The National Bank of Rwanda (NBR) has called upon financial institutions to intensify lending to the agriculture sector, perceived as a big risk by lending institutions, promising government risk sharing schemes.
Official national statistics show that the sector’s share of credit is still very low at less than 15 percent of the total credit distributed in the last two years.
The Central Bank said on Thursday that out of the 15 percent, the share of narrow agriculture (farming) activities received only three percent in 2007 and 1.3 percent in 2008 of total credit.
“We should identify financial products that we can develop for further growth and sustainability of the agricultural sector,” François Kanimba, Governor of the National Bank of Rwanda said at a one day joint workshop with the Ministry of Agriculture.
Overall agri-business loans dropped to Rwf17.25 billion last year, representing only 9.2 percent as a share of the total loans from Rwf19.2 billion in 2007.
Kanimba said that the Central Bank is going to recommend commercial banks to develop a department, specifically focusing on financing the agricultural sector.
As of August 31, this year, loans approved for agri-business amounted to Rwf11.6 billion, represent 59.6 percent of the total loan size of Rwf19.4 billion applied for.
Out of the Rwf55.9 billion applications for agri-business loans last year, only Rwf12.9 billions was approved.
Kanimba said that financial institutions have a huge perception of high credit risk of the agriculture sector, which is mostly caused by poor quality of loan application.
The agriculture sector represented more than 35 percent of Rwanda’s Gross Development Product (GDP) growth last year.
“Our role can’t be down played if we are to benefit. We can help banks develop financial products,” Agnes Kalibata, Minister of Agriculture said.
She also explained that the credit risk perception is exaggerated, calling upon partnership between the private sector, banks and the government.
The Central Bank pledged government risk sharing schemes that will continue to play a catalytic role in the short and medium term.
Figures show that agribusiness projects supported through government’s Agricultural Guarantee Facility (AGF) have a relatively low credit risk.
But more that 50 percent of AGF interventions support the coffee and tea industries, which are perceived to have low credit risk.