Banks’ cautious lending ‘hurting entrepreneurship’

Entrepreneurs say banks should ease their lending restrictions on small business loans if the government’s initiative dubbed “Hanga Umurimu” is to succeed.Hanga Umurimo or ‘Start Your Own Business’ is an initiative aimed at fostering the entrepreneurial spirit among Rwandans. The programme provides guarantee funds to start up businesses as well as boost already existing competitive and innovative enterprises.However, experts and prospective entrepreneurs say the banks’ recent move to tighten risk management measures have led to strict lending practices thus hurting small businesses and the economy.“It is evident that from the discussions with entrepreneurs, the challenge is the cumbersome loan application procedure,” said Innocent Bulindi, Chief Executive Officer of Business Development Fund (BDF).Entrepreneurs say that banks’ demand for many documents including collateral, mortgage registration, and certification from Rwanda Bureau of Standards and Rwanda Environmental Management Authority (REMA) from loan applicants is a barrier to doing business. While BDF provides a guarantee of up to 75 per cent of the amount applied for banks are also blamed for delaying to approve the loan. The guarantee by BDF, experts say, should be sufficient enough for banks to provide loans to entrepreneurs with less restriction.The revelations were made during a meeting that drew entrepreneurs, banks, BDF and government.However, banks say most entrepreneurs have failed to provide the basic required documents.Jean Pierre Iyamuremye in charge of SMEs in Bank of Kigali, said his bank has funded up 45 per cent of the Hanga Umurimo projects to the tune of Rwf1.2 billion.He said BK received about 200 projects whereby 150 projects have been assessed and the analysis is still ongoing on some projects.“Its client’s deposits that we give not a grant as many thought. So we have to minimise all the risks now that most of them are start up business,” he said.The dialogue between stakeholders aimed at looking into how to make the loan application for Hanga Umurimo winners more simple to allow them have more access to financing.Alex Ruzibuka, the Director General of Small and Medium Enterprises (SMEs) in the Ministry of Trade and Industry, said some entrepreneurs are so ambitious in their business proposal and banks are hesitant on the decision.“Some present a Rwf4 billion worth project, way beyond our capital, they can not raise 25 per cent which is pre condition to be given the guarantee and the rationale is missing,” he said.Ruzibuka said the ministry is following up on the cases of service providers who do not attend to the entrepreneur and those with bad record will not be considered in the second phase.Service providers are hired by government to help entrepreneurs in their business plan implementation and follow up on them for a period of one year to ensure the money is used as per business plan.The first phase has 600 projects while the second phase that is slated to commence is October this year will involve 1200 projects.

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Banks’ cautious lending ‘hurting entrepreneurship’