank loans is greater than that of new loans, low-interest rates may make banks’ loan portfolios less risky in the very short run. Thus, based on the literature disclosed herein, it can be deduced that high-interest rates account for a low agricultural loan portfolio.

Poor Farm Profitability

Sagbo (2019:93) asserts that Limited access to financial services is known as a major constraint to agricultural development. Farmers need liquidity to face agricultural expenses throughout the production cycle but mainly at the beginning. Mainstream financial institutions are reluctant to serve the agricultural sector whose farm profitability is poor. First, they consider the sector to be highly risky with low performance. Also, agricultural activities depend on the weather, they take place in remote rural areas, and commodities prices are volatile. All these aspects make it hard for conventional banks to reach their profit goals when lending to such farmers.

 Similarly, Kim (2005: 24) carried out a study to develop a credit risk model for agricultural loan portfolios. In the study, net income per acre of farm was conceived as the explanatory variable. The study results showed that farmers with low net income are more likely to default on agricultural loans. This connotes that poor farm profitability within a region may lead to low establishment of agricultural loan portfolios within the region.

Strategies to be undertaken to increase the agricultural loan portfolio

Consider commodity and regional differences

The volatile performance of farm businesses stems mainly from fluctuating commodity prices and weather conditions, which are highly correlated, especially for farms with similar typologies, commodities, and geographical regions (Bliss, 2002: 925-928). This phenomenon implies that the segmentation of an agricultural loan portfolio should consider commodity and regional differences. Economic performance in the agricultural sector is also widely influenced by events in both the domestic and international economy. Capturing the state of these economies is critical in credit risk modeling for the agricultural sector. When modeling portfolio credit risk for agricultural loans, one must account for the attributes of the agricultural sector and its borrowers, which are substantially different from the other retail exposures. The U.S. agricultural sector, which is capital-intensive, has a history of liquidity problems. It experiences chronic cash flow pressures resulting from relatively low but volatile returns to production assets. These characteristics contribute to the aggregate debt-servicing capacity and creditworthiness during downward swings in farm income and reductions in asset value, as happened in the 1980s (Barry et al., 2002: 8-11).

In a study conducted by Kim (2005: 25), the researcher suggested that the agricultural credit risk model should be segmented by commodity and geographical location. This suggestion was underpinned by the findings of his study which showed that the default rate of farmers varied according to crops grown and locations of the farmers. The researcher also added that the segregation of the agricultural credit risk model reduces the default risk of farmers which improves the performance of agricultural loan portfolio.

Relatedly, Arindam (2007: 14-16) developed a credit scoring model for the agricultural loan portfolio of a large Public Sector Bank in India. In this study, it was suggested that credit risk modeling should be segmented by the primary commodity of a farmer in a bid to reduce the credit risks associated with an agricultural loan portfolio. Therefore, it can be induced that Finance Trust Bank may improve the performance of its agricultural loan portfolio by having segmented credit risk models according to the location of farmers and the type of farming a household engages in.

Engaging in Group Lending

Farmers acknowledge group lending that solves the problem of collateral requirement by lending institutions, controls misuse of borrowed funds and minimizes the risk of default and they also recognize the provision of saving services by microfinance institutions (Lemessa &Gemechu, 2016: 50). Currently, group lending becomes the most important method of providing rural credit to the poor who could not bring material collateral. However, poor farmers especially the very poor farmers find group lending inconvenient to access credit from MFI since they are rejected from the group by others. Finance Trust Bank, therefore, has improved its policy environment by accepting individuals to access credit, without forming groups, by means of using land use right certificates from the local councils in the villages and also guarantors as collateral. Group lending approach, however, may not only reduce the high operating costs associated with lending in rural areas but may also encourage the establishment of a good credit culture and help in achieving acceptable loan products for farmers (Mbugua, 2013: 37).

On a similar note, Kodongo and Kendi (2013) in their study which was carried out in Kenya reported that group lending minimizes the chances of loan delinquency as compared to individual lending. The researchers recommended that banks should strive more efforts in pursuing group lending than personal lending in abiding to minimize loan delinquency and improve the performance of loan portfolios inclusive agricultural loan portfolios. Thus, Finance Trust Bank can adopt the strategy of group lending in abide to enhance the performance of the agricultural loan portfolio.

Training of Development Agents

Development agents are a strong bridge between smallholder farmers and microfinance institutions (MFIs) and other development-oriented organizations. Integrated and participatory rural development strategies can achieve their target if these development agents create strong social and cultural links with the people that they are expected to assist. Therefore, organizing regular in-service and on-the-job training, providing adequate incentives and remuneration as well as employing an adequate number of development agents will be necessary conditions to change the farmers’ attitude toward using formal credit.

Nsibambi (2017: ]124) suggested that capacity building of staff working in other departments of Finance Trust Bank can help to create a more conducive environment for the lending and loan management operations of the Agricultural Department. This in the long run was targeting to improve the agricultural loan portfolio.

Knowledge of the client

While this is important for any lending operation, it is particularly critical for Finance Trust Bank to understand the differences between their traditional urban and rural clientele, and smallholder farmers. Access Bank Tanzania (ABT) strived to become one of the leading providers of financial services in Tanzania. In so doing the bank engaged volunteers from the US to help in conducting assessments for the bank to better understand the specific financial needs of farmers and provide recommendations on how to reach and provide services to underserved and rural farmers (IESC, 2021). Finance Trust Bank can better improve the agricultural loan portfolio by understanding the client base that requires agricultural loans.

Flexible products

Smallholder lending is not one size fits all. Loan tenor, disbursement, and payment terms need to be adaptable to the diverse profiles of smallholder borrowers. Cash flow analysis of the household production unit. Analyzing the household production unit both allows for matching payment terms to cash flow and provides a more accurate analysis of the payment capacity and true risk of lending to the smallholder.  Development of new agricultural financial products, tailor-made to meet the needs of enterprises along agricultural commodity value chains, with the aim of enhancing the viability and efficiency of interdependent businesses in value chains (Chengappa, 2018: 8). This can be a very important strategy to improve the agricultural loan portfolio at Finance Trust Bank, Uganda.

After assessing the findings of the study, Mbugua (2013: 38) made recommendations aimed at improving and making it easy for farmers to access credit, e.g., coming up with loan products specifically tailored for farmers. It is therefore worth noting that improving the flexibility of the loan products increases their accessibility hence increasing the agricultural loan portfolio.

Mbugua (2013:38) further posits that the government, banks as well as other lending institutions should consider the possibility of coming up with policies and procedures geared towards catering to specific credit needs for farmers by developing customized designed loan products targeting farmers, e.g., coming up with a different loan product for a farmer who practices horticulture farming, for those who practice perennial farming and dairy farming. Credit for these various farming methods should be customized to each mode of farming as they have different challenges and therefore would require different requirements and assessments before credit is granted.

In addition, Larbie, Laureti and Szarfarz (2013: 20) assert that the use of flexible products within the agricultural lending sectors has a positive impact on diversifying bank products and increasing the share of agricultural loan portfolio. Poor people desperately need flexible financial products to improve their day-to-day money management and cope with shocks, such as drought, flood, loss of assets, loss of employment, and health emergencies. Based on the argument delineated herein, the use of flexible products by Finance Trust Bank which is tailored to each specific farming group or individual may enhance the agricultural loan portfolio of Finance Trust Bank.

