For small and medium-sized enterprises (SMEs) in Rwanda, securing funding is not just about obtaining financial support—it’s about building resilience and sustainability in a complex market. Despite contributing significantly to the economy, with SMEs accounting for over 90 per cent of the private sector and generating approximately 41 per cent of private sector employment in Rwanda, access to capital remains a significant challenge. In this guide, we outline strategies for mitigating key risks that often deter investors and provide actionable steps to help Rwandan SMEs secure the capital they need to grow.
Understanding the risks
Raising capital in Rwanda is fraught with challenges, with the high failure rate of SMEs reflecting the difficult landscape—approximately 70 per cent of new SMEs fail within their first year, and only about 10 per cent survive to their 10th anniversary. The economic environment can be unpredictable, and political and regulatory uncertainties often pose significant barriers to funding. "SMEs in emerging markets like Rwanda face high perceived risks from investors, who are wary of instability and volatility,” says Angelique Kantengwa, Managing Director of BDO Corporate Advisory. "It's essential for SMEs to address these concerns proactively to attract serious investors.”
From economic fluctuations to regulatory changes, understanding and mitigating these risks is crucial for SMEs aiming to build investor confidence and thrive in the long term.
Strategy 1: Strengthen political and regulatory resilience
Political and regulatory risks are among the top concerns for investors in emerging markets like Rwanda. Over 30 per cent of SMEs report facing challenges related to changing government regulations and policies. To mitigate these risks, SMEs need to be well-informed and compliant. "Building strong relationships with local authorities and staying ahead of regulatory changes is key,” advises Vikash Bunjun, Technical Advisor at BDO Corporate Advisory. "This can help SMEs navigate bureaucratic hurdles and reduce the impact of sudden policy shifts.” Additionally, diversifying operations across regions can provide a buffer against localised political instability and help protect the business.
Strategy 2: Manage economic and currency volatility
Economic volatility and currency risks are significant challenges, especially for SMEs engaged in international trade. The Rwandan Franc (Rwf) has experienced fluctuations that can impact the cost of imports and the value of exports. "Hedging against currency fluctuations through forward contracts or options can protect cash flows and margins,” notes Solomon Mutagoma, Manager at BDO Corporate Advisory. Maintaining a strong cash reserve and adopting flexible pricing strategies also help manage economic downturns, ensuring business continuity even in volatile times.
Strategy 3: Enhance operational and supply chain stability
Operational disruptions, such as supply chain breakdowns, are reported by over 40 per cent of SMEs in Rwanda as major risks. To enhance stability, SMEs should invest in technology and diversify their supplier base. "Investing in technology and diversifying your supplier base are crucial steps in building a resilient supply chain,” suggests Kantengwa. Developing robust business continuity plans that address potential disruptions, such as natural disasters or cyber-attacks, ensures that SMEs can maintain operations without significant setbacks.
Strategy 4: Differentiate and compete in the market
Rwandan SMEs face stiff competition both locally and regionally. To stand out, differentiation is key. "Innovation in products, services, and business models creates a unique value proposition that attracts investors,” says Bunjun. Regular market research and a ‘test and scale’ approach for new markets or products can help SMEs pivot quickly and capitalise on emerging opportunities. This approach has proven effective for many SMEs, with those adopting innovative strategies seeing up to a 30 per cent higher success rate in securing funding compared to traditional businesses.
Strategy 5: Strengthen governance and transparency
Good governance is foundational to reducing investor hesitancy. Studies show that SMEs with strong governance structures are 50 per cent more likely to attract investment. "Transparent financial reporting and a strong governance structure build trust with investors,” highlights Mutagoma. Establishing an independent board of advisors and implementing robust internal controls can help SMEs manage risks more effectively and demonstrate accountability. These practices reassure investors that the business is well-managed and capable of sustainable growth.
Conclusion
Securing capital in Rwanda is undoubtedly challenging, but with the right risk mitigation strategies, SMEs can position themselves as attractive investment opportunities. By addressing political, economic, operational, and governance risks, SMEs can build investor confidence and attract the funding needed to thrive. As Angelique aptly puts it, "Risk mitigation is not just about managing potential threats—it's about creating a stable foundation for growth and development in Rwanda's dynamic market.”
By following these strategies, leveraging local expertise, and presenting a well-structured risk management plan, Rwandan SMEs can navigate the complexities of the fundraising landscape, secure necessary investments, and contribute significantly to the country’s economic development.