BRD is blazing the trail in financing SMEs

The panel session on financing solutions for SMEs by banks and financial institutions at the SME and Banking Africa Forum.

One of the biggest challenges faced by small and medium enterprises (SMEs) in Rwanda, and in Africa in general, is access to finance. On the one hand, company owners often fail to prepare a convincing business plan to present to a bank, but on the other hand, financial institutions tend to shy away from SMEs which they consider high risk.

Yet it seems that change is in the air. During the fourth edition of the SME & Banking Africa Forum, which took place in November in Kigali, financial institutions in Rwanda pledged at least $223 million to SME financing.

The annual forum aims to enable African SMEs to access financing through banks, investment funds, guarantee funds, foundations and Business Angels. It also allows entrepreneurs to expand their networks and receive advice from business development specialists and fundraisers.

The commitment by the banks, made at a new initiative entitled ‘La Finance s’Engage’ (The Financial Sector Commits Itself) followed a panel session on financing solutions for SMEs by banks and financial institutions which involved the then CEO of the Rwanda Development Bank (BRD), Alex Kanyankole; the CEO of the Private Sector Federation, Stephen Ruzibiza; the COO of the Rwanda Development Board (RDB), Emmanuel Hategeka; and Kora Associates’s CEO Mireille Karera.

“98% of businesses we register at RDB are SMEs, and all their challenges of access to finance are similar,” said Hategeka, adding that in his previous function as permanent secretary at the ministry of trade and industry, he noticed how banks were avoiding funding SMEs.

“I am glad to say that this has changed today,” he noted.

Kanyankole for his part observed that BRD is the financial institution with the biggest portfolio to support SMEs in Rwanda.

“BRD helps SMEs have access to finance, directly, through the Business Development Fund and through partnership with the government,” he said. “We also work closely with other financial institutions, from commercial banks to Umurenge SACCOs, to extend loans under the Export Growth Facility.”

1515157094Through the Export Growth Facility, BRD supports export-oriented SMEs
Through the Export Growth Facility, BRD supports export-oriented SMEs.
Export-oriented SMEs

And indeed, when it comes to financing SMEs BRD has been a trailblazer, going where other financial institutions feared to tread. In all of the priority sectors it finances – energy, exports, special projects & infrastructure, agriculture, housing, education – the bulk of the approved projects come from SMEs.

As then BRD CEO Kanyankole mentioned during the panel discussion, BRD manages the Export Growth Facility (EGF), which was created through a partnership with the German Development Bank (KFW) and the Ministry of Trade and Industry. The facility aims specifically at facilitating export-oriented SMEs to access finance through interest subsidies, grants and credit insurance facilities to boost their exports.

The EGF targets SME’s which export up to 40% of their production, with a turnover ranging from $50,000 (Rwf 41.8m) to $1m (Rwf 835m). It is designed as a single facility with three windows:

  • A Matching Grant Fund for market-entry related costs: Matching grant to firms investing in activities specific to exporting that are not necessarily a consideration when not exporting;
  • An Investment Catalyst Fund: Provision of a subsidy on the interest rate of loans targeted toward private sector investments in export oriented production;
  • An Export Guarantee Facility: Provide transaction-related guarantees to commercial banks to securitize export finance transactions up to 80% of value. In 2016, BRD approved eight projects for financing through the investment catalyst and matching grant funds.

These projects registered total approvals of Rwf 1.399 billion, expected to trigger the injection of Rwf 4.037 billion into the economy, create 1,049 permanent jobs and 3,925 temporary ones as well as contribute export revenues amounting to Rwf 11.3 billion to the balance of payments.

1515157133BRD had entered in a partnership with USAID to support SMEs in the agriculture sector
BRD had entered in a partnership with USAID to support SMEs in the agriculture sector.
Loan guarantees

Another way of financing SMEs is the partnership between BRD and the Business Development Fund (BDF), which offers entrepreneurs loan guarantees. Through this partnership, guarantee facilities can be offered to project promoters who would otherwise be excluded from financial access due to insufficient collateral despite having viable projects that could have a positive economic impact to the country’s development. To the same effect, BRD has signed MoUs with pan-African organisations similar to BDF such as the Fonds de Solidarite Africain (FSA) and the African Guarantee Fund (AGF).

In addition, through its refinancing product for micro-finance institutions (MFIs), the bank extends affordable lines of credit and technical support to improve their operations. This has enabled BRD’s outreach all over the country and access to finance for SMEs, given the nature of MFIs’ operations and lending. This has played a significant role in supporting the government’s strategy of increasing access to finance and financial inclusion for all Rwandans, as well as in creating employment particularly in rural areas.

Agriculture

BRD also regularly enters in punctual partnerships with organisations to support SMEs. For example, in February this year, BRD partnered with the Private Sector Driven Agriculture Growth Project (PSDAG), a USAID project to promote agriculture in Rwanda. Through the agreement, BRD has reserved about Rwf 140 billion for loans to finance agricultural mechanization, modernization, and processing technologies. An additional Rwf 180 billion will be available to assist the export sector, including agricultural exports.

The PSDAG project will also provide technical assistance to BRD staff and its partners as a contribution to achieving the national objective of increasing agriculture financing. The funds are used to provide low-rate, affordable loans for small farmers through microfinance institutions and community cooperatives, as well as to finance commercial projects in livestock, fish, and feed production, and offer financial guarantees for export and agriculture investments.

 

Read this article and more in issue n° 81 of Hope Magazine.

  • By Hope Magazine
  • Posted 5th January 2018

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