Limited access to finance has for a long time remained a big challenge for farmers. However, this is set to change as financial institutions pledge new initiatives to boost lending to farmers.

The initiatives were announced during the annual Agriculture Finance conference held in Kigali last week.

The conference brought together more than 200 financial experts, bankers and development partners to discuss mechanisms of increasing funding to the agriculture sector to fast track economic growth.

And among the resolutions bankers tabled are formation of more partnerships with farmers, capacity building, developing more products for farmers and funding construction of storage facilities, among others.

These will enable farmers increase productivity, but also reduce on post harvest losses and help attract more funding to the sector.

George Odhiambo, the head of business development and client services, at KCB Bank Rwanda ltd, said lending to farmers is possible and presents bankers with yet another business opportunity.

However, to be able to exploit it as a business opportunity, bankers must understand the farmer’s needs and aspirations.

"This may include being able to form partnerships with farmers and helping them to establish safe harvest collection centres while linking them to potential markets,” Odhiambo noted.

This will help re-assure banks on the availability of produce and allows sustained financing of agricultural production through the most innovative ways along value chain, he added.

From KCB bank’s experience, most farmers often divert funds and when coupled with low yields and lack of collateral, the situation often scares banks to lend to the sector, Odhiambo explained.

According to the experts, encouraging direct payment to supplier and farmers, while embracing quality checks along value of supply will help make the sector less risky and boost funding to the sector.

Dr Jonathan Agwe, the Senior Technical Specialist for Inclusive Rural Financial Services at the International fund for agriculture development (IFAD), said the initiatives require strong collaborations between farmers and stakeholders to be able to realise positive results.

According to Agwe, bankers can use credit guarantees and the East African warehouse receipts as a facility to boost lending to the sector.

"But also being able to establish strong rural finance policies and tools that will enable farmers boost value addition along value chain, will make banks more comfortable with the sector,” Agwe added.

Lack of proper documentation

Many credit institutions blame farmers for lack track of records detailing production trends which makes it difficult to monitor performance.

And this coupled with lack of documentation means lack of trust thus making the process of acquiring loans in this sector so tedious,” said Judith Aguga, the access to finance Rwanda’s technical director.

And as a result most banks try as much as possible to avoid SMEs and instead target larger companies with collateral, she argued.

Working with farming Cooperatives

Francisca Mukakarangwa, the in charge of Savings and Credit Co-operative development and supervision at the Rwanda Co-operative Agency, called on banks to work with cooperatives to increase lending to the sector.

"Through these cooperatives we can support small agricultural producers to access services including markets, natural resources, information, technologies, and credit for the growth of agriculture,” Mukakarangwa said.

She added that empowering cooperatives while creating collective investments and sustainable rural employment opportunities is a win- win business for both farmers and the banks.

"Rwanda boasts of more than 6,648 cooperatives most of which carry out farming as their main economic activity.

This therefore presents a huge potential to financial institutions only if they can forge strong partnerships,” Mukakarangwa, noted.

According Asapah Besigye, the financial expert and consultant from Uganda, more players in the sector could actually lead to a reduction in the cost of loans going into the sector thus making the sector more profitable.

"Credit has to be part of the value chain to be able to increase productivity; we should therefore play a leading role in availing not only credit but also inputs to farmers such as fertilizers, infrastructure – irrigation, post harvest facilities, capacity building and technical assistance to those we lend,” Besigye advised.

Statistics from the Central bank indicate that only Rwf9.5billion of the total banks’ loan portfolio went to finance agricultural activities, by Augustus 2015 up from Rwf5.2 same period last year.

But according to Alex Kanyankole, the Chief Executive Officer, Development Bank of Rwanda (BRD), this is still low and must be increased to make the sector more productive.

The development bank is currently funding more than 75 projects in the other banks which have pledged more support include Business Development Fund (BDF) which has so far financed more than 11,566 agricultural projects over the past 5 years totalling to Rwf109billions in loans and Rwf36billions in grants.

A recent study by the Private Sector Federation singled out limited access to credit by small scale famers as the main constraint to farm productivity.

The report also indicated that farmers lack collateral or have ‘no bankable’ projects to attract funding from banks.

And with bankers pledging more support and strong partnerships with farmers, increased productivity could become a reality for a sector that employs more than 72.2% of total population.

Overall the sector contributed 33 per cent, to the national economy during the second quarter of 2015.

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