Banks have declared credit to more than 50 beneficiaries under the Hanga Umurimo pilot phase as ‘non-performing loans’ after recipients failed to honour their repayment obligations.

This means that Rwanda’s Business Development Fund (BDF), the guarantor, must compensate banks with hundreds of millions of francs, The New Times understands.

Both the Trade and Industry  ministry and BDF acknowledge the development but they blame it on a ‘charity mindset’ dogging some beneficiaries who regard the loans as ‘government money,’ hence taking a lackadaisical approach in executing their obligations.

Maryse Uwera, a business development professional with the Ministry of Trade and Industry’s department of industry and SME development, says  of the 168 projects funded in the Hanga Umurimo pilot phase, over 50 are struggling to repay loans for various reasons.

"They include family problems, limited market for their products and limited experience in business management,” she notes.

The Hanga Umurimo programme is a government initiative aimed at boosting efforts of creating 200,000 off-farm jobs yearly. The pilot phase of the project saw 16,000 business proposals from Rwandans filed for funding.

Experts working with the trade ministry screened the projects and forwarded 478 project ideas deemed bankable to banks for possible funding with government standing in as guarantor to boost confidence among the reluctant banks.

But of those, banks chose to fund only 242 projects of which only 168 got funding amounting to over Rwf2.2 billion. It’s now emerging that more than 50 are struggling to meet their obligations and some have totally closed shop and disappeared.

On the third floor of a small dusty complex overlooking the crowded Kimironko market in Kigali’s Gasabo District is Embroidery Training Centre, one of those that received the funding.

The case of Mukanyamibwa

Last week, The New Times visited Mica Mukanyamibwa, the embroidery firm’s proprietor, for on-the-spot check; the findings were bad and good.

The good news is that using the Rwf20 million loan she received, Mukanyamibwa managed to shift from the confined room that she previously shared on the second floor to a more spacious room on the third floor.

She has also managed to buy several modern sewing machines that have improved efficiency in production. The company makes school uniforms on top of training young female students who have dropped out of school, she also chases after contracts from schools to make uniforms.

However, the doors were under lock and key. Her neighbours said she had not worked the whole week, a bad sign for a business operating on a loan.

On calling her cell phone, Mukanyamibwa revealed that she was in Nyanza District in Southern Province chasing after a possible contract for her business.  

Mukanyamibwa came to limelight at the trade ministry’s award ceremony in 2012 where SMEs that had won funding were being announced. Then, she was an eager entrepreneur.

But in a telephone conversation, the entrepreneur sounded different from her former self, revealing that business is slow.

Mukanyamibwa’s experience is a specimen of what most Rwandan SMEs are undergoing as they aspire for successful stories of ‘starting small and growing big’, the ministry’s vision.’

It’s not clear whether Mukanyamibwa’s business is among those on the list of non-performing loans but what she makes clear is that she’s determined to succeed.

Under Hanga Umurimo initiative, BDF guarantees beneficiaries for up to 75 per cent of the total loan requested before they receive funding from banks. That would mean that if, for instance, Mukanyamibwa’s business was to default, BDF would compensate her bankers with Rwf15 million.

This is because many of the applicants under the project lack sufficient collateral to satisfy the banks. But the presence of government guarantee boosts banks’ confidence to issue loans to aspiring SMEs. If SMEs fail to pay, banks don’t lose, BDF does.

Charity mindset

Janet Kanyambo, BDF’s fund manager, said most Rwandans who received the loan assume the money is from the government and they, therefore, don’t take their obligations seriously.

"This attitude threatens the whole idea of BDF and if we don’t work together to sensitise the public that BDF money is not for charity, the fund’s future is at risk,” Kanyambo said.

A look at BDF’s consolidated data for the period between 2011 and 2014 indicates that the Fund has 145 SME projects listed in its non-performing loans portfolio (including 51 from Hanga Umurimo) and has already paid out for 77 of them to the tune of Rwf203.3 million of which 30 per cent was for Hanga Umurimo projects.

The projects had received loans worth more than Rwf835 million, of which BDF guaranteed over Rwf670 million.

Many of the failed projects were mainly start-ups whose owners were making a debut at managing businesses and some were possibly excited at handling so much money. 

The majority received up to Rwf10 million to start small and grow big, but that dream is wilting.

There are cases where beneficiaries have either failed to manage the business using the skills received prior to obtaining funding or others who have simply diverted the money into fancy expenditure.

"It’s not a guarantee that we pay out money for whichever SME whose loans banks claim to have gone bad, we have to first confirm that the bank has carried out its supervisory obligation and if not, BDF is not obliged to pay,” Kanyambo said.

While a cocktail of factors could explain why the SMEs are defaulting, officials think poor management skills and failure to understand market dynamics as well as a ‘charity mindset’ top the list.

BDF, an independent company that was formed in collaboration with government and the Development Bank of Rwanda (BRD), is one of the implementing institutions of the National SME development policy and oversees the ‘access to finance’ objective, a major stumbling block for most aspiring local entrepreneurs.