Established in 2011, the Business Development Fund’s mandate is to facilitate Small and Medium Enterprises with access to finance by acting as a credit guarantee facility. The New Times’ Collins Mwai spoke to the CEO of the institution, Innocent Bulindi for insights on what role the institution has played in developing a private sector led economy and below are the excerpts.

Business Development Fund facilitates access to finance for Small and Medium Enterprises, how does one qualify for the funding?

To qualify for funding through BDF, the only requirement is that the project is viable after going through the bank’s appraisal process. If the bank believes your project can repay back the loan, you qualify.

We have no preferences or discrimination on the types of projects that qualify for funding or preference of groups to individuals.

We work with all sectors in our bid to build a private sector led economy. It so happens that agriculture is dominant, but we also support non-agricultural projects. We have also identified that youth and women need financial capital and we want to ensure that they get it.

There is a general perception that for one to qualify for support from BDF, they must be having established projects. Is there a chance that start-ups can get support too?

We also support start-ups on top of existing projects. The challenge at times is that banks and financiers are not willing to put their money into start-ups. They  are usually looking for a track record. If you have no prior experience or proven record, the risk is perceived to be higher which lowers start-ups chances of getting funded.

If it is an existing establishment that has prior records, the chances are usually higher.

As a credit guarantee facility, we have intervention mechanisms to see to it that projects that would have otherwise not been funded get funded. We are in the business of transferring risks. We take on the risks by guaranteeing the bank. We are trying to move it from collateral lending which tends to be biased to alternative forms of collateral.

We have an indirect guarantee model where it is up to the lender appraise, if they are viable, we have an agreement with the lender that we are guaranteeing the project. 

Briefly take us through the process from when a client has a potential project to when he or she gets funded?

For now, one doesn’t have to come to BDF offices for funding. Lending should be convenient and about proximity. One only needs to walk to the lender (bank, Sacco, or any micro finance institution) closest to them.

It is easier for the lender to conduct appraisals and follow up as they are close to them. Getting loans also involves building trust. It is important that one has a relationship with their lender.

We have built a network of about 360 lenders (340 Saccos, 7 MFIs, and 13 banks) countrywide. Through them, we reach out to people all over the country. They are our first contact with the client. Lenders appraise the project then write to us for the guarantee.

Considering the types of the upcoming start-ups and the cost of debt, are there instances where you advise clients to consider alternative sources of finance? 

We take into consideration that debts are at times too expensive especially for start-ups. We have a product where we buy into the project and have a stake in the project.

That happens when one has a good project that the bank is not willing to fund for whatever reasons and after going through it, BDF considers it to have potential.

The ICT sector is growing very fast and investors have been urged to come on board and be more willing to fund ICT projects. How are you going to intervene?

We have had discussions with stakeholders (PSF ICT chamber, BRD amongst others). The issue comes down to the stage at which these ICT projects are, most of them are in the incubation stage.

They are more or less at the laboratory stage, there is no guarantee that the products delivered are going to be sold and pay back the loans.

What are the major challenges facing most projects you are funding?

We support small and medium enterprises. Most of them come up with products or services that are not competitive in the market. They are not in position to bid for and compete with established enterprises.

We support very many of them in different sectors, but when they get to putting their products and services on the market, there is a big challenge.

At times it is because of the stages of growth. When one is starting up, it is obvious they may not have a long proven track record as most tenders have it and yet given a chance you can actually penetrate the market and perform well.

Our national procurement process is ‘straight’ due to our stand against corruption. In the process, bids are open to everyone on equal ground. It does not classify or give consideration to smaller or newer establishments.

In the procurement act, there is no provision to support smaller and newer establishments to bring up a stronger private sector led economy.

Probably policy makers need to look out for ways to build the emerging enterprises.  One way is by setting a side a percentage in the total bids that should go into smaller and emerging enterprises across all sectors to help them grow.

The pace of investment growth in the recent past has been fast and there have been numerous emerging trends as well as models.  Would you consider having a capacity building role among the establishments you find to see to it that they are up to task and competitive to curb the default rate?

There is need to integrate funding with capacity building but under our mandate, that is not BDF’s role. We have realised that access to finance alone is not enough and we are trying to work with other partners to ensure that once funded the projects take off. One of the ways is to ensure they have adequate capacity. 

So far, how have you faired in terms of the support accorded to SMEs?

Since our inception we have supported 1,440 businesses totaling to about Rwf 19.9 billion. we have given 1,802 grant disbursements to the tune of Rwf1.3 billion. We have provided loans to 12 Saccos worth Rwf 1.08 Billion. We have also taken stakes in 17 businesses so far amounting to Rwf0.42 billion.Through the government’s support, we received Rwf14 billion to support small and medium enterprises.

Other major milestones are that we have signed agreements with 360 lenders countrywide and geographically we cover the whole country.

In the agreement we use the lenders’ entire branch network, meaning that if you are signed to a particular lender, you can approach them at any point in the country.

We are opening seven branches in the near future and we are also planning for 23 more in the next financial year to become more accessible to those who would want to approach us directly. We plan to be available at district level.

Any non-performing loans?

We have a non-performing rate of about 3 per cent of loans which we need to break down if we are to get further. The key reason for the non performing loans is the poor structuring of loans by banks.

They give loans without factoring the seasonality of what the establishment is engaging in and at times the cost is so high which affects the loans  management.Most banks also lack mechanisms to work with defaulters to recover their loans.

Banks are known to be very strict while lending compared to MFIs. There is a lot of bureaucracies involved, making it harder for the youth to access funding. Do you have preferences where you urge your client to deal with Micro finance institutions rather than Banks?

MFI are good in that that they have a network and capacity to serve rural areas and are geographically placed to reach clients at the grassroots. But though Saccos and MFI have a geographical advantage, they may lack the ‘financial muscle’   that banks have. They may lack some capacities that banks have.

Mostly, loans exceeding Rwf2 million can not be obtained from MFIs. For us we do not push clients to go for any lender, we urge them to go for the most convenient according to them putting into consideration their needs.

Any practices you would recommend borrowers and lenders to adopt to ensure a private sector led economy as envisaged in the different development strategies by government?

Having a positive credit history is very important because it determines whether you get funding or not and there is also a lot of information sharing between lenders to check the credit worthiness of a borrower.

There is also need to integrate post financing models that will see other players and banks have a role in mentoring and building capacities after funding projects.

Mostly when financiers give you money, it ends at that and they expect repayment, but if they had a bigger role in building capacity, there would better performance and a stronger economy. 

An expert’s opinion on how we can effectively build a sustainable private sector led economy?

Now that infrastructure is already in place, we need policy frameworks that are more practical for people in the private sector at all levels. All players in the private sector need to be considered.