The Ministry of Finance is moving to de-risk the local agriculture sector through agriculture insurance with the hope of improving its attractiveness to the local and foreign private sector, including financial institutions.
Investors continue to shy away from the sector citing reasons such as inadequate data on the sector, dependence on unpredictable weather patterns, reliance of traditional practices, low output among other challenges.
The local financial sector has also been hesitant to extend credit to players in the sector for reasons such as high risks, unpredictable returns, little profitability, and absence of adequate data.
For instance, of the total loans issued last year by local financial institutions, only 1.4 per cent went to the agriculture sector.
Now the Ministry of Finance and Economic Planning is intervening by piloting agriculture insurance wherby subsidising premiums cost by up to 40 per cent.
Eric Rwigamba, the Director General of the Financial Sector Development at the Ministry of Finance and Economic Planning, said that the move will, among other things, reduce heavy losses.
This will also help create a profile of stakeholders as well as risks involved and ways to mitigate them.
By having agriculture insurance, farmers will be in a better place to access capital from financial institutions as well as have guarantees that they will be compensated in the event of losses.
This could eventually see farmers keen to adopt modern techniques and invest more as there will be guarantee of compensation.
The initiative is currently under the pilot phase and is expected to be fully rolled out in the coming year.
Speaking at a news conference after presenting the Monetary Policy and Financial Stability Statement, Central Bank Governor John Rwangombwa said that the state of the agriculture sector in regards to its productivity to the economy is one of the aspects that the regulator is keen to positively influence this year.
Benjamin Gasamagera, a former Chairperson of the Private Sector Federation, said that that there is need to improve operations in the sector and attract investors given its importance to the economy.
Through electronic-trade platforms like Alibaba there is huge demand for local products, such as avocados, pineapples, beef and chilli.
Local firms such as Africa Improved Foods, which is involved in production of nutritious foods, has had to often operate below capacity due to lack of enough inputs from the local market.
There has also been reports of heavy post-harvest losses.