Rwanda: Guarantee Fund Attracts Banks to SMEs

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Sep 2012
Rwanda, September, 17 2012 - The Business Development Fund (BDF) disbursement of over Rwf 12 billion in guarantee funds has increased credit extended to Small and Medium Enterprises by financial Institutions.

The Central Bank registered a positive outlook with loans going to the sector between March to May this year taking 17% of the overall lending portfolio in the country, creating optimism that the sector is likely to take off.

"Since we started providing these guarantee funds last year, there has been an increase in the number of projects that need to be funded which tells us that more SMEs are approaching banks for loans," Mr. John Kagarama, Business Development Manager at BDF said.

The BDF was established by the Government of Rwanda last year to provide capacities, skills and support Small and Medium Enterprises which cannot manage bank's requirement. It has already boosted loans especially collaterals.

"These funds are helping many projects in SME sector and in agriculture to access loans which has been difficult since they don't have collaterals needed by banks and financial Institutions," he added

The fund provides guarantee funds to financial Institutions on loans applied for by SMEs which don't have collaterals, a move aimed at increasing credit needed to boost the private sector, the country's anticipated economy driver.

Moreover, with Sacco's interest to forward projects, Kagarama says this will bolster access to finance especially to rural based SMEs.

Financial experts believe the guarantee funds will help financial Institutions to increase credit to SMEs and agriculture seen as most risky since they cannot guarantees which are important in case of a borrower failing to pay back.

Fina Bank the country's leading small and medium enterprise bank is yet to boost its lending amidst calls to financial institutions to extend credit to the sector seen to leapfrog the country's economy to middle income status.

This comes after the bank registered a positive SME lending growth last year, with plans this year aiming at increasing credit and technical support to SMEs as one way of supporting the country's fastest growing but capital stricken sector.

"We are increasing our lending to SMEs. Over 80 percent of growth is contributed by SMEs," Mr. Rao G Balivada, Managing Director Fina bank Rwanda said

Fina Bank, the country's leading SME bank registered an outstanding SME growth lending of Rwf 2.6 billion in the beginning of last year with the gross loan book to the sector reaching Rwf 5.6 billion by at the end of the year indicating a 115 percent growth.

Balivada attributes the increase to SME lending to the fact that the bank's Non Performing Loans ratio of the segment declined from over 27 percent to 10 percent during the year 2011, showing a positive outlook for the sector.

He adds, "We created capacity and trained our staff on SME lending and sent our people to up country and conducted seminars and workshops on business practices."

Financial analysts say that Financial Institutions need to break bureaucratic procedures and many loans requirements which scare most SMEs especially startups increasing their mortality before the end of their first year of establishment.

To ensure better SME lending and client service, Balivada says that upscale skills set was achieved last year through imparting training to the entire relationship team on credit assessment, financial analysis among others.

 

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