Grain farmers will soon be able to acquire loans at affordable rates after the East African Exchange (EAX) last week signed memoranda of understanding with Banque Populaire du Rwanda and Ecobank to fund organised farmers, Alfa Kadri, the commodities exchange boss, has said.
Kadri said the banks are already developing loan products targeting farmers who use the firm’s warehouse receipt system under co-operatives.
“We have signed agreements on warehouse receipt financing with the banks to support farmers,” he said.
He said farmers will be able to acquire short-term credit from the banks of up to 70 per cent of the value of their produce at interest rates of between eight and 20 per cent.
The average loan rate is about 17 per cent.
Projects in the agricultural sector are regarded as risky by most lenders in the country, which pushes up sector interest rates to the rooftop.
Currently, only about 10 per cent of total bank lending goes to agriculture.
EAX, which was launched last year, is encouraging farmers to use the warehouse receipt system to store grains in warehouses across the country.
The commodities exchange presently deals with over 5,000 small-scale maize and bean farmers from 28 co-operatives in Kayonza and Rwamagana districts, Eastern Province.
The farmers are then issued receipts which they use to trade on EAX’s Nasdaq platform at any time of the year. The same receipts can be used as security to acquire loans and repay after selling their produce.
Kadri was optimistic that with the initiative, agricultural loans would increase to 20 per cent in the next 48 months, from the present 10 per cent of total bank loans to the sector.