Addressing Bottlenecks in Agricultural Lending in Tanzania


F2F volunteers rescue a community bank from financial instability by helping to reduce the bank’s non-performing loan ratio

Mufindi Community Bank PLC (MuCoBa) was established in 1998 to provide financial services to low-income and self-employed people in Tanzania. By providing affordable and favorable loan terms and conditions to the underserved people of the Mufindi and neighboring districts, MuCoBa fills a gap in access to finance for Tanzanian smallholder farmers, helping them to expand, grow, and sustain their agribusinesses.

Farmer-to-Farmer local volunteer Deonath John (left) sees a demonstration from MUCOBA loan officer on how they collect data to calculate estimated yield for loan recipients.

However, even with a substantial portfolio of loans and market segment, the bank was at a financial crossroads in 2021 and its financial sustainability was highly uncertain. The drastic upward increase of non-performing loans (NPLs) in 2018 reduced the bank’s interest income, lowered profitability, depleted the bank’s capital bases, and strained liquidity. The increase of NPLs prompted the bank to strengthen its lending criteria as a means of protection, resulting in a major decline in lending to individual smallholder farmers and agribusinesses. Despite the bank’s efforts to mobilize more capital by applying for their own funding, the continued increasing trend of NPLs remained the key driver of the bank’s financial instability.

To help the bank evaluate the determinants of the NPLs, IESC’s Farmer-to-Farmer (F2F) Program mobilized two specialized volunteer experts. Christopher Scalzo from the U.S. and Anania Maro from Tanzania conducted a thorough analysis to identify the root causes of bad loans and uncovered the main causes of the high NPL ratio. This included a lack of knowledge about agricultural lending, related issues with loan administration and credit appraisal, and improper loan monitoring and recovery strategies. The volunteers recommended that MuCoBa develop a training program for staff to address these issues and upgrade their data collection and management systems.

The F2F program followed up on this support by providing two phases of lending training. U.S. volunteer expert (USVE) Allyn Lamb and local volunteer expert (LVE) Ganza Wilson trained MuCoBa on general lending principles to address the NPLs from the outset. A few months later, two more F2F volunteers, Harris Berger (USVE) and Ganza Wilson (LVE) delivered a more specific training to the bank’s leadership and staff focused on agricultural lending. This ag-specific training helped staff better understand the agricultural landscape in Tanzania, and what is needed for successful agricultural lending.  After these F2F interventions, MuCoBa had many volunteer recommendations to work with that would strengthen its lending processes and loan application review, with an overall goal of continuing and growing its agricultural lending initiatives.

The community bank swiftly implemented the volunteers’ recommendations by strengthening risk mitigation, credit appraisal, and loan administration processes throughout the organization. MuCoBa also adopted specific tools that would allow them to expand lending to smallholder farmers while establishing an independent problem loan management group to manage the larger loans that contribute to their high NPL ratio.

As a result of these interventions, the community bank saw a significant decrease in its NPL ratio, from 35% in 2018 to 9.8% as of March 31, 2023. As the ratio continues to fall, the bank aims to meet the nationally acceptable 5% limit for NPLs. The decrease in the NPL ratio has directly contributed to an increase of 67% in earnings from the bank’s credit business. MuCoBa also increased new loans for farmers and agribusiness by 32% from 2021 to 2023, coinciding with a 25% decrease in operating costs. Overall, this increased the bank’s profitability by 128%, leading to a significant investment of lending capital (USD $435,000) from the People’s Bank of Zanzibar. This investment will provide MuCoBa with the resources it needs to further expand lending options for potential borrowers.

 The American people, through the U.S. Agency for International Development, have provided economic and humanitarian assistance worldwide for more than 50 years. The John Ogonowski and Doug Bereuter Farmer-to-Farmer Program (F2F) provides technical assistance from U.S. volunteers to farmers, farm groups, agribusinesses and other agriculture sector institutions in developing and transitional countries with the goal of promoting sustainable improvements in food security and agricultural processing, production and marketing.

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