Testing the viability of technology platforms in the agriculture sector
Agriculture is the cornerstone of the Ugandan economy and one of its most promising sectors. The sector contributes 24.1% to the gross domestic product (GDP), 33% of export earnings, and about 70% of employment based on the Uganda Bureau of Statistics (UBOS) 2021/2022 data. Regardless, Uganda’s’ agriculture productivity is only at 10-20% of its potential. This is partly, due to most farmers being smallholders who do not have access to agricultural finance needed to invest in farm productivity-enhancing technologies such as high-quality seeds, fertiliser, and irrigation.
The share of lending of the total private sector credit to the agriculture sector in Uganda is about 12.9% according to 2019 data from the Bank of Uganda. Smallholder farmers receive a small fraction of all formal lending to agriculture since formal financial institutions prefer to lend to large agricultural companies, agricultural processors, and traders.
This access to finance imbalance is attributed to many reasons; smallholder farmers are widely dispersed with low production capacity, no collateral, scanty records, seasonal incomes, and limited or no capacity for scale. This makes them highly susceptible to social and economic shocks and increases the risk and cost of transactions to financial institutions.
Financial Sector Deepening Uganda (FSD) Uganda believes that the use of digital technologies can be a game changer for smallholder farmers.
FSD Uganda believes that technologies can be used to create gains in production, efficiency, information flow, financial inclusion for marginalised groups, and transparency across segments in the agricultural value chain — all of which contribute to improved outcomes for small-scale producers.
To increase access and utilisation of finance for the underserved market segments and unlock the agricultural sector’s potential, the Financial Sector Deepening Uganda has partnered with three technology platforms to test the viability of embracing technology platforms:
Emata Uganda Ltd is scaling up the digitisation of cooperatives and farmer records to create alternative credit scoring to enable the provision of affordable digital loans to farmers in Uganda.
Ensibuuko Tech Ltd is implementing a unique Fin-tech-led innovative data-driven agricultural lending based on an innovative predictive credit algorithm to expand affordable formal agricultural credit and insurance to smallholder farmers through a one-stop digital ledger platform for smallholder farmers, particularly women. Ensibuuko will also enhance the digital literacy skills of the beneficiaries to drive informed and higher uptake of financial services and digital services.
Quest Digital Finance Ltd seeks to increase the uptake and usage of digital financial services and a wide range of bundled digital products and services to farmers & MSMEs through piloting and testing a freemium business model. The main goal of this model is to reduce the barrier to accessing the Quest Digital Finance digital ecosystem and instead monetise the transactions on the platform.
Overall, FSD Uganda will support the three partners to develop sustainable business models, products/services, and solutions for the delivery of financial services to the unserved and underserved market segments.