Diversified Risk Management Tactics

Agricultural lending risks are diverse and need to be mitigated in a variety of ways. Close, field-based client monitoring; portfolio diversification; conservative cash flow analysis and credit bureaus and credit scoring are all tools that MFIs can use in risk management. In addition, the study findings suggest that an MFI’s collateral should be commensurate with loan sizes and other risk factors the MFI considers, such as client repayment history, crop diversification, and non-agricultural sources of revenue. According to Nsibambi (2011: 124), Finance Trust Bank planned to reduce the agricultural finance portfolio risk through better risk management, diversification of lending along the value chain and expanding key partnerships (linkage banking and structured finance).

Bank of Uganda (2021:8) postulates that microfinance institutions that have successfully expanded into agricultural lending have tended to lend to a wide variety of farming households, including clients engaged in more than one crop or livestock activity. In doing so, they have ensured that their loan portfolios and the portfolios of their clients are better protected against agricultural and natural risks beyond their control.

Munyambonera et al. (2012: 24) delineate that there is also a need for the government to leverage agricultural financing through the existing commercial banks by helping the banks develop and diversify their portfolio on agricultural financing that creates demand for the products and services.

Use of Specialized Credit Officers

Hiring credit officers with a background in agriculture is generally considered critical. The introduction of additional, specialized staff positions to support portfolio quality may also be necessary. According to the International Finance Corporation (2014:13), the use of credit officers with agricultural backgrounds is generally considered a significant success factor for agricultural lending.

More broadly, the importance of “agronomic due diligence” in lending to farmers is generally acknowledged among commercial banks with meaningful exposure to agriculture (i.e., in the neighborhood of 15 percent to 20 percent of the total portfolio). Agronomic due diligence is lacking in Finance Trust Bank. Whether this kind of due diligence is carried out in-house or outsourced is a different question. The desk reviews and the surveys indicate that MFIs specifically prefer the “in-house” approach and hire loan officers with backgrounds in agriculture.

Traditional agricultural lenders have long employed specialized staff with training in crop and livestock production. Similarly, the few microfinance programs that have expanded into agricultural activities have found it desirable to hire agronomists and veterinarians to support loan decisions and methodologies (CGAP, 2006: 3). Just as urban microenterprise loan officers can quickly tell how well a small shop is managed, specialized staff in rural areas can ascertain how well a farming activity is pursued without generating a complex, thorough production model for a specific activity. Specially trained loan officers can optimally adjust the terms and conditions of an agricultural microfinance loan to the investment opportunity presented and the income flows of the farming household to minimize risk to the lender (CGAP, 2006: 3). Finance Trust Bank lacks this kind of specialized skills in its staff and the agricultural credit officers get overwhelmed by the high-performance targets set that they may not consider incorporating the agronomic to production practices of the farmers in their appraisal processes.

Automation of data capture and credit analysis

Banking automation refers to the system of operating the banking process by highly automatic means so that human intervention is reduced to a minimum. Credit risk people the world over have grown used to hearing colleagues extol the benefits of end-to-end process automation. Particularly in banks’ operations functions, cognitive automation and straight-through processing have revolutionized the customer experience, fortified profitability, and enabled sweeping programs of cost reduction (Deloitte, 2019).

Prudent agricultural lending requires the collection and analysis of a significant amount of client, production, and price data. Automation can reduce errors, increase efficiency, and support faster portfolio growth, as well as improve loan application assessment.

Prof Emmanuel Mutebile (2017) in his remarks at the annual banker’s conference stated that as banks adopt electronic banking technologies, key challenges for banks will be to ensure that these new technologies can deliver the same quality of, and access to, services for their customers as the more traditional technologies and that the risks entailed in electronic banking are fully understood and can be managed effectively. Finance Trust Bank therefore will not be at any loss in case they decide to do data capture and credit analysis through automation.

Customization of marketing materials to reflect the target market. Incorporating images of target clientele can help overcome the mistrust that smallholders often have of financial institutions and their presumption that financial institutions are not interested in serving them.

Streamlining of credit increases rural outreach to smallholder farmers and rural entrepreneurs through small lending branches (Service Centers) and enhancement of the bank’s e-platform (Nsibambi, 2011: 124). High-level buy-in and successful smallholder lending require products, approaches, and systems that are distinct from those for microcredit, which in turn, require different mindsets and investment in new tools and systems. In short, it requires a strong institutional commitment and support by the most senior-level management.

A strong customer service orientation

By providing rapid loan processing and disbursement, personal attention to clients, and customization of products, terms, and services to match client needs, as well as providing non-financial services, Finance Trust Bank can effectively improve its agricultural loan portfolio. Institutions like banks and short-term insurance organizations become more aware of the importance of customer orientation and its potential to help them acquire new customers, retain existing ones and maximize their lifetime value. Finance Trust Bank is customer service focused, but has not met the service expectations of most of its clients as customer surveys fluctuate between 70% and 80% leaving room for improvement. A close relationship with customers will require strong coordination between information technology and marketing departments to provide a long-term retention of selected customers (Lombard, 2011: 3494).

However, customer orientation has to become a fundamental organizational value and as such we are dealing with a learning process. Looking at business in the recent era, many firms, indeed, are learning to perceive customers differently than they used to (Brännback, 2011: 4). For instance, to adapt the needs into the features and values of the output, the business model needs multimedia and interchangeable techniques. They help the customer to explain their needs, the intermediary to understand them and to adapt the needs into feature specifications and the suppliers (companies, employees, and public administrations) to produce the required intermediate products and services (Mekonnin, 2015: 258). Improved customer orientation will therefore help Finance Trust Bank to come up with adjusted agricultural loan products that meet the needs of the clients.

Adjusting the repayment period for agricultural loans

The repayment period for formal credit especially which is for agricultural activity in Finance Trust Bank is almost uniform and regular. These inflexible repayment schedules sometimes do not correspond to periods of cash availability for poor households. Therefore, participatory development of activity and income calendars could be used to synchronize repayment schedules with credit needs and income flow of different households.

Weber and Oliver (2014:9-14) conducted a studyusing a unique dataset of a commercial microfinance institution in Madagascar to investigate how the provision of microfinance loans with flexible repayment schedules affects loan delinquencies of agricultural borrowers. Flexible repayment schedules allow redistribution of principal payments during periods with low agricultural returns to periods when agricultural returns are high. Weber and Oliver (2014: 9-14) developed a theoretical framework, applied and estimated an econometric model for the loan repayment behavior of agricultural micro borrowers with seasonal and non-seasonal production types. The results revealed that delinquencies of non-seasonal farmers and seasonal farmers with inflexible repayment schedules are not significantly different from those of non-farmers. Furthermore, it was found that seasonal farmers with flexible repayment schedules show significantly higher delinquencies than non-farmers in low delinquency categories, but we also find that this effect disappears in the highest delinquency category.

According to the Bank of Uganda (2021:8),cash flows are highly cyclical in farming communities and successful agricultural microlenders have modified loan terms and conditions to track these cash-flow cycles more closely without abandoning the essential principle that repayment is expected.Flexible agricultural loan payment terms linked to cash flow is the most common good practice product design feature which entails matching loan terms to the harvest cycle for the crops being financed (International Finance Corporation, 2014: 17). While the commercial activities financed by microcredit loans typically generate cash flows appropriate to monthly payments, months or even years can pass between planting and harvesting of agricultural commodities, making monthly payment terms problematic at best for many farmers, even those with diversified incomes.

