How farmers can attract funding

Jean de Dieu Mbarushimana, a cattle keeper from Nyabihu District, has for the past two years been trying to secure a loan using his animals as collateral without success.
A farmer sprays his maize garden (John Mbanda)
A farmer sprays his maize garden (John Mbanda)

Jeande Dieu Mbarushimana, a cattle keeper from Nyabihu District, has for the past two years been trying to secure a loan using his animals as collateral without success.

He says banks do not want to lend to farmers “because farming is risky” to finance.

“Government is encouraging us to embrace commercial farming methods to increase production, but we can’t do much without funding from banks,” Mbarushimana , told Business Times on the sidelines of the farmers meeting in Kigali last week.

The meeting organised by the private sector brought together bankers and farmers to discuss how financial institutions can support the agriculture industry. Access to affordable finance is one of the major constraints that are affecting the sector’s productivity despite government’s efforts to deal with the problem. Christine Murebwayire, the chairperson Rwanda Horticulture Interprofessional Organisation, said besides bankers’ unwillingness to fund agriculture projects, high interest rates have also made it hard for farmers to acquire loans.

“Commercial banks are not interested in funding the sector, so policy-makers should intervene and enact laws that will ensure farmers get the financing they need to grow the sector,” Murebwayire noted.

The point is, if banks don’t want to do business with us, then we need an alternative, she added.

Farmers have complained for long about lack of access to affordable finance to enable them commercialise to no avail.

It is mostly the Umurenge Saccos that fund some farmers’ projects; but owing to their low capital base they can’t do much. However, recently East African Exchange, the Kigali-based commodities market, revealed it would work with farmers in co-operatives under the warehouse receipt system to help them secure funding. 

Dr Livingstone Byamungu, the Linking Farmers to Markets (LIFAM) national co-ordinator, said banks are using the perceived ‘risks’ involved with agro-finance to deny deserving farmers credit that could help turn around the agriculture sector.

A farmer irrigates her pineapple garden. It is always hard for small farmers to secure working capital from commercial banks. (John Mbanda)

Statistics from Ministry of Finance indicate that only 4 per cent of the total banks’ loan portfolio went to agriculture, which according to Byamungu is little.

A recent study by the Private Sector Federation singled out limited access to credit by small scale famers as the main constraint to farm productivity.

The report also indicated that farmers lack collateral or have ‘no bankable’ projects to attract bank funding.

The report also indicates that financial illiteracy and lack of market information are hurting the sector, as well as poor managerial skills among co-operative leaders. These coupled with unnecessary delays to approve farmers’ projects by banks are crippling agro-productivity, the study indicates.

The agriculture sector is one of the main drivers of the country’s growth.

In fact, the World Bank and International Monetary Fund base their economic growth projection on the sector’s performance.

Rwanda’s economy is projected to grow at 6 per cent in 2014 and 7.5 per cent in 2015, depending on how the agriculture sector performs.

The big question

With the constraints that abound in the sector, how will it contribute meaningfully to the second Economic Development and Poverty Reduction Strategy (EDPRS II).

Brekmans Bahizi, the Rwanda Institute of Co-operatives, Entrepreneurship and Microfinance managing director, argued that Rwanda’s economic growth will depend on how different sectors, including agriculture, will be managed and financed.

Bahizi said there is need to establish an agro-bank to fund farmers and also conduct sustained and systematic trainings on credit management and use.

“An integrated agricultural information system is required so that farmers can access weather and market data easily,” Bahizi noted. He added that strengthening co-operatives is also critical to ensure increased productivity, will in turn be reflected in the country’s growth.

As the private sector, through the chamber of farmers, tries to explore models of micro-credit financing for farmers, there is need to benchmark these models against international best practices, Dr Thomas Bazarusanga, country manager Kilimo Salama, an agriculture and climate risk enterprise, noted.

“This will help in dealing with the risks in the sector which are discouraging banks from funding the sector,” Bazarusanga said.

He noted that banks and insurance companies should not look at each other as competitors when dealing with farmers, but work together to come up with financing models that can benefit the agriculture industry.

Bankers take

For Alex Bizimana, the KCB agro-business relationship manager, there are many opportunities in the agriculture sector which banks can exploit.

“We are already providing agriculture loans… However, there is need to organise and train farmers on how to handle loans. Repaying loans should not be an issue for as long right analysis has been done,” Bizimana said.

According to Jean Bosco Ruzigamanzi, most farming projects are too small to attract banks.

“At least one has to be having a minimum investment of about Rwf12 million or about 10 hectares of land. That alone can act as collateral, however there are few farmers in that category. That’s why we need to organise the farmers in groups,” Ruzigamanzi explained.

Experts argue that it is important to first address other constraints the sector faces before complaining about lack of funding.

They say issues like lack of innovation in agriculture and reliable markets; and poor infrastructure should be addressed first to make the sector vibrant and attractive to funders.

The agricultural sector grew by 5 per cent and contributed 33 per cent of the total GDP during the second quarter of the year, according to National Institute of Statistics Rwanda (NISR). This was a 6.1 per cent growth rate.

The sector employs more than 70 per cent of the population.

NISR figures indicate that food crops fetched Rwf310 billion, livestock and livestock products Rwf41 billion during the second quarter. Export crops brought in only Rwf20 billion, reflecting only 2 per cent of contribution to GDP.

Despite this contribution the sector still grapples to attract bankers’ attention. Though there are a number of government programmes to support the sector, players and experts say this is not enough.

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