Report on Agricultural Financing in Ethiopia and Alignment with Sustainable Development Goals

Executive Summary: The Critical Financing Gap Hindering SDG Progress

A significant disparity exists between the demand for and supply of agricultural credit in Ethiopia, posing a substantial threat to the nation’s ability to achieve key Sustainable Development Goals (SDGs), particularly SDG 1 (No Poverty) and SDG 2 (Zero Hunger). Financial institutions currently meet only two percent of the estimated 2.5 trillion Birr annual credit demand from the agriculture sector. In response, the Ethiopian government has launched the National Agri-Finance Implementation Roadmap (NAFIR), a five-year strategy designed to bridge this gap and align the sector’s growth with national development priorities and the SDGs.

State of Agricultural Finance: A Barrier to Sustainable Growth

The underfinancing of Ethiopia’s agricultural sector, which accounts for 32% of GDP and 64% of employment, is a critical development challenge. The current financing levels are insufficient to drive the modernization required to ensure food security and reduce rural poverty, directly impacting progress towards the SDGs.

• Total Annual Credit Demand: 2.5 trillion Birr
• Total Credit Disbursed (2024): 52 billion Birr (2% of demand)
• Disbursement Including Fertilizer Credit: 125 billion Birr (5% of demand)
• Projected Demand (2030): 2.93 trillion Birr

Declining Support from Microfinance Institutions

A concerning trend is the sharp decline in credit from microfinance institutions (MFIs), which are vital for reaching smallholder farmers. This trend undermines efforts towards SDG 10 (Reduced Inequalities) by limiting financial access for rural populations.

• The proportion of MFI credit allocated to agriculture has fallen from 30% to 18% over the last four years.
• For MFIs that converted to banks, the proportion of lending to agriculture dropped from 57% to 32% in a single year.

The National Agri-Finance Implementation Roadmap (NAFIR)

NAFIR is a strategic framework developed by the Ministry of Agriculture and the National Bank of Ethiopia to systematically address the financing shortfall. The roadmap aims to increase agricultural lending to a minimum of 881 billion Birr annually by 2030, fostering a coordinated, data-driven financial system that supports rural inclusion and private sector engagement. This ambition is central to achieving SDG 8 (Decent Work and Economic Growth) by unlocking the sector’s economic potential.

Core Mechanisms for SDG-Aligned Financing

The roadmap introduces three key mechanisms to mobilize and channel financing effectively:

1. National Agri-Finance Accelerator (NAFA): A refinancing and risk-sharing facility designed to de-risk agricultural lending. By pooling resources from government, development partners, and financial institutions, NAFA promotes SDG 17 (Partnerships for the Goals). Its focus on providing incentives for lending to smallholders, pastoralists, and women directly supports SDG 5 (Gender Equality) and SDG 10 (Reduced Inequalities).
2. Farmer Access to Streamlined Financial Services (FAST): A digital transformation initiative that aligns with SDG 9 (Industry, Innovation, and Infrastructure). FAST will provide farmers with a digital ID linked to their production data and mobile wallets, enabling automated credit scoring and streamlined loan access. This system aims to enhance financial inclusion and efficiency.
3. Agri-Finance Centre of Excellence (CoE): A hub for institutional capacity building, financial literacy, and risk management. The CoE will work with banks to develop specialized financial products, promote insurance uptake, and drive digital innovation, building a resilient financial ecosystem capable of supporting long-term progress on SDG 2 (Zero Hunger).

Challenges and Opportunities for Sustainable Development

Achieving the roadmap’s goals requires overcoming significant hurdles while leveraging emerging opportunities.

Challenges

• High Risk and Cost: Agricultural lending is perceived as riskier and costlier due to seasonality and weak collateral systems.
• Limited Financial Literacy: Farmers often lack the financial and digital literacy needed to access and manage credit effectively.
• Lack of Insurance: The scarcity of suitable crop and livestock insurance products limits the bankability of agricultural projects.

Opportunities

• Financial Sector Liberalization: The opening of Ethiopia’s banking sector to foreign investment could unlock new sources of capital for agriculture.
• Data-Driven Accountability: The planned National Agri-Finance Database will enhance transparency and long-term planning by tracking loan performance and farmer credit histories, strengthening the foundation for sustainable investment.
• Policy Support for Modernization: Government initiatives to support the import and local assembly of mechanization and irrigation equipment signal a commitment to modernizing the sector, a prerequisite for achieving SDG 2.

Analysis of SDGs in the Article

1. Which SDGs are addressed or connected to the issues highlighted in the article?

The article on Ethiopia’s agricultural finance challenges and the new roadmap (NAFIR) addresses several interconnected Sustainable Development Goals (SDGs). The core issue of underfinancing the agricultural sector has direct implications for poverty, hunger, economic growth, and equality.

