Prime
‘Banks might not believe it, but agriculture is bankable’
Joseph Lutwama, the director of programmes at Financial Sector Deepening (FSD) Uganda. Photo/Courtesy
What you need to know:
- “When you want to help a specific group (like small women-led farms), give the money to institutions that already work with them—not big banks that focus on large clients,” – Joseph Lutwama, the director of programmes at Financial Sector Deepening (FSD) Uganda.
More than 70 percent of Ugandans earn a living with their hands in the soil, whether subsistence farming or small-scale hustle, something that shows that agriculture isn’t just a sector. It grows the food, pays the school fees, buffers households when the economy hiccups, and brings in the forex.
Agriculture contributes roughly a quarter of Uganda’s total economic output. But for all its weight, the sector runs on sweat, luck, and muscle memory.
Imagine ‘Phiona in Gulu’—planting by gut feeling, betting on the rains, using recycled seeds from last year. No tractors. No irrigation. No soil diagnostics. She farms in a world where the weather forecast is her grandmother’s elbow.
The agri-value chain is often more broken than a boda shock absorber. Middlemen gobble profits, market access plays hide and seek, logistics drain wallets, and climate change sits in the corner, laughing menacingly.
Farmers are doing cardiopulmonary resuscitation on the economy—barehanded. Agriculture is Uganda’s economic heartbeat—but banks treat it like a bad date. Why? Two words: high risk and low trust. Crops fail, livestock dies, rain ghosts farmers and most don’t keep records, so no books.
And that means no credit score for them that guarantees them loans. Banks want titles and yet most farmers have ancestral land, which has no titles. Another thing is that coffee takes years to mature and yet banks prefer boda loans—fast, short, with instant returns. So, ultimately, serving 10 farmers in Kamwenge costs more than one guy flipping plots in Kololo. Worse? Most bankers don’t speak about agriculture. Soil pH? Yield estimates? It’s Greek. So they default to “no.” What’s standing in the way? A couple of research data from the Economic Policy Research Centre notes three things: Fragmentation: Thousands of uncoordinated smallholders which are hard to aggregate. Fear: Droughts, floods, and pests turn business plans into prayer requests. Friction: Inconsistent policy. Politicised funds, weak Saccos, low tech and zero agriculture-data. Uganda’s agri-sector is a goldmine fenced off by red flags. Everyone agrees it’s vital, but financing it still feels like a breakup. And that’s why I met Joseph Lutwama, the director of programmes at FSD Uganda, a non-profit promoting greater access to financial services. At Protea Hotel, Kampala, we dive into how this mess might just be fixable.
His starting point? Micro and Small Enterprise Recovery Fund (MSERF). Launched in 2021, MSERF is a five-year, Shs80b ($22m) blended-finance shot in the arm for smallest businesses—especially women and youth-led ones. The model? Simple but smart: FSD Uganda + Mastercard Foundation fund it and then the small banks, Saccos, and microfinance institutions (PFIs) lend it out. The target? Save 100, 000 jobs and create 150,000 more.
So far? 190,000 jobs saved, 20,000 plus new jobs created, 82, 000 businesses reached, 116, 000 plus loans disbursed, where 72 percent of borrowers are women and 46 percent of them are youth. It’s small-ticket, short-term credit that moves fast and matters.
Most loans are under Shs500, 000, under 1 year—just enough to breathe life back into a struggling kiosk, boda garage, or tomato stall. And here’s the kicker: MSERF is recyclable. They plan to spin that Shs80b pot eight times—turning it into Shs640b in cumulative lending.
So far, they have already lent out Shs142b. Why does this matter for agriculture? Because most small businesses are agri-businesses—from farmers to processors, traders to agri-tech start-ups. As Lutwama puts it: “MSERF isn’t just handing out cash—it’s proving that informal, rural, youth-led and women-run businesses are bankable if we build finance around their reality.”
Who gets the cash, why?
The MSERF doesn’t just throw cash at anyone with a balance sheet and a logo. It plays matchmaker—finding Tier 3 and Tier 4 financial institutions that serve micro and small enterprises (MSEs), borrowing anywhere from Shs100,000 to Shs10m.
Tier 3 financial institutions are Micro Deposit-Taking Institutions (MDIs) — slightly formal, licensed by the central bank. And Tier 4 ones are the Saccos, non-deposit-taking MFIs, and digital lenders — the wild west of grassroots finance. These guys are the ones lending to ‘mama Grace’ with her poultry farm, or ‘Isaac’ who needs Shs300,000 for a boda boda engine tune-up.
How MSERF picks its lending partners (PFIs) is that it gets a four-part audition for institutions hoping to dip into MSERF’s pot: Client segment: Can you really reach the bottom of the pyramid? Are you gender-aware, youth-focused, and willing to print forms in the local language?
Do you lend to women not just for retail kiosks, but also for, say, matooke aggregation? Capacity and readiness: Can you move fast with the money once you get it?
