One of the strategies the central bank has put in place to boost private sector growth is to keep its lending rate low encouraging commercial banks to extend credit to the sector at competitive rates.

As of June to date, for example, the National Bank of Rwanda reduced the key repo rate to 7 per cent from 7.5 per cent. The reduction in the repo rate, which is the rate at which the central bank lends money to commercial banks, was mainly influenced by the realisation that outstanding credit to the private sector had increased by a meager 18.3 per cent between June 2012 and June this year compared to 35.6 per cent recorded between June 2011 and June last year.The governor of the National Bank of Rwanda attributed the moderate increase to a decline in net credit to government of negative 43.3 per cent following an accumulation of government deposits boosted by this year’s Eurobond proceeds and increased budget support inflows."The way government spends automatically impacts on the private sector. The less government spends, the less money will flow into the private sector,” he explained. The governor, however, noted that there was improved economic activity in the second quarter of the year because banks extended more loans to the private sector.A total of Rwf122.9b was disbursed compared to Rwf97.6b in the first quarter, exceeding approved loans during second quarter of 2012.However, despite the low bank rate, some local banks that have small balance sheets cannot afford to fund some projects, especially the big ones. In such situations, experts advise small banks to form a syndicate to raise the money (referred to as syndicate loan) for big projects as a group.Ajulu Ojoo, the Kenya Commercial Bank Rwanda head of corporate banking and custody services, said syndicate loan facilities can go a long way in helping banks extend credit to the private sector.A syndicated loan is offered by a group of lenders (called a syndicate) who work together to provide funds for a single borrower. The borrower could be a corporation, a large project, or a sovereignty (such as a government).In 2009, MTN Rwanda acquired a Rwf10b syndicated loan from seven local banks to upgrade its network. The loan, which was the first and biggest commercial transaction provided by a group of local lenders in Rwanda, was led by I&M Bank (former Commercial Bank of Rwanda), Kenya Commercial Bank, Ecobank Rwanda, Cogebanque, FINA Bank, Access Bank and the Development Bank of Rwanda (BRD).The facility attracted an interest rate of 15 per cent and was to be paid over a period of five years. Ojoo explained that it is always important and helpful for banks with small balance sheets to use this facility to raise enough capital for big deals apart from spreading the risk.He noted that KCB was looking to syndicate with other local banks in spite of it having a heavy reliance on its group’s big balance sheet for funding."There are some corporate deals, for instance, a $90m facility or a $100m project that a bank in this market may not be able to facilitate. In this case, we usually go for funding from the group’s balance sheet,” he said.Ojoo argued that if local banks formed syndicates, they would be able to lend more to the private sector and increase the number of corporate clients in the banking market, estimated to be not more than 100 today.John Bugunya, the chief finance officer of Bank of Kigali, said while syndicated loans would boost lending to private sector, it only applies in cases where a client needs financing that would take over 25 per cent of a bank’s minimum required capital."These are large projects that need between $25m and $30m worth of financing, but they are very few in the local market. Most of the loans are extended to small-and-medium enterprises,” he said.Some of the other firms that benefitted from syndicate loans include the Kigali Marriott Hotel that is still under construction, Mt Meru Soyco factory in Kayonza District that will be able to process soya oil from 20,000 farmers’ produce beginning next month, Imana Steel and CIMERWA Cement, the country’s largest cement producer.