• SDG 1: No Poverty
  
  The article connects to this goal by focusing on providing financial services to “smallholders, pastoralists, and women,” who are often among the most economically vulnerable. The lack of credit is a major barrier keeping these rural populations in poverty, and the proposed solutions aim to improve their economic standing.
• SDG 2: Zero Hunger
  
  This is a central theme. The article is entirely about financing the agriculture sector to achieve “fully modernized agriculture.” Increased credit is needed for “crop and livestock inputs, irrigation, equipment and mechanization services,” all of which are essential for boosting food production, ensuring food security, and ending hunger.
• SDG 5: Gender Equality
  
  The goal is explicitly mentioned. The National Agri-Finance Accelerator (NAFA) facility is designed to “provide incentives to financial institutions to lend to underserved groups, including… women.” This directly addresses the need to ensure women have equal access to economic and financial resources.
• SDG 8: Decent Work and Economic Growth
  
  The article highlights that agriculture contributes “32 percent to the Gross Domestic Product (GDP)” and “64 percent to employment.” Underfinancing this sector stifles its potential for growth. The plan to boost agricultural lending from “34.2 billion Birr in 2019/20 to 881 billion Birr” is a strategy to drive economic growth and support employment.
• SDG 9: Industry, Innovation, and Infrastructure
  
  The article discusses the need to modernize the agricultural sector through technology and infrastructure. This includes importing “more than 500 pieces of irrigation and mechanization equipment” and introducing digital innovations like the “Farmer Access to Streamlined Financial Services (FAST)” system, which provides farmers with a “digital ID linked to their land, production data, and mobile wallets.”
• SDG 10: Reduced Inequalities
  
  The article points out a significant inequality in financial access, where the agriculture sector and rural populations are “severely underfinanced.” The roadmap’s objective of promoting “rural inclusion” and targeting “underserved groups” like smallholders and pastoralists is a direct effort to reduce these economic inequalities.
• SDG 17: Partnerships for the Goals
  
  The development and implementation of the Agri-Finance Implementation Roadmap (NAFIR) is a partnership in itself, being “jointly launched… by officials at the Ministry of Agriculture and regulators at the National Bank of Ethiopia (NBE).” Furthermore, the NAFA facility plans to pool resources from “government, development partners, commercial banks, and microfinance institutions,” exemplifying a multi-stakeholder partnership.

2. What specific targets under those SDGs can be identified based on the article’s content?

The article’s content aligns with several specific SDG targets:

1. Target 2.3: By 2030, double the agricultural productivity and incomes of small-scale food producers, in particular women… including through secure and equal access to… financial services.
   
   The article’s entire focus is on increasing credit for farmers to invest in “inputs, irrigation, equipment and mechanization services,” which directly aims to increase their productivity and income. The specific mention of targeting “smallholders, pastoralists, and women” aligns perfectly with this target.
2. Target 1.4: By 2030, ensure that all men and women, particularly the poor and the vulnerable, have equal rights to economic resources, as well as access to… financial services, including microfinance.
   
   The article highlights the decline in microfinance (MFI) lending and proposes new mechanisms like FAST and NAFA to “promote rural inclusion” and make credit accessible to the most vulnerable, directly addressing this target.
3. Target 8.10: Strengthen the capacity of domestic financial institutions to encourage and expand access to banking, insurance and financial services for all.
   
   The roadmap includes an “Agri-Finance Centre of Excellence (CoE)” designed to “work with banks to develop specialized agri-finance products, promote insurance uptake, and drive digital innovation,” which is a clear strategy to strengthen the capacity of these institutions as described in the target.
4. Target 5.a: Undertake reforms to give women equal rights to economic resources, as well as access to… financial services.
   
   The plan for the NAFA facility to provide specific “incentives to financial institutions to lend to underserved groups, including… women” is a direct measure aimed at achieving this target.
5. Target 9.1: Develop quality, reliable, sustainable and resilient infrastructure… with a focus on affordable and equitable access for all.
   
   The article mentions investment in physical infrastructure (“500 pieces of irrigation and mechanization equipment”) and digital infrastructure (the FAST system with digital IDs and mobile wallets), which supports this target’s goal of building resilient infrastructure to support economic development.
6. Target 17.17: Encourage and promote effective public, public-private and civil society partnerships.
   
   The collaboration between the Ministry of Agriculture, the National Bank of Ethiopia, development partners, and private financial institutions (banks, MFIs) to create and fund the new financial mechanisms is a textbook example of the partnerships this target promotes.

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

Yes, the article contains several quantitative and qualitative indicators that can be used to track progress.

• Volume of Agricultural Lending: The article provides a baseline (“52 billion Birr in loans to the sector in 2024”) and a clear target (“rise to a minimum of 881 billion Birr annually by 2030”). This is a primary indicator for measuring progress towards Targets 2.3 and 8.10.
• Proportion of Credit Demand Met: The article states that current disbursements meet “only two percent of an estimated 2.5 trillion Birr in annual demand.” Tracking the increase in this percentage would be a key indicator of success.
• Share of Agricultural Loans in Bank/MFI Portfolios: The article notes the decline in the MFI sector’s proportion of credit to agriculture (“from 30 percent to 18 percent”) and the low allocation from private banks (“one to three percent”). An increase in these percentages would indicate a structural shift in lending priorities, relevant to Target 8.10.
• Number of Farmers with Digital Access: The implementation of the FAST system implies a new indicator: the number of farmers provided with a “digital ID linked to their land, production data, and mobile wallets.” This measures progress on financial inclusion and innovation (Targets 1.4 and 9.1).
• Uptake of Agricultural Insurance: The article mentions the “limited availability of crop and livestock insurance” and the goal of the CoE to “promote insurance uptake.” The number or percentage of loans bundled with insurance would be a key risk management indicator (relevant to Target 8.10).
• Investment in Mechanization: The specific mention of “more than 500 pieces of irrigation and mechanization equipment” being imported provides a tangible indicator for measuring progress in modernizing agricultural infrastructure (Target 9.1).
• Loan Disbursement Time and Efficiency: The goal to “drastically simplify compliance and cut down disbursement times” through digital transformation implies that metrics on loan application and disbursement times will be tracked to measure efficiency gains.

4. Table of SDGs, Targets, and Indicators

Source: thereporterethiopia.com