News analysis: BK secures US$12m to finance SMEs

Small and medium enterprises (SMEs), the engine expected to spur Rwanda’s economic development, are set to receive more long-term financing from Bank of Kigali (BK) after the bank received a line of credit from the African Development Bank.The 10 years US$12m (Rwf7.2b) line of credit with a grace period of two years has an interest rate of 4.15 per cent depending on the London Interbank lending rate—a tool used to calculate rates on international lending. It comes at a time the private sector is struggling to access long term financing due to commercial banks’ inability to raise long term deposits. “We are looking at this loan as a facility to enable entrepreneurs in Rwanda to implement their log term projects” Makonnen Negatu, the Country Representative of African Development Bank said, Thursday, during the ceremony to sign the line of credit. The fund will allow BK to significantly develop its portfolio of medium to long term lending in key sectors of economy such as manufacturing, construction, agri-business and tourism. According to Negatu, through the fund ,local SMEs will be in a better position to generate employment, record sustainable growth and boost economic output. James Gatera, the Managing Director of BK said, said the fund is a boost to the bank’s current strategic plan of recruiting more SMEs, which require long term loans. SMEs, which account for 95 per cent of all businesses in the country and 84 per cent of private sector employment, have expressed a high appetite for long term financing. Yet statistics from the Private Sector Federation (PSF)—the umbrella arm of the business community in the country—suggest that SMEs are providing 3,000 jobs, which calls for more sector funding. According to the World Bank’s latest report on Rwanda’s economic outlook, there is need to support household enterprises—a subsection of SMEs—that would help employ over 80 per cent of the labour force currently lingering in the agricultural sector. The loan will push the bank’s debt higher after it secured €5m from European Investment Bank and US$20m from French Development Cooperation.BK also received a grant worth US$500,000 from African Development Bank for technical capacity strengthening to improve its operations. African Development Bank Group’s lending portfolio in Rwanda amounts to almost US$500m with 53 per cent allocated to public sector, 39 percent to regional operations with only 8 per cent to the private sector.The National Bank of Rwanda says that such lending to local banks in foreign currency would help stabilise the Rwandan franc and help contain inflation in single digits. Rwanda’s inflation rate for the month of October stands at 7.76 per cent. “Most of our inflation is external and this is why it is important to get such lending,” Central bank Governor, Claver Gatete, said. Ends