Startup capital and loan guarantees are some of the main stumbling blocks the business people face daily. Businesses, especially small-and-medium enterprises (SMEs) say they do not have collateral nor can they afford the loan guarantees to secure funding from financial institutions.

"Last year, I applied for a loan of Rwf53 million to buy a bus to start a transport business, but did not get it I could not afford the loan guarantee,” recounts Gilbert Mugabo, a resident of Remera Sector, Gasabo District.

He adds that the loan interest rate was at 18 per cent. "Business Development Fund (BDF) guarantees 75 per cent of youth loans, but for people aged above 35, the cover is 50 per cent.

"This means that I was supposed to first raise Rwf21.5 million to secure the loan applied for... I was forced to put the project on hold because of this barrier,” Mugabo adds.

Like Mugabo, most SMEs cannot afford loan guarantees, do not have collateral and cannot afford the high interest rate. 

Martha Mukankusi, a resident of Kinyinya Sector, Nyarugenge District, vends various items at the Nyabugogo bus terminal. The mother of four says most banks charge interest rate of up to 20 per cent, "which is very high for small business operators like me”.

"As a result, we resort to hawking around the city, not because we are trouble-makers…we have to survive.

"If I get Rwf1,000 a day, I know that my children will get what to eat that night,” she says.

Mukankusi says if she got a grant or had collateral to secure an affordable loan, she would set up a better business in one of the city markets.

However, business people like Mugabo and Mukankusi could soon have a chance to acquire loans that are fully guaranteed, thanks to a partnership deal signed between the Private Sector Federation (PSF) and the African Fund for Guarantee and Economic Co-operation (FAGACE), which will cover some of these costs, making it easy for small business operators to access funding.

FAGACE and Development Bank of Rwanda (BRD) also signed a similar deal, which ensure SMEs get financial security and loans at lower rates, as well as increasing the amount of funding to businesses, depending on the nature of the project.

Henri–Marie Dondra, the managing director of FAGACE, said at the signing of the memorandum of understanding that the fund would be giving loans ranging from Rwf70 million to Rwf12 billion for onward lending to qualifying SMEs at lower rates (compared to market rates).

In fact, FAGACE has already received applications for funding from local businesses.

Cynthia Favi Haïdara, the in-charge of communication and co-operation at FAGACE, told Business Times that Rwanda is one of the priority countries FAGACE will support on the continent.

"In this regard, some projects from Rwanda have already been received and are currently being reviewed. However, the evaluation process is complex and can take some time as we have to ensure that all proposals meet FAGACE eligibility conditions both in content and form,” she explains.

She adds that the fund would soon establish a branch in Kigali, a commitment that was made on the sidelines of the recent meetings in Kigali.

She, however, says entrepreneurs can in the meantime submit funding applications and proposals through BRD – for projects that need co-financing – and PSF.

Alex Kanyankole, the BRD chief executive officer, says they are currently evaluating some projects for funding under the deal.

"The projects are under consideration by both parties and we expect that by the beginning of next year, the study will be complete and they will get the loan,” he says. He says the agreement seeks to support projects in energy, agriculture, industry, among others.

Antoine Rutayisire Manzi, the PSF head of trade and advocacy, says FAGACE initiative is a huge relief that will make it easy for SMEs to access funding and expand their businesses.

"If a person has a profitable project and there is no guarantee, FAGACE is the best option for them as it covers all the costs of running the project,” he says.

He adds that FAGACE and PSF will work together to ensure that projects perform well and are sustainable by conducting regular follow-ups.

He notes that enterprises in all sectors of the economy, especially agriculture, trade, hotels, tourism and carpentry qualify for FAGACE funding.

The loan repayment period is 20 years for those that secure the finance, he adds.

According to Innocent Bulindi, the BDF chief executive officer, BDF had spent about Rwf37,573 billion in loan guarantees for 2,539 businesses, of which 96 per cent were SMEs by the end of August.

For the youth, BDF covers 75 per cent of the loan and 50 per cent of the approved loans for older people. Bulindi says the current loan rates are a burden to enterprise development, especially for SMEs.

Augustin Rwabukayire, the director of entrepreneurship at Rwanda Development Board (RDB), says they are working with National Employment Programme (NEP) to train people who want to do business so they can learn enterprise management basics.

He adds that so far, the training programmes have been conducted in Kayonza, Gatsibo, Muhanga, Ruhango, Musanze, Rulindo, Nyamasheke and Nyabihu districts, but all the districts will be covered.

What should be done to boost SMEs development

Cecile Mbashimishe, a communication officer at DOT Rwanda

Most of the youth and SMEs lack information about opportunities and support mechanisms that could help them run businesses sustainably. For instance, BDF covers youth loan guarantee. Also, most SMEs do not perform well due to lack of clear management systems. Some SME owners think that running a business is only about buying and selling products; they don’t register their assets and liabilities, which is critical to monitoring business performance. SMEs can also be affected negatively if they do not declare taxes due to ignorance or lack of awareness.

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Emmanuel Safari, the executive secretary of CLADHO, the umbrella body of human rights organisations in Rwanda

For small startups, it is not advisable to get bank loans whose interest rates are up to 20 per cent because they can hardly service them. Business people should be helped to understand the market, risks and how to manage their enterprises. Also, for SMEs to have better chances of survival, they should be exonerated from some taxes or pay lower taxes in their initial years as high taxes are one of the reasons most startups don’t celebrate their first birthday.

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Joselyne Mukankusi

Startups should focus on loans but use the little capital they have and expand step-by-step. However, the government should find ways of funding SMEs or ensure they access affordable loans to expand their businesses. Mukankusi also urges entrepreneurs to embrace business training to improve their skills to manage the enterprises better.

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Liberata Mukamana, vice-president for supervision at Haha Udahenzwe Co-operative in Nyarugenege District

Many SMEs stagnate because they cannot get affordable and long-term finance. We had planned to expand our business (charcoal trade) and venture into Irish potatoes and banana wholesale business, but lacked enough capital.

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(Compiled by Emmanuel Ntirenganya)