Financial literacy, poorly designed business plans, banks’ high interests and contract management are some of the obstacles faced by Hanga Umurimo, a project to promote job creation.

The 4-year-old project initially designed to empower communities with basic business skills, identify individuals with entrepreneurial aptitude and nurture bankable business idea, has pushed the government to revise its strategy in the pilot phase.

Of the 453 initial projects funded at the tune of Rwf4.8 billion, 113 were classified in the Non performing loans category.

Seven of the failed businesses decided to petition parliament on challenges encountered with some claiming they were poorly funded and that the Trade and Industry Ministry left at the mercy of banks.

Appearing before Parliament, Minister François Kanimba said many people thought they would receive free money to start businesses.

"In their projects, many inflated their business total estimates thinking that it was free money, consultants at the ministry approached them and helped them submit plausible proposals to banks.

"Another issue was about beneficiaries diverting the funds or failing to implement their projects after securing banks loans. All these happened in the pilot phase which led it to fail,” he said.

In order to access credit, a beneficiary designed a project with the help of a consultant at the ministry then forwarded it for appraisal at any bank which would then send it to Business Development Fund (BDF) to secure guarantees.

Now the government is advocating for another hybrid credit procedure where a project designer will first have the approval of BDF before submission for appraisals by banks.

While governments encouraged businesses to seek financing from commercials banks, it had tasked BDF to provide 75 percent guarantee for the loan.

Talking to this paper, Innocent Bulindi, BDF Chief Executive Officer, said reasons behind the failures ranged from operations, unpredictable and insufficient markets, non-certification of Rwanda Standards Bureau, amongst others.

"Having seen how the pilot phase turned out for startups, BDF decided to cap guarantees to all businesses to Rwf50 million and compelled banks not to lend money beyond that ceiling,” he explained.

While petitioners claimed not to know agreements between BDF and Banks and yet end up incurring penalties in case of breaches, Bulindi stated that after revision of the program, all contracts between parties must be shared.

However, he blamed loan seekers who did not abide by contracts saying some did not follow terms and conditions as stipulated by lenders.

"For example, during the grace period, some clients paid only principals and ignored interests which would deter banks to disburse supplementary loans and lead projects to delay and or collapse,” he added.

Parliament tasked respective authorities, including BDF and other stakeholders to submit comprehensive reports detailing how each case has been handled.

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