The United Nations Food and Agriculture Organization (FAO) Rwanda and its partners have implemented a project to boost financial literacy for Micro, Small, and Medium Enterprises (MSMEs) in agribusiness. This includes developing interventions to connect them with financial institutions for inclusive growth.

Around 100 enterprises in agribusiness in food processing, farming and trading of livestock, fruits, grains and vegetables growing are set to benefit from the project.

The MSMEs in agribusiness from Huye, Gisagara, Nyamagabe, Nyanza, Kamonyi, Muhanga, Nyaruguru, Ruhango, Rulindo, Musanze, Burera, Gakenke and other districts, gathered in Kigali on August 14 during a workshop to validate a study which assessed financial inclusion gaps and challenges they face.

The study validation workshop was graced by Alex Kabayiza, Chief Technical Advisor at the Ministry of Trade and Industry (MINICOM), who pledged support and partnership with FAO to uplift MSMEs in the agriculture value chain.

"As we are gearing up to implement National Strategy for Transformation-NST2 in the next five years, projects like this will help us achieve targets we have set to develop SMEs in Rwanda,” he noted.

Mehnaz Ajmal Paracha, Senior Programme and Policy Advisor from FAO Rwanda, on behalf of FAO Representative, Coumba Dieng Sow, said that the challenges affecting MSMEs in agribusiness are related to technology, regulatory compliance, market competition, limited resources and access to finance.

"The project aims to raise small enterprises to be able to develop quality products and have access to finance,” she said.

Birasa Nyamurinda, a researcher who led the team that carried out the research on MSMEs’ needs, said that the study was developed in partnership with the Ministry of Trade and Industry, UN Women, and UNECA among others.

He said the micro, small and medium-sized enterprises (MSMEs) were targeted given that they account for 98 per cent of all businesses and over 70 per cent of all jobs created in Rwanda.

They also contribute around 33 per cent to the GDP.

The research findings demonstrated that agri-SMEs in Rwanda confronted a number of challenges, including inadequate working capital, lack of market for their products, and limited access to finance and low margins of profit.

Why particular support is needed for women and youth

According to the study, women and youth SMEs were particularly targeted in the project and research considering that they are more affected.

Males dominate females in terms of running Micro-Small and Medium Enterprises (MSMEs) with statistics showing 65 per cent are men and 35 per cent are women.

There are several factors contributed to their increased vulnerability.

"Women and youth SMEs are more affected, and several factors contributed to their increased vulnerability. Women and youth entrepreneurs often face greater challenges in accessing financial resources compared to their male counterparts.

A significant proportion of women and youth entrepreneurs operate in the informal sector characterised by low job security, limited social protection, and a lack of formal contracts.” he said.

He said women and youth SMEs often employ a higher number of casual or low-skilled workers.

"Limited access to technology and digital infrastructure further obstructed women and youth entrepreneurs in adapting their businesses to online platforms and digital channels,” he added.

The MSMEs’ challenges to be addressed by the project include lack of inadequate knowledge on financial literacy and business management, low working capital to increase production capacity, and limited skills to work with financial institutions and vice versa.

The project is set to address the challenges by strengthening the capacity of financial institutions that serve MSMEs on how to better support MSMEs, through awareness raising and advocacy activities.

The interventions also include increasing the knowledge of MSMEs on financial literacy, business management and market linkage, organising competition-based small grants among MSMEs to increase their working capital, as well as follow up and mentor MSMEs recipients of grants to ensure proper use and business sustainability.

Status of selected MSMEs in agribusiness

The FAO study findings, presented on Wednesday, indicated that 20.9 per cent of the assessed MSMEs are engaged in cereals, 15 per cent are doing business related to fruits and 9.4 per cent are in dairy sector and 7.9 per cent in vegetables, 46 per cent (honey and beekeeping, banana beer processing, piggery and poultry farming, and confectionary businesses).

The study shows at least 70 per cent of the assessed SMEs have a written business plan while 30 per cent have not.

It says 50 per cent have attained university, 27 per cent have secondary school certificates while 19 per cent have completed primary school only.

In terms of standards compliance, 39 per cent have their businesses certified by the Rwanda Standard Board (RSB), while 33 per cent reported that their businesses are certified by the Rwanda and Food Drugs Authority (FDA).

Of these MSMEs 53 per cent managed to hire qualified managers, 56 per cent have hired managers with a university degree, 26 per cent hired those with secondary school level, 7 per cent hire those with primary school level, and 4 per cent hire managers with masters' degree.

The study indicated that: at least 70 per cent applied for a loan in formal financial institutions, 60 per cent got their loan accepted and approved, while 40 per cent did not.

It shows 79 per cent got start-up capital to start the business from personal savings, 39 per cent from bank loan, 6 per cent from family support or grant, 5 per cent from family gift or friend.

To access finance after starting the businesses, the survey showed that 77 per cent of the surveyed MSMEs applied for external financing (grant, equity and loan).

Of these, 48 per cent of male-owned MSMEs applied for external financing compared to 29 per cent for female-owned MSMEs.

It says 67 per cent used external financing for working capital or cash, 52 per cent for capital equipment, 31 per cent for improving building, 14 per cent for buying land or building, and 8 per cent for staff development.

The research further says that 90 per cent of the surveyed practice financial records keeping.

Of these, 59 per cent of MSMEs keep financial records manually, 28 per cent use excel and 13 per cent use both excel sheet and manually.

In terms of MSMEs technical guidance on financial matters, it says, 33 per cent rely on business partners, 29 per cent on family members or friends, 24 per cent on external business financial advisors, 16 per cent on financial intermediaries, 11 per cent on public agencies, and 9 per cent on external accountants.

Suggested areas of improvement and recommendations

MSMEs suggested areas of financial training namely accessing external financing, evaluating financial performance of the business, managing cash flow, bankable Business plan, budgeting and financial planning, taxation, and book-keeping.

Other areas of training include use of digital marketing, human resources management, compliance and regulatory matters, product development, among others.

The study recommended enhancing financial education programmes involving MSMEs, financial institutions, government, and development partners.

A potential education platform to reach out to MSMEs to educate them on financial literacy was recommended.

The platform should be a source of several resources, financing, advisory services, networking opportunities, learning business best practices, information to enhance market access, human capital development, and knowledge about programmes/initiatives offered by both government, private institutions and development partners.

The study also called for making use of bank agents scattered all-over the country to inform small businesses of the existing financial products and other services of the bank, upgrading gender-sensitive education of both financial institutions and MSMEs.

MSMEs should be segmented according to their size, registration status, sector of operation, business life cycle and geographic location, it suggested.

Other recommendations include assisting MSMEs in making bankable business plans, financial coaching services, providing advisory services, including financial literacy to MSMEs before, during and after loans, digital marketing and e-commerce, support in achieving compliance to standards and regulations among others.

"Financial institutions are still reluctant to provide loans to farmers as they fear risks related to weather changing. The project should help address this challenge,” said Marie Josee Uwineza, a farmer from Gisagara District.

She also suggested a platform with regular updates about banks’ information on financial products, including loans at low interest rates.

"We need support in developing our products’ standards so that we do not lose markets,” added Kevin Ndayisaba who is based in agro-processing business.

Enock Nduwayezu, entrepreneur in maize and banana processing added: "We need capacity-building in terms of human resource management.”