In Summary
  • If the money was borrowed to purchase fertilisers and the farmer uses it for his son’s wedding party such money will add nothing to the farm which will remain barren and less productive yet the farmer will still be expected to pay back the loan with interest.
  • As much as possible, smallholder farmers should go for loans which they are sure will cause immediate benefits that will enable the borrower to pay the loan and the interest. For example, fertilizers can increase crop yields and improve farmers’ income.

Nowadays farmers in Uganda have more opportunities to borrow money in form of development credit than ever before. Many of them belong to farmers’ cooperative societies which normally offer credit services to members.

Others save with banks or micro-finance institutions which grant them credit upon demand. Farmers often have to borrow to carry out farm improvements such as purchasing fertiliser, laying irrigation equipment, purchasing good quality seeds, construction of strong and durable store buildings, digging dams, buying pesticides or herbicides, among others.

However, much as loans are meant to increase farm production they can lead to reduced income and even bankruptcy if the farmer does not think twice before taking a loan.
The farmer must remember that banks and other financial institutions lend their customers’ saved money which must strictly be paid back.

This is the reason the lending institutions demand security like land titles or buildings.
It is the reason they take a lot of time establishing the credit worthiness of the borrower and getting reliable guarantors who will pay the loan in case the borrower defaults.

So before taking a loan the farmer should be sure that he or she has the capacity to pay no matter what the odds may be. After borrowing the money the price of the farmed crop could fall sometimes below profitable levels.

A rainstorm or severe drought could destroy the crops or kill some livestock which the farmer had been hoping to sell and pay the loan. The farmer must use the borrowed money specifically on the issue for which it was borrowed.

If the money was borrowed to purchase fertilisers and the farmer uses it for his son’s wedding party such money will add nothing to the farm which will remain barren and less productive yet the farmer will still be expected to pay back the loan with interest.

As much as possible, smallholder farmers should go for loans which they are sure will cause immediate benefits that will enable the borrower to pay the loan and the interest. For example, fertilizers can increase crop yields and improve farmers’ income.