In the absence of an agriculture bank, there is a need to ensure that the sector receives "a fair share” of loans from local lenders, the Minister for Agriculture and Animal Resources has said.
Gérardine Mukeshimana was appearing before the Chamber of Deputies’ standing committee on economy and trade during a session that focused on lending to agriculture.
The session, held at the Parliamentary Buildings in Kimihurura on Thursday, was prompted by issues highlighted in 2018/19 annual report of the National Bank of Rwanda (BNR).
Mukeshimana admitted that agriculture is receiving a modest share of loans despite its critical importance to the economy and Rwandans.
MP Théogène Munyangeyo, the committee chairperson, said that, based on BNR’s report, agriculture received a paltry 3.4 per cent of loans, despite contributing 28 per cent the country’s Gross Domestic Product, and being a direct source of livelihoods for over 60 per cent of the population.
According to the Monetary Policy and Financial Stability Statement released by the National Bank of Rwanda, on August 22, 2019, agriculture sector received loans amounting to Rwf5.2 billion (out of a total of Rwf550.8 billion) given by banks in the first half of 2019.
Mukeshimana said that, in the absence of an agriculture bank existing commercial banks should be obliged to significantly increase lending to the sector.
She noted that that most countries that have made significant development gains in recent decades, especially in Asia, put a lot of emphasis on agriculture financing since 1960s.
"They made it mandatory that about 70 per cent of their banks’ loan portfolios went to agriculture,” she said. "I think we should also make it mandatory,” she said. "Because we do not have an agriculture bank.”
She suggested that there is need to ensure that at least 30 per cent of any lender’s loan portfolio goes to agriculture. At the moment, the minister said, local lenders "seem to have no interest in understanding and financing agriculture.”
‘We are late’
The minister acknowledged that, generally, there is a concern that agriculture is risky, but challenged this notion arguing that all sectors are risky anyway. For instance, transport sector, which receives a significant portion of credit, has its own risks too, she said.
"Someone who grows tomatoes will harvest and sell produce and repay the loan. I don’t see why agriculture is deemed more risky than, say, transport sector, or someone who’s buying a car,” she said.
Mukeshimana also explained that the special agricultural fund under Rwanda Development Board is too small to have a significant impact on the sector.
This is worsened by the fact that the Fund does not operate from rural areas where most farmers are based.
She cited a 2018 report, titled ‘Future Drivers of Growth in Rwanda’, by the World Bank and the Ministry of Finance and Economic Planning, which concluded that the country should place more emphasis on developing agriculture and human capital among six national priorities.
"Now that we know that why can’t we scale up our efforts?” she posed.
Munyangeyo concurred, saying "we are late. All the countries that developed started with agriculture. We should take our agriculture sector to another level. Even as our country has a vision to grow the industry sector, the first raw material needed is agricultural and livestock produce, such as milk, meat and crops to which we can add value through processing.”
"If the agriculture sector grows and generates more income, it will spur the industry and service sectors,” he added.
Irrigation ‘still limited’
MP Jean Pierre Hindura, a committee member, said that even the small loans that go to agriculture have a relatively short repayment period of four years, as opposed to other sectors like construction which average 10 years.
"This situation makes it impossible for a farmer to take a loan to grow certain crops like macadamia,” he said.
Lawmakers said that the agriculture and livestock sector needs to be improved to withstand the effects of climate change and help the country become self-reliant in foodstuff.
One area that needs funding, Mukeshimana said, is irrigation.
She said that only about 61,000 hectares of land is irrigated, less than half of the target of 102,000 hectares by 2024.
Meeting the target will require more investments, the minister warned.
Farmers have in recent years expressed concern that they can barely afford half of the cost of irrigation equipment under the framework of small-scale irrigation schemes in which the Government provides a subsidy of 50 per cent.
There had been hope that the agriculture insurance policy, launched last year, would see more banks develop interest in the sector but the policy has not gone far enough yet and more time will be needed to determine its success.