Financial institutions have been urged to develop products that meet the needs of smallholder farmers as one of the interventions to support the agriculture sector to increase productivity and fight rural poverty.
Alfa Kadri, the East Africa Exchange (EAX) country manager, said most banks do not want to lend to farmers, saying this has in a way crippled growth of the agriculture sector, which has affected efforts geared at reducing poverty among the masses.
He was on Thursday speaking during a one-day training for Urwego Opportunity Bank workers on the operation of the exchange’s warehouse receipts financing system.
Kigali-based EAX is a regional commodity exchange that was established to link smallholder farmers to better markets. The exchange operates a warehouse receipt system that facilitates farmers to access loans using receipts of stored produce.
“Banks expect farmers to use financial products that have been created for the mass market. However, this approach is wrong, farmers are special type of clients who need tailor-made products,” Kadri added.
He said it is crucial to create a link between the two groups, arguing that this will help banks to understand the agriculture sector and remove any biases toward farmers.
Other problems faced by the farmers include lack of stable markets, low commodity prices, lack of access to finance, as well as lack of proper storage facilities, and logistics and transport problems. However, farmer co-operatives that work with EAX are assured of a ready market and better prices. Recently, the exchange auctioned maize at Rwf145 per kilogramme compared to Rwf100 that was targeted.
Kadri said the above challenges increase the cost of operations, which forces some people to abandon farming.
The bankers were also equipped with skills in commodity pricing models and trends, as well as the use of commodity pricing models to develop loan products that meet the needs of farmers.
Urwego is one of the banks working with EAX to provide loans to farmers under the warehouse receipt system. Others are Equity Bank, Ecobank, Banque Populaire du Rwanda and Guaranty Trust Bank.
Addressing the bank personnel, Kadri explained that farmers need easy access to credit to buy seeds in time to improve their chances of having good yields. He said it was unfortunate that most farmers do not benefit from their efforts because they sell off the produce to the middlemen at give-away prices immediately after harvesting.
Speaking during the training, Tineyi Mawocha, the Urwego Opportunity Bank chief executive officer, said it was important for banks to partner with the commodity exchange. He said working with EAX secures agro-loans they give farmers. “Our agriculture financing portfolio is presently 16 per cent, but we are looking to increase this to 20 per cent in 2016,” Tineyi said.
He urged financial institutions to look at the ways of collaborating with other companies to help finance farmers “since they contribute a lot to the growth of the economy”.
The agriculture sector employs about 72 per cent of the Rwanda population, making it the single largest employer in the country.
The two experts called for improvement in post-harvest management of produce, saying when produce get contaminated it loses market, making it hard for farmers to get loans.
“At EAX, we make sure that the grain being financed by the bank goes direct through the process of standardisation to guarantee quality,” Kadri said.
He said the exchange is looking to collaborate with other banks under the warehouse receipt system, including KCB, Atlantis Bank and AB Bank.
He said there has been notable change since they started working with farmer co-operatives, adding that those who secure loans under the EAX facility always repay them in time. Kadri said this has attracted other financial institutions to come on board and offer farmers low interest loans.
Agriculture is one of the key sectors of the Rwandan economy, accounting for up to 30 per cent of the GDP. However, only a small proportion of private capital goes to this important sector.
“We are determined to change this trend by managing the risks of the lender as well as ensuring the farmers equally are less exposed and protected,” Kadri vowed.