There has been relatively low uptake of the working capital provision of the Economic Recovery Fund by local businesses since its launch in June, preliminary statistics from the Central Bank and local banks show.

The statistics show that since its launch, the Rwf 100B recovery fund has had fast uptake among hotels with local businesses yet to take it up as much.

The fund was in two portions; Hotel Refinancing which was to enable the restructuring of loans held by hotels and Working Capital for businesses most affected by COVID-19 to keep them operational and avoid lay-offs.

Of the total funds, Rwf 50B was earmarked for Hotel Refinancing with an aim to restructure 35 per cent of total performing outstanding loans of the hotel sector that stood at Rwf134 billion for 571 borrowers as at end of February 2020.

According to John Rwangombwa, Central Bank Governor, Rwf 43B has been approved for hotel refinancing, with Rwf 20B already disbursed.

Rwangombwa said that so far, much progress had been made in hotel loans restructuring with up to Rwf 20B disbursed following approval.

"Rwf 50 B was to go to hotels, to restructure 35 per cent of total hotel loans. That is already done.  We have approved up to Rwf 43 billion worth of hotel loans. Of course, some banks have delayed finalizing the restructuring of agreements. We have approved the funds as managers of the fund. So far we have disbursed about Rwf 20 B among those that have finalized the restructuring and the rest will be done in the next one week,” he said.

However, not as much progress has been with regard to working capital for businesses with considerably low activity in the provision.

Within the working capital aspect of the fund for businesses most affected by COVID-19 to keep them operational and avoid lay-offs, so far only Rwf 2 Billion has been approved, according to the Central Bank.

The bank, however, expects to see much more activity in the aspect in coming days with more approvals by the end of the month.

"On the working capital side, it took time for banks to understand how to proceed with this as well as borrowers. We, however, see a pipeline coming up. Of course, we have a criterion that has to be followed. So far, we have approved about Rwf 2 billion but we know that in the pipeline we expect to see activity coming by the end of this month,” the Central Bank Governor said.

Rwangombwa noted that to remedy the status quo and increase interest in the fund, they are working with the private sector and other partners and stakeholders to drive up awareness.

Local banks say that they have so far finalized approval and disbursement of hotel refinancing with working capital set to get intense in the coming weeks.

For instance, Bank of Kigali, arguably the largest bank in terms of assets and profitability has approved 44 client applications for hotel refinancing and completed disbursal of about Rwf 15B.

Dr. Diane Karusisi the Bank’s Chief Executive told The New Times that they are still in the process of accessing applications for the working capital bit of the fund with first disbursements to commence this week.  

The main issues identified so far that limit disbursement she said, include repayment capacity as some of the applicants are in a position where they can hardly take on more debt.

George Odhiambo the KCB Rwanda Managing Director said the low disbursal of working capital could also be attributed to dependence of business operations to the opening of the economy. With some sectors yet to fully resume operations, a section of businesses are yet to get back on their recovery path.

Hannington Namara, the Chief Executive of Equity Bank Rwanda also noted with the exception of a few sectors, demand for credit generally continues to be low as activity is yet to resume fully.

He said that with some economic sectors only partially open and others not yet open such as schools and tourism there is still a void given their interconnection with other sectors.

The Hotel Refinancing facility is disbursed to hotels owners at 5 per cent interest rate compared to the current market rates of about 16 per cent.

The combined effective interest rate for the hotels’ loans reduces from an average of 16 per cent to around 12 per cent leading to a 24 per cent saving in annual interest expense for hotels over the loan term.

Funds for the support are lent to banks without charge to ensure affordability on the part of beneficiaries.

For the Working Capital facility, to other affected sectors, banks are lending to clients at around 8 per cent interest rate with a grace period of up to 12 months and a repayment period of 5 years.

The Central Bank is in turn lending to local banks at 3 per cent interest rate.

Applications are made through respective banks which are conducting a case by case debt sustainability assessment.

Banks then submit the applications to the Central Bank for review leading up to the final approval. On approval, banks disburse the funds to a borrower’s account then submit proof of the disbursement to the regulator who then credits the Bank’s account with the disbursed amounts.