Tanzania: Commercial Lenders Now Find Agriculture Sector Most Appealing

Farmers have historically been regarded by banks as risky borrowers because of their erratic income, lack of savings, and unstable productivity that is reliant on rainfall. But, due to monetary policy measures aimed at supporting cost-effective credit intermediation to agriculture and agribusiness activities, the agriculture sector has become appealing to the country's commercial lenders.

According to the Bank of Tanzania's (BoT) monthly economic review for November, credit extended to the agriculture sector increased by 57% compared to a negative 14.0% in the same period last year. Agriculture in Tanzania accounts for nearly 30% of the country's Gross Domestic Product (GDP), employing three-quarters of the workforce.

Agriculture is without a doubt Tanzania's largest and most important sector, with the country benefiting from a diverse production base that includes livestock, staple food crops, and a variety of cash crops. Agriculture finance, according to the World Bank, enables poor farmers to increase their wealth and facilitates the development of food value chains capable of feeding 9 billion people by 2050.

Agriculture finance assists clients in providing market-based financial services as well as funding long-term and environmentally friendly investments to support sustainable agriculture and agri-food value chains. Food demand will increase by 70% by 2050, requiring at least $80 billion in annual investments to meet this demand. Credit extended by the banking system to the private sector and the central government has remained high as credit to the private sector has remained high.

In October of this year, annual growth was 34.2 percent, higher than the 9% recorded in the same period in 2021. Private sector credit increased by 23.7 percent year on year, compared to 5.6 percent in October last year and a target of 10.7 percent for 2022/23. The private sector credit performance is attributed to the recovery of economic activity following the Covid-19 pandemic, as well as favourable monetary policy conditions.

Except for hotels and restaurants, all major economic activities experienced positive credit growth during the fiscal year ending in October. Following the write-off of non-performing loans to comply with regulatory requirements, outstanding credit to hotels and restaurants decreased by 4.5%.

Meanwhile, personal activities, primarily small and medium-sized businesses, continued to account for 38.4 percent of total outstanding credit to the private sector, followed by trade, manufacturing, and agriculture activities.