Financial Institutions Meet Only 2pct Of Agriculture Credit Demand

Disbursements from microfinance institutions in alarming decline

Ethiopia’s financial institutions meet only two percent of an estimated 2.5 trillion Birr in annual demand for credit in the country’s agriculture sector, according to a government document published this week.

Banks and microfinance institutions (MFIs) disbursed just 52 billion Birr in loans to the sector in 2024, far less than total demand. Even counting the 73 billion Birr in credit allocated by the state-owned Commercial Bank of Ethiopia (CBE) for fertilizer purchases, the proportion of disbursements to demand sits at a measly five percent.

The startling figures are included in the national Agri-Finance Implementation Roadmap (NAFIR) jointly launched this week by officials at the Ministry of Agriculture and regulators at the National Bank of Ethiopia (NBE).

The roadmap charts Ethiopia’s agricultural aspirations for the coming five years.

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“This total annual potential demand [2.5 trillion Birr] represents a scenario of fully modernized agriculture and comprises the key agri-finance use cases for which producers across Ethiopia’s agricultural value chains would access credit for crop and livestock inputs, irrigation, equipment and mechanization services, and use output finance to support enhanced aggregation and marketing,” reads the document.

It forecasts that demand for agri-finance will grow to 2.93 trillion Birr in 2030, and represents a huge increase on forecasts included in the Ten-Year Perspective Plan, primarily owing to the decision to float the currency in July 2024.

Officials want to see credit to the agriculture sector rise to a minimum of 881 billion Birr annually by 2030, while the roadmap also includes ambitious targets for modernization through a coordinated, data-driven financial framework that promotes rural inclusion and private capital engagement.

Although banks have more than doubled their disbursements to agriculture to 2.54 billion Birr in the four years since 2020, officials argue progress has been too slow. They also caution about an alarming decline in financing from MFIs.

“There has been a declining trend in the microfinance sector over the last four years which has seen their proportion of credit provided to agriculture fall from 30 percent to 18 percent. The drop was even more pronounced for those MFIs which converted to become banks between 2021-22. Between them, Tsedey, Siinqee, Omo and Shabelle Banks experienced a fall in the proportion of lending to agriculture from 57 percent to 32 percent in just one year,” states the document.

Despite contributing 32 percent to the Gross Domestic Product (GDP), 64 percent to employment, and nearly 80 percent of export earnings, the agricultural sector remains severely underfinanced.

In 2023/24, only 52 billion Birr was disbursed in actual agricultural credit—excluding Commercial Bank of Ethiopia’s fertilizer financing—representing two percent of the estimated 2.58 trillion Birr in annual potential demand, NAFIR states.

Including fertilizer financing, the figure rises to 125 billion Birr, but this form of credit does not directly reach farmers.

Officials warn the sector is not receiving enough financial support to achieve its national development priorities.

NAFIR sets out to bridge this gap with a compound annual growth rate of 38.5 percent, boosting agricultural lending from 34.2 billion Birr in 2019/20 to 881 billion Birr by the end of the plan period.

For 2023/24, the policy benchmark was 126 billion Birr, but actual disbursement covered only 41 percent of that, or 99 percent if CBE fertilizer credit is included — highlighting the scale of the challenge.

The roadmap introduces three key mechanisms to mobilize and channel financing: the National Agri-Finance Accelerator (NAFA), Farmer Access to Streamlined Financial Services (FAST), and an Agri-Finance Centre of Excellence (CoE).

NAFA will act as a refinancing and risk-sharing facility pooling resources from government, development partners, commercial banks, and microfinance institutions. It will provide incentives to financial institutions to lend to underserved groups, including smallholders, pastoralists, and women, by reducing the cost and risk of lending, according to the roadmap.

FAST will provide farmers with a digital ID linked to their land, production data, and mobile wallets. Through this system, farmers will receive personalized seasonal credit allowances calculated by automated credit-scoring algorithms. The loans will be bundled with crop or livestock insurance and accessed without the paperwork typically required in rural lending, according to the document.

Officials hope to see the planned digital transformation drastically simplify compliance and cut down disbursement times.

On the other hand, the CoE will serve as a hub for building institutional capacity, financial literacy, and risk management systems. It will work with banks to develop specialized agri-finance products, promote insurance uptake, and drive digital innovation in the sector, according to the roadmap.

This platform will also coordinate with stakeholders to establish a comprehensive risk management framework, addressing the limited availability of crop and livestock insurance and the absence of price risk hedging instruments.

The roadmap seeks to make credit accessible through multiple channels.

Farmers may access funds directly from banks or through cooperatives acting as intermediaries. Other distribution models include digital platforms like Lersha, Kifiya, and Farm Pass, agro-dealers and off-takers, and warehouse receipt systems, where loans are secured against stored produce, according to the roadmap.

“These channels aim to improve outreach and transparency, especially in remote areas with limited banking presence,” it reads.

As of now, lending to agriculture remains minimal across the financial sector.

Private banks established before 2021 have consistently allocated only one to three percent of their loan portfolios to agriculture.

Speaking at the Ethiopian Finance Forum on July 22, 2025, Girma Amente (PhD), minister of Agriculture emphasized the urgency of modernizing the sector.

“To support mechanization, more than 500 pieces of irrigation and mechanization equipment have been imported, with new policy support for local assembly,” he said, calling on banks and microfinance institutions to significantly increase their agricultural financing commitments.

The roadmap does not downplay the challenges.

Financing agriculture remains costlier and riskier than other sectors, due to seasonality, weak collateral systems, and limited borrower capacity. Furthermore, farmers often lack the financial and digital literacy needed to access and manage loans effectively. The scarcity of suitable insurance products also continues to limit bankability.

Yet opportunities are emerging. Ethiopia’s banking sector is opening up to foreign and private investment, potentially unlocking new sources of capital, as the roadmap puts it. Officials also envision building a National Agri-Finance Database to track loan performance and farmer credit histories, enhancing accountability and long-term planning.