In the cool hills of Bunyaruguru in Rubirizi District, sits a small but determined cooperative called Kikwanya Coffee Growers Association (KCGA). The cooperative began in 2019 when a handful of farmers came together, tired of selling their Arabica coffee at low prices to middlemen who often took advantage of them. Over the years, KCGA grew to 168 members, all smallholder farmers with just one or two acres each. Their dream is to produce better-quality coffee and earn better incomes for their families.
One bright morning in May, the cooperative leaders gathered in their meeting hall—an old classroom with cracked windows, wooden benches, and a chalkboard still showing the previous week’s rainfall records. The chairperson, Mr. Nuwagaba, opened the meeting. “Fellow members, our coffee quality has improved, but we still sell it as dried cherries. If we invest in better processing, we can sell parchment and even negotiate export contracts. This year, let us think bigger.”
The farmers nodded. They had long known that better processing meant better prices, but they lacked the equipment and working capital needed to buy coffee cherries during harvest.
That day, they made an important decision: KCGA would approach a bank for financing.
A week later, three cooperative leaders—Mr. Nuwagaba (Chair), Grace (Treasurer), and Jonah (Secretary)—travelled to a commercial bank branch in Mbarara. They requested a UGX 160 million loan, broken down as follows:
- UGX 120 million: Working capital to buy cherries during the peak harvest
- UGX 40 million: Investment to upgrade their wet mill—new pulper, solar dryers, and repairs
They proposed splitting the loan:
- Working capital loan: 6 months
- Investment loan: 24 months
- Their repayment plan was based on selling parchment directly to exporters.
The bank loan officer, Sarah, welcomed them into her office and began her assessment.
“How much coffee do your members produce?” she asked.
Jonah opened a folder filled with cooperative records.
- The cooperative had 85,000 bearing trees.
- Each tree produced about 2.1 kg of cherries.
- In total, they expected 178,500 kg of cherries that season.
- After processing, this would yield about 35,700 kg of parchment.
Selling parchment at around UGX 10,000 per kg, KCGA could earn over UGX 350 million.
Sarah raised her eyebrows—this was impressive.
Sarah then asked about their finances.
Grace explained:
- Assets: UGX 210 million
- Liabilities: UGX 65 million
- Member equity: UGX 145 million
- Last year, they earned UGX 36 million in net profit
They had a small SACCO loan, but repayments were on time
The cooperative kept clear records and conducted annual audits with the district cooperative office.
To Sarah, this signalled strong character and good financial discipline.
But Sarah also knew the challenges in the coffee value chain.
She asked,
“What risks do you foresee this season?”
Mr. Nuwagaba replied honestly:
- Changes in weather could affect yields
- Some farmers might sell to other buyers offering quick cash
- Coffee Wilt Disease still affected some farms
- Market prices could drop suddenly
The cooperative had plans to mitigate these risks:
- They were negotiating a forward contract with an exporter
- They were conducting training sessions for members
- They were rolling out a digital record system for deliveries
Sarah wrote this all down carefully.
After the interview, Sarah sat at her desk reviewing the numbers.
Strengths
- Strong management and cooperative governance
- Reliable membership and supply volumes
- Profitable operations
- Good repayment history
- A clear plan for using the loan
- Projected cash flow strong enough to repay comfortably
Risks
• Side-selling by farmers
• Weather and disease challenges
• Dependence on market price stability
• Limited collateral (mainly equipment and stock)
The financial forecasts looked promising. KCGA showed strong repayment capacity, with projected earnings of UGX 125 million after costs. Their debt-service coverage ratio was excellent. Their request for working capital matched their expected cherry purchase needs.
Sarah leaned back in her chair.
“This cooperative is growing, organized, and ready. Yes, the risks exist, but they can be managed.”
Now she had one last task:
recommend whether to approve the UGX 160 million loan, and under what conditions.
Group Discussion Tasks for Trainees
Use the story to discuss and analyze the financial situation of KCGA:
- Should the bank approve the loan? Why or why not? (Base your answer on cash flow, governance, and financial ratios.)
- What risks are most serious, and how should the bank manage them?
- What loan conditions should be included?
- Do you think the cooperative has the capacity to handle both loans (short-term and long-term)?
- What additional information would you request before giving final approval?
Financial Analysis questions
1. Revenue Calculation
Based on the expected cherry harvest of 62,000 kg and the conversion rate of 5 kg cherries → 1 kg parchment, calculate the expected parchment production and projected revenue if parchment sells at UGX 8,200/kg.
2. Gross Margin & Net Income
Assume cherry purchase costs UGX 1,500/kg and processing costs are UGX 15,000 per batch (1,000 kg). Operating expenses are UGX 12 million. Calculate:
• Total costs
• Gross margin
• Net income
3. Cash Flow & Repayment
If the cooperative requests a UGX 120 million loan, can it repay the loan on time using projected revenue? Discuss the impact if cherry prices drop by 10%.