In Uganda, the agricultural sector is imperative for development as it accounts for more than 70 per cent of total employment and 60 per cent of the country’s export earnings. But the growth potential is hampered by lack of access to financial services, not least for small farmers in rural areas.
To improve financial services and financial inclusion in Uganda, Denmark’s development cooperation, Danida, more than 12 years ago established aBi Finance, which is providing funding for agribusiness through lines of credit and agriculture loan guarantees to financial institutions.
To take aBi Finance to the next level, IFU and the European Union are investing USD 18 million as equity in aBi Finance. The investment will increase the capacity of the company and is expected to benefit 27,000 new beneficiary clients and create USD 4 million of additional income and 900 additional jobs annually.
“The investment in aBi Finance holds a promising potential for increasing financial services to rural small farmers, giving more an option to grow their business and improve their livelihood. But to create a solid business case for IFU to invest in, we needed concessional financing, which we have secured by co-investing with the European Union’s Blended Finance Facilities.”
Anders Frigaard, Senior Investment Manager, IFU.
“With more than 12 years of involvement in aBi Finance, we are pleased that the institution is now mature for a greater commercialization. This will make aBi Finance much more sustainable. The new investments from IFU and the EU will ensure aBi Finance’s continued support towards smallholder producers and businesses in the agribusiness sector in Uganda. An engagement that has been and still is of great importance to the work of the Danish Embassy in Uganda,” said the Danish Ambassador to Uganda, H. E. Nicolaj A. Hejberg Petersen.
Co-financed by the European Union
Providing financial services to rural small farmers in Uganda is a high-risk business, and consequently IFU has reached out to the European Union to co-finance the investment through its Blended Finance Facilities.
The European Union’s Blended Finance Facilities was established to mobilise funding for private sector development through different financial instruments and classes of financing.
“The EU is delighted to join hands with the Danish Investment Fund for Developing Countries (IFU) to de-risk their investment in the Agricultural Business Initiative (aBi) in a true Team Europe approach. We are convinced that through this additional injection of capital, aBi will be able to reach more smallholder farmers in Uganda with better products, adapted to their needs. Access to finance will have a positive impact on their small businesses and pull many out of poverty.”
European Union Head of Co-operation, Ms. Caroline Adriaensen.
Creating a commercial business
IFU is the first commercial investor in aBi Finance, and the aim is to develop the company into a profitable business, which can continue to grow and provide high impact in Uganda.
“With the acquisition of new investments, aBi Finance has demonstrated that it is a sustainable and professionally run organization that can and will continue to attract foreign direct investment. We are confident that this investment will add to our past and ongoing initiatives to develop a competitive, profitable and sustainable agribusiness sector in Uganda,” said Ms. Mona Muguma-Ssebuliba, aBi CEO.
Agricultural Business Initiative Finance (aBi Finance)
Since 2010, aBi Finance Ltd has sustainably encouraged the growth of agribusiness value chain actors by stimulating access to finance through; providing liquidity, de-risking agricultural finance and building capacity of financial services actors to avail financial services to agribusinesses. For the period 2010/2021, aBi Finance Ltd has made the following milestones:
- disbursed a total of 1.4 million new loans worth UGX 3.5 trillion
- size of the capital fund (UGX 177 billion);
- number of Lines of Credits beneficiaries (425,000);
- number of agricultural guarantees beneficiaries (191,000);
- number of farmers accessing agriculture insurance (240,000)
Prior to this capital injection from IFU & EU, aBi Finance capital fund size stood at over USD 50million (approximately UGX 200 billion) with an average return of 10%. The Fund is invested in Line of Credits, Loan Guarantee Scheme and fixed deposits.