Banks will increase financial support to mining investors following pleas from the sector that they were being overlooked by the sector, industry officials have revealed.
Despite being the country’s second-largest exporter after tourism, contributing about 40 per cent of the total exports, the mining sector has largely been shunned by banks and other financial institutions, in favour of short-term profiting sectors like construction.
Last week, stakeholders from the two sectors met in Kigali and bankers pledged to open up lending channels to mining companies, only if they provided credible information about the mineral reserves under their concessions.
“There were few banks dealing with mining industries in a limited way. Most banks were shunning the sector because there was little information about the mining industry,” Sanjeev Anand, the chairman of the Rwanda Bankers Association and managing director of I&M Bank (formerly BCR), said in an interview.
“If we give a loan facility of about seven years, then you have to make sure that the reserves are adequate and are extractable in the next eight years to service the loan. If you give a loan of eight years and the reserves turn out to be for only two years, then it would be difficult for us to recover that money,” he explained.
On their part, the mining fraternity said low domestic lending leads to poor recovery of minerals due to lack of money to acquire proper mining equipment.
“Many mining co-operatives and companies produce only half their capacity because they do not have enough finances to do research or to invest in modern mining machines,” Jean Malic Kalima, the president of Rwanda Mining Association, said.
“Banks are not convinced of the reserve estimate figures provided by mining companies, so they require a high bank guarantee of 30 per cent on loans. But we had fruitful discussions and showed them that investing in mining is a profitable venture and they indicated their willingness to open up the money taps.”
During the discussions, miners requested banks to provide simple business models to guide artisanal miners and co-operatives while applying for loans.
They had also proposed that banks should begin accepting mining equipment and concession as a guarantee, although banks did not accept the proposal, arguing that there is no secondary market to trade mining concession licences of loan defaulters.
“We are definitely willing to provide loans to mining investors, but the problem is that they do not have guarantees. If they default, it would not be easy to recover the loan by auctioning their concession agreement because there isn’t a secondary market with a pool of willing buyers,” Pierre Canisius Kagabo, the chief operating officer of CogeBank, said.
The lack of a secondary market, as well as absence of long-term concession agreements, were confirmed by the Minister of Trade and Industry, Francois Kanimba, as the major hindrances to financing miners.
“The commodities exchange can trade in minerals, but I doubt if they can trade in concession contracts. The most important thing is that the law accepts that if you want to sell your concession, you can negotiate with interested buyers. So, it is possible that a bank can get a buyer for the concession licence in case of loan defaulting,” Kanimba said.