AgrInvest Uganda

The AgrInvest Project, financed by the European Union, was designed to enhance the capacity of the Uganda Development Bank (UDB) to effectively invest in agriculture by addressing key challenges, including:

• Expanding its portfolio of agricultural and agribusiness loans.
• Reducing the non-performing loan ratio in the agriculture sector.
• Improving the appraisal process for agricultural investments.
• Strengthening risk analysis, including climate risk.
• Developing a more effective model to deliver loans directly to small farmers and SMEs, as an alternative to the existing APEX lending model.

To tackle these challenges, the AgrInvest Project delivered the following main support activities:

• Expanding UDB’s agricultural lending pipeline.
• Enhancing UDB’s capacity for loan and investment appraisal, including carbon balance accounting.
• Promoting digital financial solutions (fintech) for agri-lending.
• Supporting the establishment of a climate finance facility.
• Conducting policy dialogue to improve the business environment in the meat and dairy value chains.

Among the above activities, the digital finance projects have been chosen as an FAO good practice for the achievement of the SDGs.

The project involved the following partners:

• Uganda Development Bank (UDB)
• United Nations Capital Development Fund (UNCDF)
• European Union Delegation in Uganda (EUD)
• Two local digital finance startups (fintechs).

The fintech pilots benefited various stakeholders:

• Farmers: who received access to digital loans with better terms (no collateral, fair interest rates, suitable loan duration and digital wallets for easy and low-cost transactions).
• UDB: who expanded their agricultural portfolio among small farmers with reduced risk and more profitable investment opportunities.
• Banking Sector in Uganda: who benefit from the learnings of a successful digital lending model that could be replicated across Uganda.
• Donor Community: who benefit from insights for scaling and supporting digital finance innovations in Uganda.

Digital finance was the project’s core transformative activity. Key actions included:

• Organizing knowledge-sharing events with UDB staff (including executives) to evaluate the feasibility of digital finance solutions and explore the implementation modalities based on two possible scenarios i.e. a) developing in-house digital finance capacity or b) using an external specialized fintech provider.
• Partnering with the United Nations Capital Development Fund – UNCDF who have expertise in digital finance.
• Selecting the best fintech provider in Uganda to implement pilot initiatives within UDB.
• Conducting pre-investment studies on the financial sustainability of fintech solutions to determine suitable lending conditions for the digital loans.
• Supporting the impact evaluation of the results of the two fintech pilots.

The initiative’s flagship achievement was the launch of UDB’s “AgriConnect” digital lending platform in March 2023, attended by over 1,000 stakeholders. While initially focused on agriculture, the platform has potential for expansion to other sectors.

The anticipated impacts include:

• Improved access to credit for farmers and value chain actors.
• Expanded lending portfolios with reduced risks for financial institutions.
• Increased funding for profitable ventures, contributing to poverty reduction, food security, and climate resilience.

If this pilot is successful, the UDB will renew it partnership with the fintech, possibly expanding loan size, to reach more farmers, cooperatives, and Village Savings and Loan Associations (VSLAs). The digital lending model could also extend to other sectors and financial institutions, driving widespread economic benefits in Uganda.

Replication Potential

The project’s success has attracted interest from other national public development banks seeking to implement similar digital agriculture initiatives. FAO-CFI has received inquiries to incorporate digital finance solutions into broader agri-lending support packages.

Learnings

• Establishing fintech operations requires significant initial promotion and knowledge-sharing with financial institutions.
• Building partnerships between financial institutions and fintech providers involves detailed due diligence and capacity building, including technical knowledge and compliance with KYC processes.
• Collaboration with UNCDF proved instrumental in leveraging expertise and accelerating implementation.