Agriculture financing has been a contentious issue for decades, with farmers saying that financial institutions are reluctant to support the sector claiming that it is risky. And for the few sector players that manage to secure funding, the interest rates are often high. This, coupled with the reluctance of banks to fund the agriculture projects, has affected the growth and performance of the sector, according to experts and farmers.

It is challenges like these that have compelled stakeholders to continuously seek solutions to this and other challenges affecting players involved in crop and livestock production.

These were some of the key issues discussed at a recent symposium aimed at finding solutions to challenges affecting agricultural cooperatives.

According to Augustin Katabarwa, the chairperson National Cooperatives Confederation of Rwanda (NCCR), groups involved in crop and livestock production make up 70 per cent of the total number of cooperatives in the country. He added that this is a good opportunity that financial institutions should exploit by extending funding to the sector.

"We invited banks, micro-finance institutions and cooperatives involved in crop and livestock production to discuss how we can work together to de-risk the sector and ease access to agro-loans,” he said.

He added that many farming groups lack collateral and their activities are not insured, making it hard to get credit from banks. The high interest rate charged by financial institutions on agriculture loans is also holding back the sector’s potential.

The high rates have resulted in cases whereby banks have auctioned assets of cooperatives to recover their monies, Katabarwa added.

"The other challenges, including lack of financial management skills, embezzlement, as well as effects of climate change, such as prolonged drought and flooding have compounded the situation. These numerous challenges are making banks reluctant to provide loans to agriculture cooperatives,” Katabarwa said.

He was speaking at the symposium organised by National Cooperative Confederation of Rwanda, and Land O’Lakes. The meeting also brought together agricultural cooperative leaders, NGOs, and representatives of private and public entities.

Gahiga Gashumba, the chairperson of National Dairy Farmers Federation of Rwanda, said the perishable nature of milk makes the dairy sector more vulnerable unlike other ventures like crop farming.

"It requires modern equipment and facilities to ensure quality and standards along the value chain,” he says.

He noted that, without enough capital investment, the sector cannot produce competitively "because of quality challenges”.

Way forward

Aaron Turamye, the in-charge of special projects at BPR, said there is need to train cooperatives in money management.

He added that banks are promoting a savings culture among and cooperatives, noting that groups with substantial savings can easily attract funding from banks.

The official said the bank has products targeting farmer cooperatives.

According to Dennis Karamuzi, the programme manager at Land O Lake, strategic interventions like recruitment of skilled personnel by cooperatives and capacity building of coop leaders are necessary for strong, accountable and ‘progressive’ farmer cooperatives management.

Karamuzi also called for "bridging the gap” between financial service providers and cooperatives.

He noted that the organisation’s two-year programme that ends next year trained 100 agriculture cooperatives, mainly dairy and maize growers and also helped link them with financial institutions.

According to experts, an enabling environment and access to affordable finance are a "must-have” if farming cooperatives are to develop, become financially self-reliant and contribute to national development and job-creation.

They add that acquiring the necessary skills and knowledge as well as prudent financial management practices are vital to the development of the sector.

Addressing capacity needs

Some universities such as Independent Institute of Lay Adventists of Kigali (INILAK) and INES-Ruhengeri have set up departments that teach cooperative development studies.

Sector players say the development is a huge contribution to cooperative movement as it will create a pool of skilled Rwandans to steer the sector to the next stage of its development. With more skilled cooperative leaders and workers, some of the prevailing challenges will cease, they say.

Handling fraud, mismanagement

Katabarwa said strong measures need to be taken to curb mismanagement and embezzlement in the cooperative sector. This, in addition to training in management, will help reduce these vices and abuse of power and property by leaders, he said.

"Rwanda Cooperative Agency (RCA) also has a team of police personnel charged with handling fraud and mismanagement in cooperatives. This has ensured early detection and prosecution of culprits,” he said.

Recent developments ‘encouraging’

Katabarwa said the livestock insurance scheme that is being devised, and the agriculture insurance scheme that was rolled out under a pilot phase provide players a glimmer of hope.

"We hope that once the cooperative bank, that has been proposed by the government, start, it could help overcome some of the challenges, like access to affordable funding,” he said.

The government has proposed to open a cooperative bank after consolidating and automating SACCOs. He expressed optimism that continued interactions and discussions between financial and agriculture sector would help reduce cases where banks attach and sell assets of farmer groups.

"Banks have become proactive and are training cooperative managers in loan management to ensure they use credit for activities for which it was planned,” he said.