Agriculture employs more than 70% of the total population in Rwanda. As outlined under the Vision 2020 and Economic Development and Poverty Reduction Strategy II (EDPRS) II targets, agriculture is expected to play a critical role in poverty alleviation efforts and overall economic prosperity through job creation and supporting key industries.

Despite cited critical contribution to economic development, agricultural finance has been identified as one of the areas that remain a challenge for the Rwandan agricultural sector. The government and other stakeholders have implemented several initiatives over the last two decades to address this challenge. These include establishment of Guarantee Funds, Export Growth Facility, Grants to support different agriculture related initiatives and the establishment of the agriculture Department at the Development Bank of Rwanda (BRD).

The agriculture department at BRD was intended to take a lead in financing and supporting agriculture sector in the country. So far, Development Bank of Rwanda (BRD) is the single largest fancier of agriculture in the country. "The main focus of BRD is to provide financing to private investors for the development and modernisation of agriculture through financing the development and modernization of agriculture sector,” explained Juvenal Kalema, Senior manager at BRD’s agriculture department.

BRD continues to play a critical role in supporting the ongoing efforts by the government to reach an annual growth rate of 8.5%, increase fertilizer application (kg/ha/annum), and de-risk the sector to catalyse investments from other players in agriculture financing.

According to Kalema, agriculture projects have been taking the largest share of the total amount approved by the Bank. In 2015 alone, the Bank approved more than Rwf. 24 billion, accounting for 38% of the Bank’s lending portfolio. In addition, the Bank has earmarked USD $170 million to assist in lending towards agro-processing, mechanization, modernization, and agro-input technologies and USD $220 million to assist the export sector, including agro-exports. The Bank will use this funding to:

Provide wholesale on-lending to MFIs and SACCOs at affordable rates designated for small holder farmers;

Provide financing to projects in high-value crops and seeds production;

Finance commercial projects in livestock production, feeds, forage and fish production;

Finance agro-processing industries and post-harvest infrastructure;

Support agri-vet trade finance for inputs, machinery, transport logistics, packaging materials and produce; 

Provide guarantee schemes for export and agriculture investments;

Provide technical assistance in the development of new products, such export financing incentives, inventory credit or warehouse receipt financing, forward contracts arrangement and insurance products;

Invest equity in larger and longer-term high impact agriculture investments.

Agriculture Modernization and Mechanization

In its new Strategy, BRD’s agriculture modernization program aims to support irrigation and broad mechanization investments. This will include enabling modernized distribution of inputs and mechanization equipment like tractors, bailers, planters, combine-harvesters, and other equipment.

"The country aims at reaching at 100,000 ha of land irrigated by 2018. To contribute towards reaching this goal, the bank will provide financing either directly to individuals, cooperatives and companies or through wholesale lending to MFIs and SACCOs to serve smallholder farmers, said Kalema.

Agro-Processing Financing

BRD intends to launch an agro-processing development program designed to strengthen linkages in agriculture value chain. This program targets the whole value chain ranging from primary farming through processing linked to distribution of inputs especially through contract farming.

To boost primary production, both in terms of quality and quantity, BRD will support agri-vet trade finance for inputs, machinery, transport logistics, packaging materials and provide working capital to finance aggregation of different high value chain crops. The initiative intends to contribute to the achievement of the National Objective of fertilizer application (kg/ha/annum) of 45 in 2020.

According to Kalema, in financing the agriculture sector, BRD seeks to boost agricultural exports and job creation. The Bank’s financing will be both in form of equity and debt to different investments involved in agro processing, providing greater alternatives for investors with attractive businesses. In total, financing to agro processing is estimated to reach USD 92million over the course of 5 years with capacity to catalyse USD 207 million of investment.

Risk Mitigation Mechanisms

Despite the Bank’s efforts to encourage agriculture financing by commercial bank, MFIs, SACCOs, challenges such as high risk perception, management issues with cooperatives, low capacity to prepare bankable business plans, weak links in the value chain and poor post-harvest technologies are pulling the sector back. "These challenges are a great barrier to engaging commercial banks to venture into agriculture financing. Some solutions are however made available by the Bank including technical support to cooperatives to improve their management skills, insurance schemes and mobilization of concessional credit lines for agriculture projects” Kalema explained.

As the Bank plans to minimize and mitigate risks associated with the financing of agriculture projects, the focus is on both crop yield and revenue margins. Areas to be covered include Farm productivity levels, Reduced post-harvest losses, Suitable prices and conditions and Quality control and inspection of commodities.

The Bank has mainly opted for group financing and sees it as a vital channel to create sustainable impact in agriculture. "This has been proven to be most efficient tool that can reach more smallholder farmers. When farmers work in cooperatives to pursue big agricultural projects, they create a bigger impact and positively impact the lives of many people, Kalema said.

Individuals who pursue agricultural projects can access lending of a minimum of Rwf 50 million.

Furthermore, as part of de-risking agriculture financing, the Bank intends to finance a number of projects in importation of fertilizers and blending. By the end of financial year 2017, the Bank intends to finance agriculture projects to the tune of more than Rwf 10 billion.

The bank is also engaging partners to foster talks with insurance companies to cover crop and livestock insurance.