By Mulengera Reporters
Uganda’s Agricultural Credit Facility (ACF) continues to give farmers and agricultural businesses access to cheaper financing than they would typically obtain from commercial lenders, strengthening its role as a development financing tool, an independent evaluation has found.
The Bank of Uganda-managed facility currently caps interest rates at 12% per year for most agricultural activities and 15% for grain trade, compared with an average commercial lending rate of about 22%.
The price difference has made the ACF one of the more affordable sources of agricultural credit in Uganda, particularly for enterprises seeking longer-term financing.
Loan repayment periods under the facility range from six months to eight years, allowing producers, processors and traders to access financing over periods that are generally more suited to agricultural investment cycles.
The findings are contained in a National Planning Authority (NPA) independent evaluation commissioned by the Ministry of Finance, Planning and Economic Development and released in May 2026.
The evaluation says the ACF’s consistently low interest rates since its inception have helped reduce the cost of agricultural borrowing and expand access to finance across the agricultural value chain.
Historical trends also show that the facility has maintained a pricing advantage over commercial lending.
In 2011, for instance, the grain facility rate was at least 100 basis points below prevailing commercial lending rates, while the general ACF rate also maintained a margin below commercial rates.
However, changes in the wider financial market have gradually narrowed the ACF’s price advantage.
The Central Bank Rate (CBR), which had reached as high as 27%, had fallen to 18.85% by June 2024, while commercial lending rates also declined.
By that point, the difference between ACF rates and commercial lending rates had narrowed to about 300 basis points.
The NPA says this development presents an opportunity for the ACF to reassess its rate structure so that it continues to offer a meaningful concessional advantage as market conditions change.
The evaluation notes that the facility’s fixed 12% and 15% rates have, since February 2017, at times been above the CBR, including during periods of economic slowdown such as the Covid-19 pandemic.
It recommends considering a more adaptive rate-setting mechanism that would allow ACF rates to respond to changes in monetary policy and economic conditions.
Such an approach could help preserve the facility’s development-finance role while ensuring that its interest rates remain relevant as Uganda’s financial market evolves.
The evaluation also recommends greater institutional involvement in determining ACF lending rates.
Currently, the rates are set by the Ministry of Finance, with limited input from the ACF Secretariat.
The NPA says stronger collaboration between the Ministry, ACF and relevant stakeholders, together with clearer criteria for setting rates, would support more transparent and data-informed decisions.
Despite its strong position within Uganda, the ACF remains less concessional than some comparable agricultural development finance institutions in East Africa.
Tanzania Investment Bank, for example, offers agricultural loans at rates of about 4% to 5%, while Kenya’s Agricultural Finance Corporation lends at about 10%.
Against these regional benchmarks, Uganda’s 12% standard ACF rate and 15% grain-trade rate leave room for further improvement in concessional financing.
The NPA says the experience of regional peers also demonstrates the importance of government capitalization in enabling development finance institutions to offer cheaper credit.
Tanzania Investment Bank’s ability to lend at rates as low as 4% to 5%, for example, is linked in the evaluation to substantial government capital injections that help reduce its cost of funds and absorb lending risks.
The NPA says similar approaches could provide lessons for strengthening the ACF’s development impact.
Greater concessionality could help the facility support national priorities including food security, agro-industrialization and rural transformation.
For BoU and the ACF, the evaluation therefore presents a largely positive picture of affordable agricultural financing, while urging the facility to remain responsive to changing economic conditions.
The challenge going forward will be to preserve the ACF’s cost advantage for agricultural borrowers while ensuring that its pricing structure remains sufficiently flexible to support the facility’s wider development objectives. (For comments on this story, get back to us on 0705579994 [WhatsApp line], 0779411734 & 041 4674611 or email us at mulengeranews@gmail.com).
