Rural and Agricultural Finance in Uganda

The German Development Cooperation (KfW and GIZ) has been active in the development of the financial sector in Uganda for over ten years. One of the main objectives over the last years has been the deepening of the financial sector with the aim to bring poorer segments of the population into the sector and to provide adequate financial services to people that have traditionally not adequately been served by the financial intermediaries. As access to finance has increased in the last years primarily for the benefit of the urban population, the German Development Cooperation on Financial Sector Development in Uganda is therefore concentrating on Rural and Agricultural finance. The Financial Cooperation has been implementing a Rural Finance Programme since 2011. During a preliminary scoping mission that included interviews with a broad range of stakeholders involved in rural and agricultural finance, the general need for wholesale refinancing funding for agricultural loans was confirmed. The German Cooperation is therefore considering the implementation of a programme involving a refinance facility for agricultural finance to be channelled through the local financial sector. KfW therefore desires the preparation of a feasibility study that analyses the gap in rural and agricultural finance in Uganda and lays out workable implementation alternatives for an intervention of the German Development Cooperation. The objectives of the feasibility study are to provide a detailed analysis that will enable KfW to: Understand the regulatory and operating environment of agriculture and agribusiness its growth potential but also its particular growth challenges Understand the regulatory and operating environment of Uganda’s financial sector in general and the supply of rural, agricultural and agribusiness finance in particular. Build a solid understanding of subsistence vs. commercial small farmers, how the latter get access to finance, information and markets, key gaps in finance and other services, which are bankable on their own, and which can be financed as part of aggregation, value chain and agro-dealer models. Identify the most competent financial institutions (or facilities) for agri-finance and provide a systematic assessment of their competencies to succeed in financing large numbers of commercially oriented small farmers and others in the value chains. Identify business models, which financial institutions can deploy to expand their portfolio of loans to rural, agricultural and agribusiness borrowers in a demand driven and commercially sustainable manner. Identify the support banks need in building or expanding business models which involve collaborations with aggregators, agribusinesses and agro-dealers to provide the mix of financial and nonfinancial services, reducing the risk and costs to the banks in financing agriculture in general and small farmers in particular. Prepare inputs for an appraisal report, detailing the program set-up, program concept and program objectives