Representatives of agricultural financing agencies in Africa are expected in Kigali next month to come up with solutions to farmers’ financing challenges.
Agriculture which is the country’s largest sector is regarded as most risky by financial institutions. This has made access to financing a bit difficult.
Meeting under the African Rural and Agricultural Credit Association-AFRACA conference on best practices in rural agriculture finance, experts will discuss “fast-tracking replicability of functional models in rural and agricultural Finance.”
Bankers say that agriculture is vulnerable to climate changes such as drought and floods; this complicates assessment of borrower’s ability to repay, thus requiring more interventions.
“It is still a challenge not only to Rwanda alone but in the sub Saharan Africa,” said Alex Kanyankore, Managing Director, Development Bank of Rwanda- BRD.
In the first quarter of 2016, Agriculture contributed 33% to the GDP. The sector is largely informal with most farmers financially illiterate and requiring more capacity building for financial institutions to work with them.
“It’s not because these products are lacking or banks are not prepared but also famers unable to make bankable proposals,” he added.
However, Rwanda managed to find a number of agricultural financing models.
So far BRD is leading in extending credit to the sector with 30% of its outstanding credit (worth Rwf 140 billion) to private sector by end of 2015.
The country also has put in place a guarantee fund, the Business Development Fund-BDF that provides guarantees and grants to farmers and other businesses.
“We extend guarantee funds to banks on the loans borrowed,” said Innocent Bulindi, Chief Executive Officer of BDF.
The fund goes up to 75% on loans by women and youth and 50% on other clients.
Since its establishment in 2012, the fund gave out Rwf 31 billion worth of guarantee funds to 1,780 borrowers mainly smallholder farmers. A borrower was given Rwf 18 million on average.
Recently, agricultural sector saw the introduction of Weather Index Insurance, a product that helps banks get back their money in case of losses by farmers due to climate changes.
Kanyankore says Rwanda will learn more models as 250 experts in rural and agricultural finance meet in Kigali between August 1-4.
“We will assess challenges hampering replicability of best practice models in agri-finance, Kanyankore said adding, “and we will also review and take stock of regional and international best practices and experiences in agri-finance.”
Headquartered in Nairobi-Kenya, AFRACA was established in 1977 as a regional association of sub Saharan financial institutions involved in providing finance to rural population in the region.