You need a loan? Here’s the secret
What you need to know:
- It is important to have management skills that improve chances of success while applying for a loan
The number institutions offering financial services has grown over the years.
From banks mainly few years ago, this has expanded to include micro-finance institutions, farmers’ cooperative societies and government.
The institutions have devised various financial approaches and products to serve farmers better. Here is what you need to know before you go for an agri-business loan.
What is the secret?
It is important to have management skills that improve chances of success while applying for a loan. These include attaining the required training in the specific areas of interest, being fully focused on specific items to increase production and ability to make maximum profits.
The ability to break even is a sufficient indicator of the amount of loan you can take and repay comfortably. Knowing your collateral value is key to considering your repayment ability. Your collateral can be land, livestock, personal assets or machinery.
You should also have your financial records for previous production well-organised and articulated.
The things to know about interest rate are: Does it surpass your profits? Is it constant or is it on reducing balance? In case of crop failure, what are the terms and conditions? And finally, how does the bank intends to recover its debts?
Legal framework available for financing farmers
The Agriculture Finance Corporation (AFC) Act Cap 323 established the Agriculture Finance Corporation as a government-owned institution mandated to assist in the development of agriculture and agricultural industries by offering loans to farmers, co-operative societies, incorporated group representatives, private companies, public bodies, local authorities and agricultural industries.
The Act confers power to the corporation to give a loan to a farmer to enable him engage effectively in agriculture. To qualify, the farmer has to apply for a loan in the prescribed manner decided by the board of the corporation. If approved, then the loan is given.
For the purpose of ascertaining whether a loan has been or is being properly applied, any member of staff, or any person assigned by the corporation to inspect land under this Act may enter upon the land in respect of which the loan is made and make inspections. The interest rate for any particular class of loan is determined by the board, with the approval of the Minister of Finance.
The corporation may withhold any remaining amount of loan if the one given has not been used for the purpose for which it was made, if the debtor becomes insolvent, or where there is breach of the conditions of the loan, or if loan is not applied within such time the corporation considers reasonable for the purpose it was given.
How does the corporation recover a bad loan?
AFC will serve sufficient notice to the defaulter, after which they may enter upon the land provided as security or any other collateral and either take possession or sell it by public auction through a licensed auctioneer. It is not a must that the corporation seeks recourse in court before taking action. Don’t let money constraints limit you from realising your full potential.
The writer is a lawyer. Send your questions to: [email protected]