Have you done the homework (i.e., market research) to actually know your borrowers? Digitisation: Can you track loans, analyse impact, and report on performance digitally—or are you still running on carbon paper and guesswork? Financial and governance viability: Can you handle risk? Do you have your financials (and your board) in order? Bonus points if your board isn’t all men over 50.
Here each selected financial institution (PFI) can access between Shs2.6b and Shs7b, capped at 20 percent of their outstanding MSE loan book. Here’s where it gets spicy: No fixed interest rate caps like other government-led funds (eg Agricultural Credit Facility or Small Business Recovery Fund).
Instead, MSERF negotiates rates with each lender individually. So the interest you pay might be: As low as 16 percent per year, or as high as 133 percent (yes, you read that right—credit card-level crazy).
Why? Because MSERF isn’t covering your losses. PFIs have to make enough in interest and fees to cover bad loans, administration costs, and still stay afloat. Here’s the twist: While the MSERF model is flexible and attractive to fairly mature institutions, it excludes a bunch of smaller, more fragile Saccos and MFIs, especially in northern and eastern Uganda.
Why? They’re undercapitalised, disorganised, and sometimes still using ledgers older than WhatsApp. They just don’t meet the minimum portfolio size or governance threshold to absorb Shs2.6b responsibly.
So what does this mean? “MSERF is smart. It’s targeted (focus on high-impact, inclusive lending), flexible (negotiated rates, not rigid rules), pragmatic (you cover your own risks), but also selective—and that makes it exclusive by design,” Lutwama says.
“Yet, it’s also thinking long-term: by eventually supporting weaker Tier 4 institutions, it hints at systemic reform—not just a band-aid after Covid, but real capacity building,” he adds.
The playbook
The MSERF isn’t just spreading cash like confetti; it’s investing in the backbone of Uganda’s real economy. But when you follow the money, you notice that the top borrowers are the wholesale and retail trade: 48 percent of all loans and agriculture with 35 percent of the pie—solid, but not leading. So, while we talk big about boosting agribusiness, it is traders who are walking away with nearly half the cake.
“In the agriculture category: 80 percent of borrowers are micro-enterprises, but they make up only 53 percent of the actual loan value. Why? Bigger agribusinesses take bigger bites of the credit, often borrowing Shs1m and above, while micro players remain in small-ticket territory,” Lutwama discloses.
What kind of agri-loans are these? Produce trade (i.e., buying and selling harvested goods) takes the lion’s share and agricultural production (like planting maize or raising poultry) is second. “Most loans are short-term—under 6 months—except for animal husbandry, which needs more patience.
That short tenure reflects the seasonal nature of farming. You plant, wait, harvest, and repay,” he says. Agricultural loan interest rates fall in three buckets: Typical range: 25 percent–49 percent per annum, the best case (eg Saccos): as low as 16 percent and the worst case (digital lenders): up to 133 percent annually. Why the absurd range? Because digital lenders give tiny, fast loans (under 1 month) with no collateral, making them easy but deadly when annualised. They’re like payday loans with a different name—accessible, fast, but often financially brutal.
The MSERF’s flexible, targeted, and inclusive approach is far more effective in reaching micro and small agribusinesses—especially women and youth—than traditional, rigid finance programmes like ACF. And that’s why the experience of MSERF offers lessons for future national financing initiatives aiming at economic transformation through agriculture.
One lesson here is that a customised approach is more effective than a one-size-fits-all package MSERF did not impose a fixed interest rate cap across all participating financial institutions (PFIs).
Instead, it allowed each PFI to set terms that matched its unique business model and clientele. This flexibility enabled faster, more efficient disbursement of funds because PFIs weren’t constrained by rigid pricing rules that don’t fit their realities. It’s a contrast to the ACF, which is more bureaucratic and rigid—and as a result, disbursed far less money to far fewer businesses over a longer time,” he quips.
The big idea here is that tailored approaches beat rigid frameworks in getting money quickly and effectively to where it’s most needed. Another important thing is that intentionality equates to impact. MSERF intentionally targeted Tier 3 and Tier 4 institutions—the ones most experienced in serving micro and small enterprises.
“By narrowing its focus to PFIs already working with grassroots agribusinesses, MSERF ensured that the money reached the intended beneficiaries.
In contrast, ACF, which works mostly with bigger banks (Tier 1–3), hasn’t succeeded much in serving this segment—even when it tries to,” Lutwama explains.
“When you want to help a specific group (like small women-led farms), give the money to institutions that already work with them—not big banks that focus on large clients,” he adds.
One important lesson from this model is that instead of capping interest rates, the solution is picking smart partners. Agricultural loan interest rates under MSERF vary wildly (from 16 percent to 133 percent annually). Instead of capping rates, the fund selects institutions with the most competitive rates to maximise impact.
“Interest rate caps can scare off lenders or distort the market. A smarter approach is to fund institutions already offering reasonable rates to their customers, rather than trying to control them all with blanket rules,” Lutwama says.
Funding remedy
“When you want to help a specific group (like small women-led farms), give the money to institutions that already work with them—not big banks that focus on large clients,” – Joseph Lutwama, the director of programmes at Financial Sector Deepening (FSD) Uganda.
