Bankers and insurers have been urged to collaborate with both farmers and the government to ease financial services access in the agriculture sector.
Innocent Musabyimana, the permanent secretary at the Ministry of Agriculture and Animal Resources (MINAGRI) made the call yesterday during a two-day meeting on agriculture financing.
He said joint engagement of all actors would lead to improvement of the sector.
“We are in a drive to transform agriculture into business. To achieve that, there is need for both of us to take part in risk management in the sector to make it more profitable. When you finance agriculture, undoubtedly, incomes come back to the whole financing system,” Musabyimana said
George Odhiambo, the head of business development and clients’ services at KCB Bank Rwanda advised farmers to join cooperatives to ease their access to financial services.
He said, “It would be better for farmers to join cooperatives to get the whole value chain financed. Cooperatives would improve agribusiness value chain. This would also reduce the fear of banks in terms of the risks involved in lending to those involved in farming.”
To help farmers access financial services, the government provides guarantees for farmers through the Business Development Fund (BDF) while the Climate Resilient Post-harvest and Agri-business Support Project (PASP), a five year project co funded by International Fund for Agriculture Development (IFAD) and MINAGRI offers grants matched with commercial loans to finance post-harvest investments within selected value chains and districts.
The grant amount goes up to 40 per cent of the total investment loan (excluding working capital) while the ceiling amount is USD 80,000.
The project promoter pays up to 60 per cent of the loan capital and interests while the remaining 40 per cent is offset by the grant.
The 40 per cent is paid when the promoter has paid the 60 per cent fully without failure. The grant is structured into three categories, namely small, medium and large grants.
However, John Makosya Masaba, who works with the Uganda based Lion assurance said the best way to help farmers to access financial services is through agriculture insurance.
He said, “The main threat for which banks fear to offer loans to farmers is weather. Yet, there is weather index insurance which covers drought and excessive rainfall. We need to facilitate farmers’ access to agricultural credit by reducing the risk of smallholder loan default and allow banks to expand their lending portfolio to the agriculture sector without increasing default risk.”
To scale up farmers’ access to financial services, the government has transferred to BDF first installment of grant and guarantee funds equivalent to Rwf675m for financing business plans, in which Rwf337m is guarantee funds while the remaining Rwf338m is grant funds as part of the total USD 83.3m for the five year project.