The few institutions without much experience in agricultural credit, or that for other reasons attempt to collect monthly payments, learn very quickly the importance of the farmers’ cash flows. In sum, the key seems to be to customize the repayment terms to the cash flow (and preferences) of clients (International Finance Corporation, 2014: 17).

Opening of Rural Branches

The establishment of bank branches in rural areas to serve the farming sector may not be possible for the banking institutions thus the formation of farmer’s cooperatives, farmers’ associations, or other forms of group responsibility for the administration and supervision of credit programs at the local level should be promoted and encouraged (Munyambonera et al, 2012: 24).

Improving Institutional Policies

The agricultural loan portfolio can successfully grow if there are policies implemented targeting its growth. The key policy recommendation drawn from the assessment of Munyambonera et al. (2012: 24) was that if agricultural financing is to improve, there is a need to have a strong institutional framework that focuses on financing frameworks, monitoring, and implementation. Some of these policies could be targeting mobilization and sensitization of farmers to take up loans. For example, according to the Centenary Group integrated report (2020: 36) the overall Portfolio grew by 11% due to the continued mobilization and disbursements even during the lockdown, which were geared towards the less COVID-19 affected sectors. This mobilization was done, and products were offered through the support of partners like aBi 2020 Ltd, The Danish International Development Agency (DANIDA), The European Investment Bank (EIB) and the East African Development Bank (EADB). The institution (Finance Trust Bank) can therefore continue bringing on board such partnerships that can facilitate the extension of services to the rural population.

Use of Incentives

Financial incentives can be used to lower the arrears/default rates for individual credit officers. Research has also shown that another strategy that has proven quite effective in finding solutions to default is to design an incentive system for loan officers that includes on-time payments as an important variable. If well designed, the system can motivate credit officers to look for and eliminate the causes of arrears, as well as to enhance the performance of loan portfolios (Addae-Korankye, 2014: 42).

Similarly, in a study where researchers evaluated the effect of (a) simple text message reminders and (b) financial incentives on borrowers’ loan repayment. It was revealed that borrowers in the “Cash Back” incentive group were 8.6 percent more likely to make all payments on time than the control group. The offer of a “Future Interest Rate Reduction” increased the probability of paying on time by 7.3 percent, relative to the control group. Perhaps most interestingly, borrowers in the “SMS Reminder” group, which was almost costless for the bank to implement, were 9 percent more likely to pay every installment on time (IPA, 2018).

This finding implies that the usage of incentives driven towards farmers such as cash-back incentives, future interest rate reduction and use of reminders may positively influence agricultural loan portfolio. Also, incentives that are directed towards loan officers by Finance Trust Bank are most likely to enhance the performance of the agricultural loan portfolio. Relatedly, International Finance Corporation’s (2014:30) adaptation of loan officer remuneration to incentivize smallholder lending, establishing distinct targets for agricultural portfolios, and/or adjusting the agricultural targets for seasonal variations, are accepted good practices to support a healthy and growing agricultural loan portfolio coupled with incentivizing agricultural lending.

Strengthening credit management procedures and policies

Nakayiza (2013: 43) conducted a study about the contribution of interest rates on loan portfolio performance in commercial banks, the study focused on Centenary Bank, Entebbe Road branch. The study was based on three objectives that are; to examine how Finance Trust Bank has ensured that the bank’s loan portfolio has been maintained within acceptable limits to enhance performance, to examine how the bank has ensured compliance with regulatory requirements to enhance its performance, and to examine how the bank has worked out problem loans, including rescheduling and restructuring so as to enhance its performance. A sample of 73 respondents from Centenary Bank, Entebbe Road branch was contacted. The study employed a research design and the methodology used in this study was both qualitative and quantitative. The study findings indicate that although Finance Trust Bank has tried to follow procedures and regulations in administering credit, there are still clients’ defaulting on loan repayments and increasing the effect of bad debts in the bank. Nakayiza (2013: 50) found out that at Centenary Bank, loan portfolio performance was affected by ensuring that all staff adhered to credit and loan regulations and procedures.

Similarly, A study conducted by Kamugisha and Rutaro (2019: 184) aimed at examining the effect of credit policy on the performance of loan portfolio at Pride Microfinance Foundation (PMF) Uganda Ltd in order to generate recommendations that will help micro fiancé institutions attain improved performance of loan portfolio indicated that; credit terms contribute to better performance of loan portfolio at PMF Uganda, and credit collection procedures affect performance of loan portfolio at PMF positively.

This finding implies that Finance Trust Bank can enhance the performance of its agricultural loan portfolio by strengthening the agricultural loan management procedures such as ensuring that all staff adheres to credit and loan regulations and procedures and ensuring that agricultural loan committees take full responsibility of overseeing the loan acquisition process and report of the loan portfolio performance, adhering to credit collection procedures.

Exploring lower-cost Delivery Channels

According to International Finance Corporation (2014:31), financial institutions are lowering the cost of lending services to agricultural rural farmers through the use of; agent and ATM networks, mobile phone banking, and debit cards while at the same time making it easier for clients to access financial services. In addition, the International Finance Corporation (2014) also points out that ICT can be used in a variety of ways to reduce the costs and risks of agricultural lending, data capture and analysis and product delivery.

More so, Opportunity International (2012) conveys that the use of low-cost delivery channels aids in improving the bank’s investment inclusive of increasing the agricultural loan portfolio and increasing sustainability. Regarding the argument above, it may be worth it for Finance Trust Bank to adopt lower-cost delivery channels through the use of kiosk banking, and mobile banking among others to enhance access to agricultural loans by rural farmers in abide to improve the performance of agricultural loan portfolios.

Exploring opportunities to introduce or expand value chain financing

Value chain financing could be used both to serve the “missing middle farmers”, commercial smallholders in existing value chains and to reach larger groups of smaller farmers more efficiently (International Finance Corporation, 2014: 30). This can allow financial institutions to both diversify their clientele and reach larger groups of smaller farmers more efficiently while enhancing agricultural loan portfolio. The latter could be done by, for example, integrating smaller farmers into value chains or by lending to smallholders through a larger buyer. Value chain finance tends to work better with tight value chains, where the relationship between the buyer and smallholders is close and the possibility of side selling is negligible (International Finance Corporation, 2014: 30). Thus, benchmarking on the literature delineated herein, Finance Trust Bank can introduce or expand its agricultural lending services to cater for value chain players which can lead to the enhanced agricultural loan portfolio.

Use of real and flexible collateral

Research has shown that the presence of collateral has a positive effect on the accessibility of credit from financial institutions (Chandio, Jiang, Wei, Rehman & Liu, 2017: 7). Studies have also shown that the absence of collateral limits entry and deepening of formal credit services in a rural environment which undermines the growth of agricultural loan portfolios (Mbugua, 2013; 3). Scholars argue that financial institutions should adopt the use of real and flexible collateral in administering credit to framers in order to minimize default of loan repayments (Chandio et al., 2017: 10). Use of real collateral such as land, agricultural with minor variations has been reported to significantly enhance agricultural loan portfolio (Office of the Comptroller of the Currency, 2014: 20). Thus, basing on the argument above, Finance Trust Bank may adopt the use of real and flexible collateral which can easily be converted into monetary terms to minimize on default rates and subsequently improved agricultural loan portfolio.

