Agricultural Business Initiative (aBi) explains its commitment to building the resilience of agribusinesses through inclusive finance

The COVID-19 Business Info Hub spoke to Agricultural Business Initiative (aBi) Group Chief Executive Officer Josephine Mukumbya to learn about aBi’s role in helping the sector grow and survive the pandemic. Here is what she shared with us.

Recovery mechanisms aBi has in place to build sector resilience during the pandemic.

  • Promoting access to subsidized agricultural inputs to avoid the risk of food insecurity.
  • Provision of moratoriums to financial institutions (FIs) on their loan repayments.
  • Facilitating access to short-term working capital to reduce pressure on cash demands in the short run.
  • Temporary increase of the risk ratio share on the credit guarantee product from 50: 50 to 70: 30 (aBi: FIs).
  • Dropping the average interest rate by five percentage points across all our borrowing financial institutions.
  • Partnering with Stanbic Bank to deliver the Economic Enterprise Restart Fundto enhance credit access to SMEs and SACCOs

For more details contact: +256-312-351600 or info@abi.co.ug

What is the role of aBi Development in the agribusiness sector?

aBi is a multi-donor funded social enterprise founded in 2010 by the governments of Uganda and Denmark to promote private sector agribusiness development. The organization enables agribusinesses to grow, generates income for smallholders, and facilitates job creation within the sector. aBi consists of two companies – aBi Development Ltd and aBi Finance Ltd.

aBi Finance Ltd is a vehicle offering a mix of financial products such as lines of credit to financial institutions and de-risking instruments like guarantee schemes as well as technical assistance to support partnerships and promote specific projects for financial institutions and agribusinesses.

aBi Development Ltd channels development funding in the form of matching grants and business development services to agricultural producers and agribusinesses.. It takes a value chain approach to support enterprises in seven sub-sectors: cereals (maize, rice, sorghum & barley), pulses (beans), coffee, oilseeds, horticulture, dairy and poultry.

 

What challenges are SMEs facing in the agribusiness value chain during this period?

From interacting with our implementing partners, the most significant challenges we have seen are:

  • Logistical restrictions to market, which are costly given delays in shipping containers and closure of airspace. This was seen prominently in the coffee and horticulture sub-sectors, respectively.
  • Access to necessary inputs for production or input supply disruption is another challenge the sector is facing.
  • Small and Medium Enterprises (SMEs) have liquidity challenges, leading to downsizing operations or even causing partial closure.
  • Finally, it is costly to keep key human resources in such cases, yet once you take them off the payroll or send them home, they start looking for alternatives.

The Uganda Business Impact Survey 2020 by United Nations Capital Development Fund (UNCDF), Uganda Revenue Authority (URA), College of Business and Management Science (CoBMAS) and Ministry of Trade Industry and Cooperatives highlighted that 85% of the surveyed companies could not sustain business cash flow beyond three months and 62% of them were already laying off staff, and the highest layoffs were by SMEs with 11-50 employees.

As a result of these challenges, SMEs have used up their cash reserves, and they need both financial and non-financial support to recover.

 

What are some of the recovery mechanisms you have in place in the COVID -19 environment? 

The recovery mechanisms we have are inherent in our existing interventions to promote business sustainability and resilience; some were part of our activities even before the pandemic. In our current planning, we see the need to encourage more resilience.

We responded by engaging our partners to understand their concerns and challenges. For example, we are implementing a key project to promote access to agricultural inputs because we realized that the country was at risk of food insecurity in the short to medium term due to logistical restrictions. We intervened by availing subsidized inputs to farmers through existing partnerships to ensure that our farmers could still plant within the season (timely manner).

Additionally, we communicated to and assessed all our financial institution (FI) partners to establish relevant support. To that end, we gave some moratoriums on their loan repayments to align to the ones the regulator (Bank of Uganda) instructed them to provide the same to their clients. We made access to short-term working capital to reduce pressure on cash demands in the short run to increase liquidity.

aBi Finance has also temporarily increased the risk ratio share on the credit guarantee product from 50: 50 to 70: 30 (aBi: FI), noting that there are more agribusinesses in distress during this period. aBi Finance is taking on more of the credit exposure from the 50% before the pandemic to 70% .

We also dropped the average interest rate by five percentage points across all our borrowing financial institutions, with the condition that they passed on this concession to their customers – agribusinesses and smallholder farmers.

We have also partnered with Stanbic Bank on delivering the Economic Enterprise Restart Fund to enhance credit access to women and youth led/owned SMEs and Savings and Credit Cooperatives (SACCOs) to receive much-needed support to survive and thrive during and after the pandemic.

We are confident that these interventions can and have supported the recovery alongside the recovery mechanisms that the government has put in place.

 

What advice do you give to the actors in the agribusiness sector during the pandemic period? 

In the short to medium term, we all have to be extremely cautious about the safety of our people because lives are indeed precious, and people drive our companies and, thus, the economy as a whole. COVID-19 is now spreading so fast, and so, mechanisms to ensure the safety of people is critical in all we do and adherence to the standard operating procedures.

The upside for the agricultural sector is that the pandemic has brought the sector’s resilience to the forefront. The pandemic is an opportunity for stakeholders in this space to lobby more support to the industry, not just budgetary-wise, but also enforcement of the standards and policies in place.

Sector actors should enhance support in terms of pricing, concessions and moratoriums. Financial institutions and the Uganda Banker’s Association can take the lead to lobby Bank of Uganda to consider extending the moratoriums cycle beyond the earmarked date of 1st October 2021, given the new pandemic restrictions in place.

To ensure sustainability, financial institutions must invest in digitalization and other fintechs to enhance their business continuity and performance in light of COVID-19 associated restrictions and disruptions. aBi will continue supporting this and similar innovations as part of our COVID-19 response.

To access our services, agribusinesses can contact us on;

Telephone: +256-312-351600

Email: info@abi.co.ug

Website: www.abi.co.ug

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