Government shelves plans to establish an agriculture bank

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A farmer feeds his dairy cows in Eastern Province. Commercial banks are reluctant to lend to farmers. (File)

Farmers have been urged to take advantage of the existing financial institutions to access credit to boost productivity. Farmers and agriculture sector stakeholders had banked on an earlier suggestion by government to establish an agrobank to ease access to credit to boost the sector’s production and productivity.

However, establishing of a specialised bank by government may not be possible in the short–term, according to the Minister for Finance and Economic Planning, Claver Gatete.

Gatete argued that setting up such a bank is not cost-effective, saying there are already established financial channels through which farmers can access credit.

“The initiative would require us, not only registering the institution, but also setting up other branches across the country which is costly. We are urging farmers to use the already existing bank facilities to access credit to fund their agriculture activities,” Gatete said last week.

The minister argued that facilities, like the Development Bank of Rwanda’s (BRD), business development fund, and the export growth fund, should be able to serve farmers.

He said the planned co-operative bank will also ensure more farmers access credit.

Reluctancy by commercial banks to finance farmers has remained a big challenge facing the agriculture sector.

The sector has received a mere 4 per cent of the total loan portfolios from commercial banks over the past many years.

According to the sectoral loan disbursement for 2015, only 1.9 per cent of total loan portfolio went to agriculture, a marginal increase from 1.3 per cent in 2014. The loan rejection rate was at 49 per cent in 2015, according to central bank statistics. In 2014, 58 per cent of the agriculture loan applications were rejected. Banks charge agriculture loans up to 18 per cent interest rate per annum.

In a recent interview with this publication, State Minister for Agriculture, and Animal Resources Tonny Nsanganira, said government was engaging banks to ensure they increase funding to farmers.

The agriculture sector employs over 72 per cent of the Rwandan population, therefore, easing farmer access to affordable finance is essential to support agriculture modernisation initiatives, as well as enhance the sector’s productivity.

Though the government targets 8.5 per cent growth rate for the agriculture sector by 2018, the sector’s growth stagnated at 5 per cent between 2014 and 2015, according to recent GDP (gross domestic product) figures released by the National Institute of Statistics of Rwanda (NISR).

The sector was the second–biggest contributor to GDP last year after the services industry, adding 33 per cent.

Dr Livingstone Byamungu, the national co-ordinator at Linking Farmers to Markets, a lobby group, was disappointed by the new development, saying establishing an agrobank is a matter of urgency.

Byamungu had, in an earlier interview, said the country should be thinking of alternative means of financing the sector, including the setting up an agrobank.

Geoffrey Nkusi, a rice farmer, said there is need for the government to keep pushing financial institutions to reduce interest rates, and also increase funding to the agriculture industry.

“Therefore, the idea of establishing an agriculture bank was to ensure that farmers can access funding with ease,” Nkusi noted.

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