Use of Customized Agricultural Loan Marketing Materials

International Finance Corporation (2014: 20) found that microfinance institutions are using an array of media to market their agricultural loan products to traditionally excluded farmers in rural areas such as incorporating images of their targeted clients into their marketing materials. In addition, the International Finance Corporation (2014: 21) notes that this aids in overcoming mistrust between smallholder farmers and financial institutions which enhances access to agricultural loans and thereby improves agricultural loan portfolio. Thus, it is worth it for Finance Trust Bank to consider the use of customized agricultural loan marketing materials incorporating images of the targeted farmers in abide to minimize mistrust among farmers thereby enhancing agricultural loan portfolio through improving access to agricultural loans.

Conducting financial education programs for smallholder farmers

According to the International Finance Corporation (2014:3), several farmers lack financial education as a main constraint to accessing agricultural loans. The institution recommends that financial institutions implement financial education programs for smallholder farmers to sensitize the farmers about the varying agricultural loans being offered. Thus, based on this argument, financial education programs may be worth considering by Finance Trust Bank in abiding to enhance the agricultural loan portfolio.

RESEARCH DESIGN AND METHODOLOGY

Research Design

The study adopted an exploratory research design. This design was chosen because exploratory research is conducted when not enough is known about a phenomenon and a problem that has not been clearly defined (Saunders et al.,2007: 136). This helped the researcher to identify the factors accounting for the decrease in the agricultural loan portfolio and also to explore strategies to be undertaken to increase the agricultural loan portfolio. The focus of this study was to address the reasons as to why agricultural loan portfolio growth in Finance Trust Bank was questionable. Agricultural loan portfolio growth is not a well-studied area; therefore, the study adopted an exploratory research design due to the fact that there was scanty literature pertaining to agricultural loan portfolio growth that was being investigated. In addition, this study was underpinned by an interpretivism research philosophy whereby qualitative data was collected and meanings were drawn to inform the research objectives of the study (Pham, 2018: 4).

Research Methodology

This study utilized a qualitative research approach whereby non-numeric data was collected using interviews to elicit people’s feelings and opinions regarding the phenomenon being investigated. One of the greatest strengths of qualitative methods that were adopted for this study is that it has the potential to generate rich descriptions of the participants thought processes and tend to focus on reasons “why” agricultural loan portfolio growth is questionable in Finance Trust Bank (Creswell, 2009: 12). Collecting qualitative data helped in answering questions like, who the bank’s customers are, what issues or problems they are facing, and where do they need to focus their attention, so problems or issues are resolved.

Data Collection Instruments.

The researcher employed a semi-structured interview guide to gather detailed insights from the respondents and probed for additional relevant information when necessary. The researcher developed open-ended questions but continued probing the respondents for further details during the interviews.

Administration of the Data Collection Instrument

Data was collected through conducting face-to-face interviews with the selected key informants of the study. The researcher obtained permission from the management by writing introductory letters in advance that were approved to obtain permission to interview the respondents both the staff of FTB and agricultural loan clients. Face-to-face interview sessions were conducted, and the sessions were audio-recorded by the researcher using two smartphones to avoid loss of data in case one phone had technical issues.

Sample frame

The researcher’s judgment was used for selecting participants who were deemed representative of the population and informative to the research questions. The sample frame of the study comprised departmental heads and loan officers at Finance Trust Bank who have served in the bank for more than 5 years and agricultural loan clients who have been accessing agricultural loans for the past five years from each main regional branch of Finance Trust Bank.

Sampling Methodology

This study used a purposive sampling method to select respondents. Purposive sampling is a form of non-probability sampling in which researchers rely on their own judgment when choosing members of the population to participate in their study (Tongco, 2007: 150). Therefore, this method was used by the researcher who chose loan officers and departmental heads from regional branches of FTB and agricultural clients of FTB from each regional branch who had been consuming agricultural loans from FTB over a couple of 5 years based on their level of knowledge, experience and engagement with FTB as the researcher perceived that this target population would provide key insights and dynamics about the agricultural loan portfolio relevant enough to make resource

Data collection methods

The researcher utilized in-depth interviews for the collection of the most appropriate data for this study. Data was captured through audio recordings during the interview which were later transcribed for the analysis of data and in addition to audio recordings; notes were also taken during the interviews.

Data analysis

This study utilized a content analysis approach to make meaning and sense out of the collected qualitative data.  Content analysis was employed in order to enable the researcher to describe the data both in qualitative and quantitative form. Content analysis increased the significance of the results and provided a both interpretative and descriptive picture of data (Lindgren et al.,2020: 30).

Data from interviews were prepared and organized through transcribing the key informant interview sessions and focus group discussions which were later imported into Atlas.ti for analysis. The unit of analysis was identified as an individual respondent. The researcher then analyzed the interview transcripts by reading each transcript to gain an understanding of the data collected. Data was coded using open coding, coding by list and axial coding. Codes were assigned based on similar ideas, opinions and a view of emerging themes; and a codebook was thus generated. Lastly, analyzed data were presented in the form of graphs or tables where appropriate coupled with a narrative explanation for each identified theme alongside delineating what exactly the study participants opined through quoting.

The challenges faced during the analysis were tiresomeness of the coding process and the data analysis process was only done by one qualitative data analyst and thus the identified codes may be highly subjective to the analysis’s opinion. The quality of the data collected was ensured through triangulation of data sources coupled with triangulation of data collection methods (use of both interviews and focus group discussion). In addition, member checking was also carried out to ensure the credibility of the data collected. Furthermore, thick, and rich descriptions of each theme were done to ensure the dependability and transferability of analyzed data. More so, coding was also carried out until the saturation point was attained.

Presentation Of Analysis

Factors accounting for the decline in agricultural loan portfolio in FTB.

Perspective of Staff of FTB

The following themes were generated from the interviews conducted with staff of FTB; high risks in agricultural lending, stringent conditions for borrowing, lack of skills by the loan officers, delays in loan processing, high cost of processing loans, too much paperwork, untimely disbursements of loans, few agricultural loan officers, high interest rates, competition from other banks, poor motivation of staff, difficulty in conducting loan appraisal, absence of unified agricultural lending strategy, suppressing of customers deposit, harsh methods of loan recovery.

Figure 1: Factors accounting for the decrease in the agricultural loan portfolio.

Source: Researcher’s primary data, (2024)

High Risk in Agriculture

It was pointed out that agriculture involves high risks due to changes in seasonality, scenarios such as floods that lead to the destruction of crops. Heavy rainfall also damages the already planted crops, and more so prolonged drought that culminates in the destruction of crops. With all the above-mentioned risks, some of the agricultural farmers are faced with such calamities which render the farmers to immense losses and thus unable to generate income compounded by defaulting payments of agricultural loans obtained to finance various agricultural activities. To add on, due to the nature of the risks in agriculture, staff also tend to shy away from agricultural lending since it does not aid them in achieving their targets. Some of the participants had this to say;

“Loan is declining because risk is high in agricultural lending. Agriculture is dependent on natural weather conditions and there have been droughts in some areas like Katakwi and floods in others like the slopes of the Elgon area, drastic weather changes, and price fluctuations have also affected farmers’ ability to repay discouraging agricultural lending”.

