The Effect of Commercial Banks’ Agricultural Credit on Agricultural growth in Uganda

Abstract

Over the past one decade, commercial banks in Uganda have progressively lent credit to agriculture. However, the increasing commercial bank’s agricultural credit disbursements have not translated into commensurate increase in agricultural GDP growth. Upon this backdrop, the study sought to examine the short run and long run impact of the commercial banks’ credit on agricultural sector growth. Using quarterly time series data sourced from bank of Uganda and Uganda bureau of statistics over the sample period of 2008Q3 -2018Q4, the study applied the Autoregressive Distributed Lag (ARDL) approach to examine that the short run and long term relationship between commercial banks’ credit and Uganda’s agricultural GDP performance.In the long run, we find credit to have significant positive impact on agricultural output. Credit to production is found to have a much higher impact on agriculture output compared to credit to processing and marketing.In the short run, we find bank credit not to have an instantaneous impact on agricultural output.The study provides evidence that commercial banks’ agricultural credit contributes significantly to Uganda’s agricultural sector GDP. Specifically, the study provides evidence of the segment of the agriculture value where credit has the highest impact. This paper contributes to providing policy options for improving agricultural GDP performance in Uganda for example de-risking production segment.