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November 13, 2011

Rwanda plans agriculture development bank

by Bosco Hitimana

Rwanda plans to set up an agricultural development bank with the aim of increasing funding to the sector, which employs more than 80% of the country's working population and supports more than 30% of the economy, the new prime minister told Parliament recently.

Mr. Pierre Damien Habumuremyi said by creating an agricultural development Bank, Rwanda would have a second development bank after the current development bank which finances high-risk projects in sectors that have high-value and meaning to the development of the country.

Statistics from the National Bank of Rwanda (NBR) indicate that between January and September this year, the agricultural sector had received Rf9.90 billion($16.7m) loans against Rf3.43 billion($5.8m) last year.

This is only a small portion of new authorised loans in the same period, totaling Rf239.38b (US$403.7m).

However, under funding of the sector is explained by many things. Borrowers consider the agricultural sector as a high risk area because it lacks insurance and it is less innovative. Most of Rwanda's agriculture s subsistence with minimal commercial undertakings.

The sector is also less insured against the adverse weather conditions and other natural calamities.

This scares banks from lending to the sector. Though dominated by small-scale farming, the sector has realised a rise in use of fertilisers, irrigation and machenisation though at a low scale’

However, with cash crops such as coffee and tea, there is some improvements in terms of access to finance although the exporters still want the government as well commercial banks to increase funding to the sector.

For instance, a sector like coffee is funded through the Rwanda Development Bank and other commercial Banks like Bank of Kigali.

However, the players in the sector say the cost of financing is still high somewhere 16% and 17% and it should go down to allow them access more funds and export more.

At times, however, banks blame the borrowers of unviable projects, which could lead to losses.

Analysts believe that by creating an agricultural development bank, Rwanda will have solved one of the most fundamental challenges to her development.

Busiweek

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