Growing up, I remember frequent trips to Iguegben, my village in my home country, Nigeria, with my father where we often visited my grandmother who was a cheerful farmer. She would often complain about not having enough money to increase yield beyond subsistence farming. My father often supported her financially, but it was insufficient given her ambition. Regretfully, her dream beyond subsistence farming was never realized.

At a recent roundtable held in Nairobi, it became clear that my grandmother’s experience mirrors that of many farmers today, in Africa and beyond, who continue to face limitations in expanding their agriculture businesses due to financial risk. Several decades later, risk in agriculture (whether perceived or actual) remains largely unchanged and is even more acute for women and youth, particularly in rural areas. If we fail to address this financial & credit risk often faced by farmers and small businesses within the agriculture value chain, hunger and inequality will only continue to increase.

What also emerged during the discussions is that the way investors and businesses perceive risk in agriculture, may be reinforcing the very constraints we aim to address. For decades, agriculture in Africa has been seen as a high-risk sector for both lenders and investors. However, an organization like the United Nations Capital Development Fund (UNCDF) with no credit rating to protect and which is mandated to absorb risk in underserved markets and sectors, is gradually changing the risk profile of these small holder farmers and enterprises across the continent.

The roundtable which brought together chief risk officers, senior risk leaders, regulators, and investors and was organized by UNCDF, AGRA, and the African Guarantee Fund, reinforced the urgent need to address agriculture risk in order to unlock greater lending to businesses in the sector. This raises a critical question. What will it take to make agricultural finance a scalable and investable asset class? The discussion was technical, at times challenging, but also promising. It highlighted systemic barriers to investment and limited capital flows to the agriculture sector, rather than a lack of available capital itself.

Three observations from that conversation stood out for me as clear signals for where the next phase of action must focus.

1. The real issue is often the product, not the farmer.

A consistent message from the room was the growing disconnect between perceived risk and actual risk. Across multiple markets, including UNCDF-supported guarantee portfolios, there is growing evidence that when agricultural lending is properly structured through value chains, aggregation, and risk-sharing mechanisms, performance can be stronger and more predictable than traditional assumptions suggest. Thus, potentially reducing loan default and enhancing bankability.

Yet lending to agriculture is still frequently approached using standardized SME products that do not reflect the underlying realities of the sector. There is a mismatch between traditional financial products and agricultural realities. So, what we see, repeatedly is the misalignment between cash flow cycles and repayment schedules. Furthermore, financial institutions tend to treat production risks such as weather, crop failure and price volatility as fixed constraints, without fully taking into account, value chains, off-take agreements and aggregation models that spread risk and make cash flow more predictable and easier to assess.

In practice, defaults often reflect how loans are designed rather than whether businesses are viable. This suggests that scaling agricultural finance depends less on changing the sector and more on redesigning the financial products that serve it. For example, UNCDF-supported investments in agricultural value chains, such as solar-powered cold storage systems in Kenya, show how strengthening underlying market structures, reducing post-harvest losses and stabilizing cash flows, can directly improve the viability of agricultural enterprises and make them more attractive for financing.

It is also where UNCDF’s work has been increasingly focused, first, on deploying risk-tolerant financial instruments such as first-loss guarantees, and secondly, working with financial institutions to rethink how risk is structured, priced, and ultimately managed within their portfolios.

2. Much of the constraint sits within the system itself

A second observation is that even where risk is better understood, it is not always recognized within the broader financial system. Regulatory frameworks often treat agricultural lending as one single category. As a result, structured value-chain lending is handled like unsecured loans, capital requirements fail to reflect different risk levels, and banks have little incentive to expand their agricultural portfolios. Furthermore, regulators’ mandatory non-performing loans (NPLs) and capital adequacy ratio are additional constraints imposed on the balance sheet of financial institutions which also limits lending.