“Payments of the loans become a problem as yields are affected because there’s a

mismatch between funds availability and seasonality of the crop, some actually go to money lenders to get quick money to catch up with the season then borrow from the bank to refund the money lender making the money extremely expensive”.

“Staff also shy away from agricultural lending because of the risk associated since staff salaries are incentivized and highest incentives come from loan recoveries”.

“Recovery of the loan is hard when farmers have affected yields or made losses and side income is insufficient to meet the loan payments, farmers pay when yields are high and prices have been good and they have made gains”.

“Agricultural lending is riskier because the farmers depend on natural weather patterns, farmers still use local varieties and the risk of loss is higher to the farmers and consequently to the bank”.

Stringent conditions for borrowing

The agricultural lending arm of FTB is characterized by many requirements which are conceived as stringent conditions that discourage both farmers and staff of FTB to engage in agricultural lending. Some of the participants had this to say:

“Many requirements needed for loan access”.

“Processing of production loans is more difficult, so staff finds it easier to disburse other loans involving easier requirements”.

“Loan requirements are so many and conditions for borrowing are stringent discouraging both the staff and the customers”.

Lack of skills by the loan officers

Findings also indicate that agricultural loan staff at FTB possesses inadequate lending skills that hamper the management and implementation of agricultural loans fueling some of the clients to resort to other banks. Some of the participants had this to say:

“Crop production loans are seasonal, and the clients show up in huge numbers but  staff are ill-prepared to handle this as there are very few agricultural officers so the clients are forced to go to other competitor banks offering the same products”.

“Limited training capacity building of the staff -sometimes the lower staff is trained because they are fresh in the bank and the leaders are not reskilled because of the assumption they know a lot yet there have been shifts in lending”.

High cost of loan processing

Findings also indicate that clients incur high costs during the process of obtaining agricultural loans from FTB. These high costs are manifested in terms of travel costs to the bank, application fees and legal costs. Notably, also, these high costs are also noted to discourage clients from accessing agricultural loans from FTB. Some of the participants had this to say:

“Costs of travel to the bank premises to process the loans are high and time-consuming, and several trips are needed to move to the banks before the loans can be accessed. Costs of loan applications, costs of photographs during appraisal, legal costs for commissioning documents, bank upfront fees all make borrowing expensive”.

Delays in Processing Loans

Another factor pointed out was delays in processing loans which was attributed to the use of a third party in identifying clients that qualify for the agricultural loans at FTB. More so, the delays in the loan processing also lead to mismatch of the actual disbursement of loans with the needs of the farmers which renders the loan ineffective. Due to this notion, some farmers resorted to other banks which led to a decline in the agricultural loan portfolio. Some of the participants reiterated that:

“The bank has contacted another company (AXIAM)to carry out pre-survey then recommend the customers that qualify for loans to the bank, the staff do not feel their    effectiveness other than more delays that have been introduced”.

“Timeliness of processing the loans takes long and yet most customers time the crop   planting seasons which is usually missed, so they are discouraged to borrow again”.

Too much paperwork

Results also indicate that the process of accessing agricultural loans from FTB entails a lot of paperwork which discourages both the staff and the clients in regards to agricultural lending and accessing agricultural loans respectively. Some of the study participants had this to say;

“Also, when it’s a production loan the disbursement process involves more paperwork, with too much documentation. The Agricultural Lending Analysis Spreadsheets have to be attached, (ALAS)”.

Few agricultural loan officers

Findings also reveal that FTB has few agricultural loan staff which limits the number of clients that can be dealt with and thus leaving some of the clients unattended to fueling these clients to look for better services from rival competitors of FTB. Some of the study participants reiterated that:

“Crop production loans are seasonal and the clients show up in huge numbers but the staff are ill-prepared to handle this as there are very few agricultural officers so the clients are forced to go to other competitor banks offering the same products”.

“For agricultural production loans timely disbursement of the loans is lacking due to few technical staff so the customers are discouraged”.

Untimely disbursement of loans

It was also pointed out that there are delays in the disbursement of agricultural loans that have been applied for by the clients at FTB. This phenomenon discourages potential customers and already existing clients since the loans are disbursed at a time that does not meet the needs of the clients. Some of the participants had this to say;

“For agricultural production loans timely disbursement of the loans is lacking due to few technical staff so the customers are discouraged”.

“Delayed disbursements are being handled by transferring the blame to the staff but the root causes of the delay like far distances etc cannot be addressed by the bank so the staff has to evade agricultural lending and select easier customers to access”.

Competition from other banks

Another factor accounting for a decrease in the loan portfolio is competition from other commercial banks that are offering agricultural loans to clients at a lower interest rate compared to that of FTB. Some of the participants had this to say:

“There was competition for post bank, opportunity bank, BRAC, yet centenary was a monopoly and now its competition offers more attractive conditions like the interest rates, centenary has the highest agricultural lending interest rates”.

High-interest rates

Findings also indicate that high interest rates charged on agricultural loans is leading to a decline in an agricultural loan portfolio. The high interest rate drives away clients to other banks that are charging lower interest rates. In regards to this, one participant categorically states that;

“High interest rates”.

Perspectives of Agricultural Loan Clients of FTB

Similarly, the following themes were also constructed from the interviews conducted with agricultural loan clients; high interest rates, delays in loan processing, high risk of agriculture, lack of collateral, high cost of loans, stringent conditions, negative perceptions towards loans, fear of taking risks, and low funding of agriculture.

Figure 2: Factors accounting for the decrease in agricultural loan portfolio

Source: Researcher’s primary data, (2024)

Low funding of agriculture

Findings also indicate low amount of money allocated by FTB towards agricultural loan financing compared to the loan products is also contributing to a decline in the agricultural loan portfolio. One of the participants had this to say:

“Centenary was good those days, but they are now looking at other commercial businesses and not farmers”.

Fear of taking risks

Results from the interviews portray that fear of risk in terms of accessing agricultural loans among farmers which makes a farmer desist from accessing agricultural loans is one of the factors leading to a decline in the agricultural loan portfolio. One of the participants had this to say:

“Farmers fear risk (apathy) and even refused insurance that government had offered through partnering with Jubilee Insurance Company”.

Negative perceptions towards loan

The key informants also pointed out that poor perception of bank loans among the farmers discourages farmers from accessing agricultural loans from FTB. One of the key informants had this to say:

“Farmers have a poor perception of banks as they want to sell their land when they       fail to pay- so they cannot give their land titles to the bank. Farmers hold on so much to their land which is usually inherited from family”.

High risk of agriculture

Relatedly, it was also pointed out that agriculture involves high risks due to changes in seasonality, scenarios such as floods that lead to the destruction of crops. Heavily rainfall also damages the already planted crops, and more so prolonged drought that culminates in the destruction of crops. With all the above-mentioned risks, some of the agricultural farmers are faced with such calamities which render the farmers to immense losses and thus unable to generate income compounded by defaulting payments of agricultural loans obtained to finance various agricultural activities, some of the participants had this to say:

“Harsh weather conditions belts of Katakwi, Amuria, Toroma, and parts of Mbale fluctuate between two advanced environmental conditions- floods and drought”.

