PAC says BDF failing its SMEs growth mandate

The Business Development Fund (BDF)’s work is not in line with its core mandate to support the development of Small and Medium Enterprises (SMEs), especially startups, as most of its security funds have gone to large businesses.

PAC made the observation during a hearing on Thursday, September 17, 2020 when BDF top officials were providing explanations for mismanagement cases identified in the Auditor General's 2018/2019 report.


The Auditor General’s 2018/2019 report found, among other things, that BDF provided guarantees to large enterprises not aligned with its mandate – which is to support small and medium enterprises without sufficient collaterals in form of guarantees.


It noted gaps in the management of the Credit Guarantee initiative that was initiated in 2011 to address SMEs challenges of insufficient collaterals to access loans from financial institutions.


The National SMEs development policy defines SMEs as enterprises not exceeding Rwf75 million of net capital investments, Rwf50 million of annual turnover and 100 employees.

Big’ businesses received undue lion’s share

However, BDF provided credit guarantees worth more than Rwf25.1 billion to finance 217 projects of large enterprises as opposed to the original policy of SMEs, the report found.

That represents 51 percent of total credit guarantees amounting to over Rwf49.2 billion provided from 2011 to August 2019.

This, according to the report, implies that a high portion of loan collaterals was provided to secure finance of 2 percent of a total of 10,191 projects secured in this period of total.

“This does not facilitate as many deserving beneficiaries to access finance as should have been. Providing credit guarantees to large enterprises deviates from the BDF mandate,” the report concluded.

In addition, the report revealed that 13 claims for loss compensation were submitted to BDF by large enterprises, accounting for more than Rwf1.6 billion which represents 54 percent of the total claims approved by BDF from 2011 to August 2019.

BDF CEO, Innocent Bulindi replied that “the 51 percent of portfolio that was taken by large businesses was caused by the ceiling of Rwf500 million [annual net capital investment] that we allow to a project in [BDF] policy.”

He said that unless the policy is reformed, the large businesses – requiring Rwf500 million [annual net capital investment] – will be eligible.

MP Alice said that the mission and vision of BDF is clear: to support small and medium enterprises.

“If the policy came to replace the mission and vision for which BDF was established, it would be another issue,” she said.

Assistant Auditor General, Grace Rwakarema said that BDF follows the policy it developed which put the maximum annual turnover [of a qualified business] to Rwf500 million.

“Now, the Office of the Auditor General thinks that it is the national SME policy that should be considered. Then, if it is realised that the economy grew, and SMEs have resources beyond the threshold and ceiling that it set, the national policy on SMEs should be revised. But, that need has not yet been shown," she said.

“That is why the Office of the Auditor General realises that the policy of BDF is not aligned to the national policy on SMEs, they are incomparable,” she said.

Bulindi said that setting the ceiling of Rwf500 million does not mean that they excluded small businesses.

“They are all included within the cap. It is from Rwf0 to Rwf75 million, and from Rwf75 million to Rwf500 million,” he said.

However, PAC Chairperson, Valens Muhakwa said that it is a problem that a bigger share of the guarantee was taken by ineligible large projects representing only 2 percent of all beneficiary projects, while 98 percent of them received a modest share of less than 50 percent.

“So, where is the inclusiveness you’re talking about,” Muhakwa asked the BDF CEO.

Bulindi replied that it is based on the force of demand and supply, a reaction that Muhakwa disapproved of.

“No, it is not so. You should reach out to the citizens. You have a responsibility to eradicate poverty. You should not sit in offices and wait for people to come and pick money. You have to mobilise [people],” he said.

Hearing session adjourned

After a deliberation of about five minutes, PAC decided to adjourn the hearing session to October 7, 2020.

“In about one and a half hour hearings, it was realised that BDF officials were not well prepared. So, we have given them time to get ready, reread the in-depth report about them [by the Auditor General so that they provide us pertinent responses to the questions we asked them,” PAC Chair, Muhakwa said.

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