This slows things down, making it hard for even well-designed lending models to take off and scale. At the same time, the tools to improve risk calibration are evolving quickly. Across markets, we are seeing increasing use of

This represents a real shift. World Bank analysis has pointed to the growing role of digital tools, value chain financing models, and climate-risk instruments in improving how agricultural risk is assessed and managed. Yet the integration of such approaches into formal credit and regulatory systems remains uneven.

What this suggests is that innovation alone is not enough, it must be supported by how institutions operate and rethink risk. Scaling agricultural finance will therefore require stronger alignment across financial institutions, regulators, agri-businesses and development partners, so that a better understanding of risk is reflected in how and where capital flows.

In practice, this is already visible in emerging models that use alternative data to inform credit decisions. For instance, UNCDF’s work in Uganda is enabling lenders to use transaction data in place of traditional collateral, allowing previously excluded borrowers to access finance while strengthening risk assessment.

3. The “missing middle” remains the hardest segment to serve

The third observation relates to a segment that is often discussed, but still insufficiently addressed, the 'missing middles' Across markets, there is a persistent financing gap for agribusinesses that have moved beyond microfinance but remain out of reach for commercial lending at scale. Interestingly, this is also where much of the sector’s growth potential sits with strong contribution to the Sustainable Development Goals (SDGs).

What emerged from the discussion is that the gap is unlikely to close through traditional lending approaches alone. Instead, it requires a combination of risk‑sharing instruments, particularly guarantees that absorb first‑loss risk exposure, blended finance structures that improve capital efficiency, investment readiness support that strengthens enterprise fundamentals and intermediary models that aggregate demand and reduce transaction costs.

UNCDF’s experience across multiple markets suggests that when guarantees are combined with well-designed products, they reduce exposure and can enable lending where it would not otherwise happen. In Zambia, for example, a relatively small UNCDF-supported guarantee facility of $360,000 enabled FINCA, a financial institution to unlock more than $2.7 million in lending with a 16x leverage ratio, demonstrating how catalytic capital can crowd in significant private sector financing for underserved segments.

However, these results depend heavily on how such instruments are applied. Where they are built onto poorly designed products, their impact is limited. This reinforces a broader point that catalytic financial instruments are only as effective as the systems and products they are built upon.

From field to market, better-structured value chains can reduce risk, stabilize cash flows, and make smallholder agriculture more investable. Photo: UNDP Kenya.

What the next phase requires

What emerged from Nairobi is not a single solution, but a clearer sense of direction. There is now a growing understanding that when agricultural risk is approached differently, structured through value chains, supported by data, and shared through appropriate financial instruments, capital begins to flow. And there is experience to back this. In that sense, the constraint is no longer proof of concept, but how to scale what is already working.

Funded guarantees, in particular, were identified as one of the most effective near-term mechanisms to unlock investment for small farmers like my grandmother, provided they are built on well-designed lending products, deployed efficiently, and integrated into broader portfolio strategies. As UNCDF’s experience has shown, when used in this way, they can enable lending that would not otherwise take place. UNCDF as a solely grant funded institution prioritizes the use of its concessional catalytic capital to absorb risk and unlock lending in agriculture; particularly in underserved communities.

Rethinking risk will depend on a number of changes happening at the same time. These include, but are not limited to, financial institutions’ evolution in the design and pricing of risk for agricultural products, regulators ensuring that frameworks better reflect sector realities, and development partners providing catalytic capital to accelerate adoption and boost investors’ confidence.

But perhaps the most important change is in how we think about the problem. For a long time, agricultural finance has been approached as a question of avoiding risk. What this dialogue suggests is that it may need to be approached instead as a question of structuring risk. The tools, in many ways, are already there. What remains unclear is how deliberately, and quickly these tools can be applied and at scale.

For every constraint or barrier that limits investments and capital flow in agriculture, we are farther away from achieving the SDGs. Like my grandmother and many other farmers (particularly in underserved economies), they run the risk of their dreams not been actualized.