“Thunder hit citrus fruits last year and when I asked for rescheduling the condition of first paying the money in arrears which was more than half the loan was a hard condition for me”.

Lack of collateral

Notably, findings also indicate that farmers do not possess the necessary collateral that can be used to access agricultural loans from FTB. One of the participants had this to say:

“The customers lack collateral to access the loans”.

Delays in loan processing

Relatedly, delays in loan processing were also cited as a factor leading to a decline in agricultural loan portfolio which was attributed to much-needed requirements and excessive paperwork that one must undergo in a bid to access agricultural loans from FTB. Some of the participants had this to say:

“There is a delay in loan processing, though repeat loans are faster especially when you present all documents and meet all the conditions”.

“Staff sometimes give the requirements in bits when you think you have met all the conditions, then the staff asks for another requirement which is so frustrating”.

High interest rate

Findings also indicate the FTB levies high interest rate which is discouraging farmers from accessing agricultural loans from FTB. Some of the participants had this to say:

“Interest rates are very high and, in the end, you fail to see the value of the money you have borrowed”.

“I recommend other banks like post bank because they are cheaper”.

“Interest rates are higher compared to other banks like post bank and opportunity bank so you end up working only for the bank to repay the loan”.

“Agricultural lending still has complicated terms for us farmers and high-interest rates”.

High cost of loans

Furthermore, findings also still indicate that the cost of accessing loans from FTB is high. One of the participants had this to say:

“The initial costs of loan processing are equally high”.

Stringent conditions

Findings also indicate that FTB has stringent conditions in regard to accessing agricultural loans which has culminated in a decline in agricultural loan portfolio. One of the participants had this to say:

“It’s difficult to get an agricultural loan, the conditions are many and stringent, they require land and again easily saleable assets. They devalue the assets that you offer to less than 50% of its market price and the security should cover 150% of the loan amount, in the end, you qualify for very little money”.

Strategies to be undertaken to increase the agricultural loan portfolio

Perspectives of Staff of FTB

The following themes were generated from interviews conducted with staff of FTB: training of staff, segregation of duties, improving salary, monitoring loans, use of guarantee scheme, use of high-value crops, reducing interest rates, lessening loan requirements, reduction of paper documentation, and lastly promoting value addition.

Figure 3: Themes for strategies to increase the agricultural loan portfolio

Source: Researcher’s primary data, (2024)

Training of staff

Findings indicate that training the agricultural loan officers is a pivotal strategy to reverse the decline of the agricultural loan portfolio in FTB. Some of the participants had this to say:

“Staff needs to be adequately trained, extension services to the farmers need to be outsourced or the bank would employ staff to offer extension services as some of these farmers lack the technical skills as still depend on traditional farming methods”.

“Even the committees approving the loans need to be trained and their attitudes need to be improved”.

“Periodical training of staff”.

Segregation of Duties

Separation of duties by categorically distributing different roles and responsibilities to different staff engaged in the chain of agricultural lending within FTB. Some of the participants had this to say:

“Relieve officers- segregation of duties, appraisal monitoring and recovery process   should be handled by different staff”.

Improving salary.

Enhancement of the salary of loan officers in FTB was also pointed out as a key strategy in regard to improving the agricultural loan portfolio of FTB. Some of the participants had this to say

“I need the pay to be improved to add up to the knowledge”.

“Revise salary structures to be motivating”.

Use of guarantee scheme

Use of insurance schemes against agricultural risks was also highlighted as a key approach to enhance the agricultural loan portfolio in FTB. One of the participants had his to say:

“Guarantee schemes could be used to cushion the actual risks and perceived risks due to agricultural lending. Other stakeholders like DANIDA, ABI-TRUST, BOU -ACF, could come in to help shield the banks from the risk of non-payment that poses a high risk to the bank, funding from the government, and insurance schemes that are willing to insure against crop failure. Life insurance could be done but also competitive insurance could be done”.

Monitoring loans

Adequate motoring of loans was also suggested as another strategy that can be used to improve the trend of agricultural loan portfolios. One of the participants had this to say in particular:

“Proper loan monitoring could help detect problems in their early stages so guidance could be given early to the farmers”.

Lessening Loan Requirements

Findings from the interviews also indicate that reducing the requirements needed for a client to access agricultural loans from FTB is another strategy that can be used by FTB to improve the trend of the agricultural loan portfolio. One of the participants had this to say:

“Reduce the loan requirements for especially production loans”.

Use of high-value crops

Results also indicate that the use of high-value crops that are associated with higher prices in the market and also have shorter gestation periods that can easily aid farmers in paying back agricultural loans in a timely manner is another approach that can be used to increase the agricultural loan portfolio in FTB.

“Farmers should be introduced to high-value crops which fetch more money and    quick maturing crops that would reduce on loan periods and hence lower the interest rates”.

Reducing Interest Rate

Findings also indicate that reducing the amount of interest levied by FTB on agricultural loans is another technique that can be used to improve the trend of the agricultural loan portfolio in FTB. One of the participants had this to say:

“Reduce on interest rates”.

Reduction of paper documentation

Another approach that emerged out of the interviews carried out was a reduction in the paperwork during the loan processing activities. One of the study participants in particular had this to say:

 “Reduce on loan documentation requirements”.

Promoting Value Addition

The key informants also suggested that farmers should be encouraged to engage in value addition by the bank compounded by the bank identifying and linking the farmers to already existing markets so that farmers can be in a position to pay back agricultural loans that had been accessed and injected into the varying framing activities. One of the participants reiterated that:

“Value addition should be encouraged to help with price fluctuations, the bank can come up with market linkages to support link the farmers to markets offering better prices   so they can pay their loans, farmers can form associations and market their produce             collectively so they have a higher bargaining power”.

Perspectives of Agricultural Loan Clients of FTB

As well, the following themes emerged from interviews conducted with agricultural clients: enhanced marketing and designing new loan products that do not require collateral.

Figure 4: Themes for strategies to increase agricultural loan portfolio

Source: Researcher’s primary data, (2024)

Enhanced marketing

Intensive marketing of agricultural loans through the use of radios, use of extension officers in a bid to reach out to more clients which can lead to increased agricultural loan portfolio. One of the participants had this to say:

“The bank should reach out to rural communities and package and sell their   products”.

Designing new loan products without collateral

Developing new agricultural loan products that do not require collateral materials was also another approach that was suggested in a bid to increase the agricultural loan portfolio of FTB. One of the study participants had this to say:

 “Look for ways of packaging agricultural loans without securities”.

Generation And Evaluation Of Options

Generation of options

To respond to the specific objective of the study of exploring potential strategies aimed at enhancing the efficacy and performance of agricultural loan portfolios, the following plausible options were generated based on the strategies suggested to reverse the trend of the agricultural loan portfolio in FTB: Periodic retooling of loan officers, segregation of duties,  improving salary of agricultural loan officers, use of agricultural insurance scheme, continuous monitoring of loans, simplifying and reducing loan requirements, reducing interest rates charged on agricultural loans, designing new loan products without collateral, extensive marketing of the agricultural loan products of FTB, and lastly resorting to less paperwork or paperless procedures of accessing agricultural loans.

