The Development Bank of Rwanda (BRD) recently underwent structural reforms, which saw the bank split into two sections – one for financing long-term projects with a broader impact on the economy, and the other a commercial section, dubbed BRD-Commercial. BRD-Commercial was later privatised and merged with Banque Populaire du Rwanda to form BPR under new majority shareholder, Atlas Mara.

As such, the restructured Development Bank of Rwanda (BRD) says its putting emphasis on sectors that are critical to the country’s growth prospects, namely; energy, agriculture (value addition), exports and affordable housing.

The New Times’ Collins Mwai sat down with the CEO of Development Bank of Rwanda, Alex Kanyankole, on the new role of the restructured development bank.

Excerpts:

The African Union, and indeed Rwanda, are encouraging the private sector to take a central role in efforts to deliver on development plans, that is the Agenda 2063 in the case of the African Union, and EDPRS and Vision 2020 in the case of Rwanda. How can the financial sector help in this effort?

What is most important is having an economy that is growing and based on the involvement of the private sector because in developed economies the interplay and the collaboration between the public and private sectors have been very important in bringing about sustainable development.

But for the private sector to be able to do what they are doing they need a financial sector that enables them.

This will, in turn, facilitate financial inclusion of women, youth and the informal sector so as to have inclusive development.

BRD seems to be increasing its focus on the agricultural sector, how are you going about this in the broader context of making the sector the cornerstone of development agenda?

When we decided to refocus our approach and shed off the BRD commercial arm, it was a way of making sure that we have more impact in the kind of engagement we were having with the private sector.

We are looking at having more impact in the sense of employment opportunities and contributing significantly to the reduction of poverty as well as improving the incomes and livelihoods of people we serve day by day.

We decided to focus on a number of priority areas, including agriculture. Because of the nature of our economy now, to increase export revenues we singled out exports. We also set out to tackle the issue of affordable housing in addition to energy and, finally, education where we are focusing on (varsity) student loans.

Agriculture is a major contributor to our GDP and a major employer of our citizens. The bank continues to emphasise the importance of agriculture financing and we have created an independent agriculture financing unit to ensure more visibility, focus and attention to the sector.

We are partnering with a number of stakeholders, including the Ministry of Agriculture, IFAD (International Fund for Agricultural Development), farmers cooperatives, among other partners, to finance inputs, provide capital and infrastructure, among other areas.

In the priority areas, we are targeting a total of about Rwf350 billion over a five year period.

Among your new priority areas, you are pursuing areas where the local private sector has been found to have capacity challenges, such as housing and energy. How are you involved on this front?

The capacity issues in the private sector are being addressed progressively through introducing partnerships in the sector. In the energy sector and affordable housing, there are also investors that are coming from outside the country who are partnering with local investors which makes it possible for us to finance and implement the projects. 

BRD is also running a technical assistance programme not only for our staff but also for some of the private sector players who need technical assistance as they implement their projects.

This is in areas such as the energy sector where we have brought onboard experts in project appraisal, financing and cycle management.

The private sector you see today is different from the one in the past; today’s have a lot of insights in development matters.

How are you addressing the issue of high interest rates that is common with commercial banks?

In our new strategy, we are adopting more appropriate resource mobilisation strategies that address three things, mobilising low cost funds, attracting funds with long-term maturity and sustainable collateral and guarantee systems.

These have been some of the key challenges we’ve faced in recent years. Most of the challenges that we had previously involved funds that were available for a short term while the projects were long-term undertakings.

The other gap was in the guarantee system, which we are addressing through partnership with institutions such as the Africa Solidarity Fund that will help us guarantee projects.

We are also working with institutions, such as the Africa Guarantee Fund, which is giving us up to 5 million dollars in form of guarantees to support SMEs growth. All these are going to address collateral securities. 

On resource mobilisation for long-term, we are engaging development finance institutions across the region and beyond. That’s why we have begun working with the Arab Bank for Economic Development (in Africa), African Development Bank, European Investment Bank and the Africa Export Import Bank, and we will continue working with such partners to ensure that the priority areas receive funding.

These will ensure that it is appropriate in terms of cost, maturity and guarantee requirements.

It has often been said that projects that you have identified as priority, such as energy solutions and affordable housing, lack bankability and profitability in this market. Is this true?

The projects are bankable. The principle we have as a bank is financing projects that are viable and bankable. These projects go through the standard systems of project appraisal, where we check the viability and feasibility and run them through credit appraisal systems.

What is different from the commercial banks model is the risk appetite and the profit targets that we have as a development bank. We are usually looking for a margin of about 3 to 4 per cent. The commercial banks are looking for 5 to 6 or to 7 per cent.

They tend to have a higher margin. But we are not competing with them but rather complement what they are doing. Ours is wholesome and looking at the bigger picture. The retail aspect of banking is also necessary and we work with them on that too.

We understand BRD is making an effort to help address export challenges, what’s the progress on this?

Export financing is one of the key priorities for the bank. There is need to do more of export promotion projects to reduce the gap between imports and exports. Under the patronage of the Ministry of Trade and Industry, there is an initiative of export growth facility which will help exporters deal with issues of guarantees in projects, prohibitive interest rates and accessing licenses and markets.

The facility is under matching grants to access certain markets, additional guarantees and act as a catalytic fund which helps reduce the interest rates for exports.

We began it last year as a pilot with the government putting in Rwf500 million and BRD Rwf 500 million as well. And, in the new budget (2016/17), the government is putting in Rwf1 billion.

You have set a target of offering loans amounting to Rwf350bn in five years, what’s the situation today and how realistic is this?

In 2013, we approved loans amounting to Rwf 55 billion, then Rwf 60 billion in 2014 and Rwf 67.5 billion in 2015. In 2016, we have projects worth Rwf 80 billion. For Rwf350 billion in five years, that’s an average of 60 billion every years which we have found to be realistic.

Appetite from the private sector, we have been financing average loan sizes that are growing. For smaller loans, we support them through other banks; the loan requests we are receiving start from Rwf1 billion to Rwf5 billion. We can see growth in terms of the capacity of our clients and their appetite.

All these impact the economy.

You have been previously on record calling on Rwandans to save more to bring down the cost of loans…

To make loans cheaper, it requires more than that. The bottom line is, having enough money in circulation and savings is paramount. Over and above that, there are other things that need to be addressed.

There is need to have projects that are more viable, there is need to deal with risks because the pricing of a loan is partly on the cost of funds and the risk profile of the project.

That is why we have been working with BDF (Business Development Fund) to make sure that they can provide some advisory services on how SME operators can prepare their projects but also giving them the capacity to offer the guarantees which give comfort to lenders.

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