Briefing Paper

The Constraints to Irish Potato Value Chain Financing in Uganda

This brief summarizes the findings from the potato value chain study on what constrains the financing of potato value chain activities in Kigezi sub-region. Increased access to cheap finance, is one of the major pathways to enhancing potato production and productivity, marketing, and value addition. However, the study revealed that financing is still a constraint at all levels of potato value chain. In the value chain study, results shows that a majority of value chain actors rely on personal savings and small loans from informal credit sources. Some of the key constraints to accessing credit from formal financial institutions, are long loan application processes and collateral requirements. However, undercapitalization and high interest rates limit the capacity of informal credit sources to satisfy credit demands of the value chain actors. Most potato traders, and small-scale processors obtain loans from village savings and loan associations (VSLAs). Only 17% of potato producers, and less than 30% of agro-input dealers use formal sources of finance from commercial banks despite the low interest rates charged relative to the informal VSLAs. The consequences of limited financing of value chain actors are low productivity and technology adoption at farm level which affect the business growth in potato trading and processing. Therefore to unlock and deepen agricultural financing, formal financial institutions can leverage on both capitalization capacity and the relatively low interest rates to design credit packages for agricultural value chain actors with shorter loan application processes.