Option 1: Periodic retooling of loan officers

Agricultural loan officers should be retooled in a periodic manner (monthly or quarterly) in regards to the agricultural loan products of FTB, skills in marketing and managing agricultural loan clients. This option is associated with the following benefits: improved efficiency, enhanced knowledge concerning agricultural loan products of FTB, and Improved client satisfaction in regard to the management of the agricultural loan cycle. On the other hand, it is also linked with the following cons:  increased cost operations due to the periodic training.

Option 2: Segregation of duties of loan officers

Segregation of duties in terms of loan approval, loan disbursement, loan monitoring, and lastly loan recovery. This is envisaged to bear fruits such as: reducing errors, reducing fraud, and promoting efficiency among others. On the other hand, it can also culminate in less efficiency due to the nature of the framework, it can also lead to bottlenecks and hold up the workflow if one person is overwhelmed. This requires approval from the human resource and agricultural credit department to implement and requires reassignment of roles of the different officers and restructuring of salary parameters that are already in place and flexibility of existing officers to new roles.

Option 3: Improving the salary of agricultural loan officers

This option entails revising the salary structure and mode of payment of loan officers at FTB. It is envisaged to bear fruits such as; increased commitment of loan staff to undertake their specific job duties and enhanced level of satisfaction among the staff. On the other hand, it is also associated with increased operation costs and increased employer payroll tax.

Option 4: Use of agricultural insurance and guarantee scheme

This option is linked with benefits such as increased agricultural lending and increased access to agricultural loans. On the other side, it is also with low coverage and difficulty in penetration coupled with delays in payment of claims by farmers.

Option 5: Continuous monitoring of loans

This entails keeping track of loan status. It is associated with the following benefits: gaining actionable insights on loan risks and opportunities, enhancing operation leverage, and building resilience. On the other hand, it is also linked with the following cons: it is more prone to biased and skewed monitoring.

Option 6: Simplifying and reducing loan requirements

This option is associated with an increase in the number of clients taking loans. It is also associated with the disbursement of loans to risky clients who may default on loan payments.

Option 7: Reducing interest rates charged on agricultural loans

Lower interest rates incentivize borrowing and increase the rate of loan repayment, On the other hand, it is associated with reduced returns on loans.

It reduces the return on loans.

Option 8:  Designing new loan products without collateral

This option is associated with increasing the number of agricultural loan clients. At the same time, it is also prone to culminate in losses to the bank since there is no collateral that can be used to recover the loan incases of non-payment by the client.

Option 9: Extensive marketing of the agricultural loan products of FTB

This option is more likely to contribute to the awareness of the different agricultural loan products among clients of FTB which may likely increase on the volume of clients accessing agricultural loans. It involves increasing the operational costs of the bank

Option 10: Resorting to less paperwork or paperless procedures for accessing agricultural loans. 

This option entails adopting the use of technology which may reduce the time lag spent on paper documentation. On the other hand, it is prone to electronic fraud and system failure which may hamper the agricultural loan acquisition process. In addition, it also requires intensive investment.

Selection of Chosen Options

Based on the options discussed above, the best courses of action are; improving the salary of the loan officer, extensive marketing of agricultural loan products, monitoring loans, and lastly scaling down on loan requirements. The above-selected options can easily be implemented in a short time in a bid to increase the agricultural loan portfolio of FTB. Furthermore, the improved salary of staff will strengthen their commitment towards agricultural lending; extensive marketing will create awareness of the different agricultural loan products among the clients; monitoring of loans will inform the different credit managers with reliable information that can be used to take appropriate actions; and lastly scaling down on loan requirements will increase the number of clients that can qualify to access agricultural loans. Combined implementations of the above-selected strategies are envisaged to enhance the agricultural loan portfolio of FTB in the near time.

CONCLUSION AND IMPLEMENTATION

Key findings

The study discovered that the decline of the agricultural loan portfolio at FTB is attributed to high-interest rates and this concurs with the findings of Nyaboke (2013), Nakayiza (2013), and EFTB, 2007 who attributed the poor performance of agricultural loan portfolio to high interest rate. Similarly, according to the current study, high-interest rate increases the cost of borrowing particularly the loan products which negatively affect the agricultural loan portfolio and this agrees with the study findings of Mbugua (2013), Anderson and Baland (2002) who noted the high cost of loan products as one of the impediments to agricultural loan portfolio.

Relatedly, the current study noted that one of the factors for the poor performance of agricultural loan portfolio at FTB is competition from other banks and this aligns with study findings of Subramanian and Yadav (2012); and World Bank (2020) which asserted that competition for loanable funds has a negative impact of performance of agricultural loan portfolio.

Furthermore, the current study notes that lack of collateral prevents smaller holder farmers from accessing loans which negatively impacts agricultural loan portfolio and this concurs with the study findings of Abbas, Yuansheng, Feng, Abdul and Dan (2017), Eschborn (2004), Le & Nguyen (2018), Hirankasi (2021) and Bank of Uganda (2021) which asserted that lack of collateral security especially in terms of immovable land titles prevents farmers from accessing agricultural loans as many commercial banks require collateral in order to reduce the risk levels.

Furthermore, this study discovered that agricultural loan portfolio is affected by stringent conditions for borrowing, lack of skills by the loan officers, negative perceptions towards loans, fear of taking risks, delays in loan processing, too much paperwork, untimely disbursements of loans, few agricultural loan officers, poor motivation of staff, difficulty in conducting loan appraisal, absence of unified agricultural lending strategy, suppressing of customers deposit, and harsh methods of loan recovery which concurs with the study findings of Aromorach (2013), Bob et al (2017), Area (2016), World Bank (2014), and Munyambonera, Nampero, Adong & Mayanja (2012) which asserted that agricultural loan portfolio is negatively affected by the weak management systems in commercial banks and agricultural institutions.

Furthermore, the current study proposes training of staff as one of the strategies for improving the agricultural loan portfolio at FTB and this is in line with the study findings of Nsibambi (2017) that training of development agents helps to improve the performance of agricultural loan portfolio. To add to the above, the current study findings note that improving the salary of loan officers is important in reversing the trend of the agricultural loan portfolio at FTB and this concurs with the findings of Addae-Korankye (2014) and IPA (2018) which noted that use of incentives or increasing salaries help to improve the performance of agricultural loan portfolio.

More so, the findings of this study note that the reduction of paper documentation is crucial in reversing the agricultural loan portfolio at FTB which agrees with the study findings of Deloitte (2019) and Mutebile (2017) which noted that automation of data captured and credit analysis help to simplify the loan documentation process which leads to improve agricultural loan portfolio. More still, the current study notes that the use of a guarantee scheme is yet another strategy for improving the performance of agricultural loan portfolio at FTB and this concurs with the study findings of Lemessa & Gemechu (2016), Mbugua (2013), Kodongo & Kendi (2013) and Nsibambi (2017) who noted that engaging in group lending is an important strategy for improving agricultural loan portfolio.

Relatedly, the current study emphasizes the adoption of extensive marketing of agricultural loan products as one of the strategies for improving the performance of the agricultural loan portfolio at FTB and this aligns with the study findings of International Finance Corporation (2014) which highlighted that the use of customized agricultural loans is important in improving the performance of agricultural loan portfolio. Furthermore, the findings of this study emphasize extensive marketing of agricultural loan products as a crucial strategy for reversing the trend of the agricultural loan portfolio at FTB and this agrees with the study findings of Nsibambi (2011) which asserts that customization of marketing materials improves the performance of agricultural loan portfolio. Additionally, the study calls for the adoption of the following approaches in a bid to reverse the trend of the agricultural loan portfolio at FTB: improving the salary of the loan officer, extensive marketing of agricultural loan products, monitoring loans, and lastly scaling down on loan requirements.

