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By Mulengera Reporters
Uganda’s Agricultural Credit Facility (ACF) has disbursed Shs18.6 billion to 2,767 borrowers through its Block Allocation Loan scheme, expanding access to formal financing for micro and smallholder farmers who often struggle to meet conventional bank collateral requirements, a new evaluation by the National Planning Authority (NPA) has found.
The independent evaluation, released in May 2026, says the scheme is helping to bridge the financing gap for underserved rural borrowers by allowing participating financial institutions (PFIs) to use more flexible forms of collateral and credit assessment.
These include chattel mortgages, cash-flow-based lending and character assessments, giving farmers with limited physical assets an opportunity to access formal credit.
As of June 2024 according to page 59 of the report, Shs5.1 billion had been disbursed to 654 new beneficiaries under the scheme, bringing cumulative lending to Shs18.6 billion and the number of borrowers to 2,767.
The NPA says the continued growth of the scheme demonstrates strong demand for credit products that are more adaptable to the circumstances of micro and smallholder farmers.
However, despite its growing reach, Block Allocation Loans account for only about one per cent of total ACF financing, highlighting what the evaluation describes as an opportunity to significantly expand the product.
The NPA recommends that ACF increase funding for the scheme, encourage more PFIs to participate and provide technical support to improve borrowers’ preparedness and repayment performance.
It further calls for ACF to ring-fence a dedicated share of its funding for Block Allocation Loans to guarantee predictable resources for PFIs offering flexible collateral arrangements.
Small farmers get more loans, but less money
The evaluation, however, reveals a major imbalance between the number of small borrowers benefiting from ACF and the amount of money they receive.
As of September 2024, micro loans of less than Shs20 million accounted for 72.8 per cent of all ACF-supported projects, while small and medium loans between Shs20 million and Shs100 million accounted for 20.4 per cent.
Despite this broad reach, large borrowers received the overwhelming majority of ACF funding.
Borrowers receiving loans above Shs100 million accounted for only six per cent of projects but received 82.4 per cent of total ACF disbursements.
Small and medium borrowers received 14 per cent of the funding, while micro borrowers—many of whom access credit through the Block Allocation scheme—received just 3.6 per cent.
The NPA attributes the disparity partly to the commercial incentives facing PFIs.
Lending Shs1 billion to one borrower, for example, is generally less costly to administer than processing 100 separate loans of Shs10 million each. This makes larger loans more attractive to financial institutions because they can generate greater returns while involving fewer administrative and operational costs.
The result is a concentration of ACF funding among large-scale borrowers despite the facility reaching a much larger number of micro and small-scale enterprises.
NPA calls for incentives for small loans
To address the imbalance, the NPA recommends introducing incentives that would encourage PFIs to increase lending to micro and small-scale borrowers.
The proposed measures include performance rewards linked to the volume or quality of lending to small borrowers, as well as financial bonuses for PFIs that meet agreed lending targets.
PFIs that demonstrate strong performance could also receive non-monetary incentives, including recognition in national development reporting and priority access to future ACF funding lines.
The evaluation also recommends sharing some of the costs associated with administering small loans.
Under the proposal, ACF could subsidise part of the cost of borrower onboarding, field visits and loan documentation for loans below Shs20 million.
Greater use of digital loan-processing and mobile platforms could also reduce the cost of serving rural borrowers, while centralised credit assessment and client-verification systems could help PFIs process microloans more efficiently.
Loans should follow farmers’ cash flows
The NPA also recommends that ACF develop products that reflect the income patterns and repayment capacity of smallholder farmers.
One proposal is to introduce graduated loan structures, allowing borrowers to start with smaller loans and access larger amounts after demonstrating good repayment performance.
The evaluation also recommends repayment schedules aligned with agricultural cycles, including grace periods that allow farmers to repay after harvest rather than according to rigid repayment schedules.
Another proposed intervention is partial credit guarantees for microloans below a set threshold, such as Shs20 million. The guarantees would reduce the risks perceived by PFIs when lending to smaller borrowers.
The NPA says ACF could collaborate with the African Guarantee Fund to develop guarantee-backed loans specifically for micro borrowers.
Central Uganda takes the biggest share
The evaluation also found that ACF lending remains geographically concentrated, with the Central and Western regions receiving the largest share of financing.
By loan value, 54 per cent of ACF loans were disbursed in the Central region, followed by 23 per cent in the Western region and 19 per cent in the Eastern region. The Northern region received only five per cent.
The pattern largely mirrors the distribution of commercial banks in the country. About 54 per cent of commercial bank branches are located in the Central region, giving PFIs a stronger presence and making it easier for them to originate and administer ACF loans there.
The concentration of large corporate borrowers in Central Uganda further reinforces the geographic imbalance.
The NPA says the limited ACF activity in Northern and Eastern Uganda exposes a structural weakness in the facility’s efforts to promote financial inclusion.
The evaluation cites FinScope findings showing that more than 94 per cent of residents in the Eastern and Northern regions were outside the formal financial system in 2018.
NPA proposes regional funding quotas
To address the regional disparities, the NPA recommends that ACF introduce regional funding quotas, with a portion of the facility’s resources ring-fenced for underserved areas.
PFIs could then be incentivized to meet specific lending targets in regions where access to formal finance remains low, with a monitoring framework put in place to ensure the funds reach their intended beneficiaries.
The NPA also calls for increased financial-literacy and capacity-building programmes in underserved regions to improve awareness of available financing and prepare potential borrowers to meet lending requirements.
The evaluation suggests that greater involvement of SACCOs and microfinance institutions could also help extend ACF financing beyond areas dominated by commercial banks.
Overall, the NPA assessment finds that while ACF has made progress in reaching micro and small-scale borrowers, more needs to be done to ensure that the amount of financing reaching these borrowers reflects their share of beneficiaries.
The growth of the Block Allocation Loan scheme demonstrates the potential of flexible collateral and alternative credit assessments to bring previously excluded farmers into the formal financial system.
Expanding the scheme, reducing the cost of administering small loans and directing more financing towards underserved regions could, according to the evaluation, enable ACF to have a broader impact on agricultural productivity, rural incomes and inclusive economic growth. (For comments on this story, get back to us on 0705579994 [WhatsApp line], 0779411734 & 041 4674611 or email us at mulengeranews@gmail.com).
