Background

Agriculture remains one of Uganda’s most important economic sectors, supporting millions of livelihoods and serving as a key driver of economic growth. Yet many agricultural small and medium-sized enterprises (SMEs) continue to face significant barriers to accessing finance. Limited collateral, weak credit histories, high transaction costs, and the perceived risks of agricultural lending have historically discouraged financial institutions from serving the sector. Women- and youth-led enterprises often face even greater constraints, limiting their ability to grow, create jobs and participate fully in local value chains. UNCDF, with funding from the European Union, is working with Aceli Africa to expand access to finance for agribusiness SMEs while strengthening lender confidence in the sector. The partnership forms part of UNCDF’s broader work under the Support to Agricultural Revitalisation and Transformation (START) Facility Phase II, implemented from 2023 to 2027.

Development finance solution

Rather than relying only on direct financing, UNCDF is working with Aceli Africa, Uganda Development Bank Limited (UDBL) and the Private Sector Foundation Uganda (PSFU) through complementary interventions to expand access to finance for agricultural SMEs. Aceli provides lender incentives and risk-sharing support, UDBL helps expand access to concessional capital, and PSFU supports outreach, awareness-raising and business development services.

The approach combines catalytic capital, lender incentives, and risk-sharing mechanisms to address some of the costs and risks that constrain agricultural lending. Through participating financial institutions, UNCDF and Aceli are seeking to expand commercial finance for agribusiness SMEs that have historically been underserved by the financial sector.

UNCDF partnered with Aceli Africa, which works with commercial banks, SACCOs, impact lenders and other financial institutions to expand financing for agricultural SMEs that are often perceived as too risky or costly to serve. Rather than lending directly to businesses, Aceli provides incentives designed to encourage lenders to expand financing for underserved segments of the agricultural economy. With European Union funding, UNCDF entered into a performance-based agreement with Aceli that combined two complementary instruments:

• First-loss portfolio cover, which reduced lender exposure to encourage financial institutions to increase lending to agricultural SMEs.
• Origination incentives, which helped offset the higher transaction costs associated with serving smaller, rural, women-led, youth-led and first-time borrowers.

The partnership was designed not only to unlock financing, but also to demonstrate that agricultural lending can become a viable business opportunity for financial institutions when appropriate incentives and risk-sharing mechanisms are in place. The incentive structure also encouraged lenders to finance enterprises meeting gender, youth, food security and climate-related criteria, linking the financing model to wider development objectives.

Photo: UNCDF/Steve Agaba.

UNCDF committed $2 million in European Union-funded catalytic capital to support portfolio risk-sharing and programme operations. This was complemented by approximately $2.93 million from Aceli to finance origination incentives, technical support, monitoring systems, and programme implementation.

Together, these resources created a broader package of blended finance and programme support designed to enable lenders to expand agricultural lending while maintaining prudent risk management practices. Rather than acting as a standalone grant, UNCDF's contribution formed part of a wider package of incentives and risk-sharing support aimed at increasing lending to the sector.

UNCDF and Aceli's combined support then helped facilitate lending from commercial actors across Uganda's financial ecosystem. By April 2026, the UNCDF-supported portfolio had engaged 13 active lenders, including commercial banks, savings and credit cooperative organizations (SACCOs), non-bank financial institutions, and specialized impact lenders. Together, these institutions approved 337 loans totaling $13.7 million for 332 agribusiness SMEs. This represented a leverage ratio of 6.7x against the first-loss cover and origination incentives deployed through the partnership.

This structure helped participating lenders expand commercial lending to agribusiness SMEs that have historically faced barriers to finance, while reducing the risks and costs associated with serving the sector.

At the same time, Aceli complemented these financial incentives with technical assistance to SMEs, capacity building for lenders, climate finance support, gender-lens investment initiatives, and engagement with regulators. This broader support was designed to strengthen the enabling environment for agricultural finance alongside the expansion of lending itself.

The portfolio reached businesses with limited previous access to larger formal loans. Sixty-eight percent of borrowers accessed loans above $25,000 for the first time, while 229 of the approved loans went to new borrowers. In addition, 69% of loans were extended to businesses operating in informal value chains.

Together, these results indicate that a significant share of the portfolio reached businesses and borrowers that had previously faced barriers to accessing this type of financing.

The financing also reached enterprises with strong gender and youth dimensions. Across the portfolio, 41% of supported businesses were classified as gender-inclusive and 53% as youth-inclusive, while 26% were women-owned and 15% were youth-owned.

The SMEs supported through the portfolio collectively employed 2,919 full-time workers and 3,039 casual workers, highlighting their contribution to local employment.

The portfolio also extended into areas central to Uganda's food systems and climate resilience. Sixty-nine percent of supported businesses contributed to food security and nutrition, while 50% of loans supported climate and environmental objectives.

The financed enterprises operated across diverse agricultural value chains, including coffee, livestock, dairy, maize, rice, poultry and agricultural input supply. In total, the businesses supported through the portfolio were linked to more than 21,000 smallholder farmers, demonstrating the wider reach of these enterprises across Uganda's agricultural value chains.

Photo: UNCDF/Steve Agaba.

Outcome

UNCDF's partnership with Aceli, funded by the European Union, illustrates how catalytic capital can work through financial institutions to expand commercial lending while advancing wider development objectives. By combining risk-sharing and origination incentives with technical assistance and market-development support, the approach has helped financial institutions extend financing to businesses that have historically faced barriers to formal credit, while directing capital toward enterprises contributing to employment, food security, gender and youth inclusion, and climate-related objectives.

The experience also points to the broader role catalytic finance can play in strengthening agricultural finance markets. Rather than financing enterprises one transaction at a time, the approach seeks to reduce the costs and risks that constrain lending, build financial institutions' experience serving agricultural SMEs and create the conditions for commercial finance to play a larger role over time.

Photo: UNCDF/Steve Agaba.