Implementation plan

Source: Desk review, (2024)

Challenges and Problems

Table 6:4: Illustration of the strategies, challenges, and mitigation measures

Source: Desk review (2024)

CONCLUSION

This study explored the different strategies/ options for reversing the trend of agriculture loan portfolio in FTB and it has proposed four relevant and feasible strategies that FTB can adopt in a bid to reverse the trend of agricultural loan portfolio which include; improving the salary of loan officer; extensive marketing of agricultural loan products; monitoring loans; and scaling down on loan requirements. The proposed strategies if adopted by FTB are more likely to lead to improvements in the agricultural loan portfolio in FTB. Therefore, this study has helped to address the operational knowledge gap in FTB by providing strategies for improving agricultural loan portfolios.

The exploration of the various strategies for improving the agricultural loan portfolio includes costs and risks and as a result, not all suggested options may be viable to FTB, especially in the short-run period. However, it is still possible that the findings of this study will be beneficial to the product development department and strategy development department of FTB in re-evaluating the strategies in practice to arrive at more viable strategies for improving agricultural loan portfolios.

It is hoped that this study triggers further research into this poorly and under-researched area, especially in understanding the various strategies for improving agricultural loan portfolios as this study has already shown how the implementation of the proposed strategies can positively affect agricultural loan portfolios.

A related study can be conducted with a larger size involving at least the top ten commercial banks involved in agricultural lending with the ABI system in Uganda so that one may get a true picture of agricultural lending (in terms of factors leading to a decline in agricultural loan portfolio and strategies to improve agricultural loan portfolio) through comparing results.

Lastly, there is a dearth of research in Uganda and none at FTB that examines the effect of improved salaries of loan officers, extensive marketing of agricultural products, loan monitoring and scaling down of the agricultural loan requirements on performance of agricultural loan portfolio.

Gaps in the study

The officials from the Bank of Uganda were not participants in this study; therefore, the opinions of these partners in the banking sector were not captured and included in the study analysis. By virtue of their involvement, the study might have benefited from their opinions regarding the challenges to agricultural loan portfolios and the possible strategies for improving agricultural loan portfolios as well as any possible advantages or drawbacks regarding the proposed strategies. However, I would contend that data that will demonstrate the value of officials from the Bank of Uganda as research study participants will surface later in the implementation stage of the proposed strategies.

I understand that the findings of research on the performance of agricultural loan portfolios are based only on what the study participants had to say. Although collecting data at different stages in the process and from different sources helped triangulation, actual data was not available in order to establish how the performance of the agricultural loan portfolio would have been in light of the implementation of the proposed strategies.

This study’s findings and conclusions are context-bound, which may restrict how broadly applicable they can be. However, some aspects of the FTB environment that affected the performance of agricultural loan portfolios such as high-interest rates, delays in loan processing, high risk of agriculture, lack of collateral, high cost of loans, negative perceptions towards loans, fear of taking risks, low funding of agriculture, high risks in agricultural lending, stringent conditions for borrowing, lack of skills by the loan officers, delays in loan processing, too much paperwork, untimely disbursements of loans, few agricultural loan officers, competition from other banks, poor motivation of staff, difficulty in conducting loan appraisal, absence of unified agricultural lending strategy, suppressing of customers deposit, and harsh methods of loan recovery may be found in other contexts.

Reflection On The Study

Reflection on the Research Problem

FTB is grappling with a decreasing agricultural loan portfolio. It was upon this background that this thesis focused on assessing factors leading to a decline in agricultural loan portfolio coupled with strategies that can be used to reverse the trend of the agricultural loan portfolio. I collected data from the staff of FTB (head of departments and loan officers) and agricultural loan clients of FTB through interview methods and proceeded to analyze this data through the use of content analysis. Personally, I encountered the following challenges while undertaking this study;

The most difficult and time-consuming access requirement, the plan was to transcribe each interview and it was difficult to select the data I would use and arrange it so that it was both captivating and fascinating, to create a distinct “product”. However as more and more interviews were being conducted, I was increasingly confident in my interpretation of circumstances.

Right from the onset of the interview process, confidentiality was a significant concern for the respondents due to the oath of secrecy agreements that staff sign during recruitment, it became evident that it seemed to me that, at least in their eyes, speaking with me was a danger. They needed regular assurances that the information they gave me would stay private. I constantly gave them this assurance. However, I also had to admit that I had only entered their world for a short period of time, and only to the degree that they allowed me to enter.

Reflection on the results of the study

Improving the salary of the loan officer

To start with, I would want to discuss the tradeoff between improving the salaries of loan officers and the advantages that came with it as far as improving the agricultural loan portfolio are concerned. It seems to me that the performance of loan officers is influenced by a number of factors for instance experience and working conditions and therefore, increasing salaries of loan officers might not significantly improve the agricultural loan portfolio at FTB, and therefore, improving salaries of loan officers may not be necessary. It is, therefore, better to tradeoff between improving the salaries of loan officers and improving the performance of the agricultural loan portfolio, my experience has been that many financial resources are needed to fully improve the salaries of loan officers which is expensive to the bank, and besides it’s not scientifically proven that higher wages of loan officers correlate positively with the performance of agricultural loan portfolio. Therefore, finding a tentative optimum tradeoff is difficult to quantify, although for this case we were able to achieve the balance.

Extensive marketing of agricultural loan products

According to what I’ve seen, extensive marketing on agricultural loan products depends on how well it represents the desired marketing concept. When developing marketing materials for agricultural loan products that are still new in the market, it is crucial to keep in mind that the marketing materials should accurately represent the company’s concept, content, and context. I have found that getting useful feedback requires stakeholders to understand you. It has been demonstrated that this is significantly impacted by the presentation quality. From the standpoint of a designer involved, we deduce that poorly designed information content’s persuasive quality can be quickly undermined by a poorly structured and executed marketing campaign (presentation quality), and vice versa. My experience suggests that assessment criteria should focus on the displayed materials’ concept’s predictable functional and utilitarian features rather than the media’s aesthetic appeal. Furthermore, it is important to modify the criteria such as accuracy, transparency, understandability, completeness, and fidelity to suit the demands of the particular design phase.

Monitoring loans

I also want to think about the loan monitoring approach. Our foundation is the knowledge that loan monitoring proceeds through several stages. I am aware that the monitoring process was projected to be carried out at different stages, each of which could lead to another. Nonetheless, we found monitoring stages complement one another and need to be consistent throughout the entire loan period. The main ramification of loan monitoring is that continuous monitoring is expensive to the bank and annoying and irritates the side of customers. However, the series of distinct stages of loan monitoring nevertheless results in an improvement in the performance of the agricultural loan portfolio at FTB.

Scaling down on loan requirements

The next solution to the performance of the agricultural loan portfolio is the issue of scaling down on loan requirements. Reflecting on my personal perspective, and not discussing the validity, but considering if I felt I got the answers I was looking for from the informants. This is because I experienced a difference between the ideal and the real process of scaling down on loan requirements more so in the earlier stages as the informants were interested in giving opinions that favored them but not how the entire loan process should be.

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