Ease lending restrictions to Small Enterprises

Information that loans to Small and Medium Enterprise (SME) rose substantially in the first half of this year is an indication that there’s growing attention - from the banking sector – for the SME market. Latest statistics from the Central Bank show that loans to SMEs rose to Rwf147.7 billion in the first half of 2012, up from Rwf124. 9 billion in the same period last year, driven by government policy to empower SMEs as key catalyst for economic growth and job creation.Small business lending has always been dominated by Microfinance Institutions (MFIs), due to the flexible loans they offer. Commercial banks have, in the past, shied from lending to SMEs because of the misconception about the risks of lending to this market.However, in what may suggest a shift in the trend, in the first six months of this year commercial banks approved Rwf139.9 billion in credit to the SME segment compared to Rwf7.7 billion that was approved by MFIs.While this is a sign of optimism, form the banks’ perspective, about the potential of the SME market, there is need to further ease lending restrictions on small business loans.Prospective entrepreneurs still complain that banks procedures are cumbersome and discouraging even as government provides guarantee funds for start-up businesses.The banks’ prudent approach to lending is valid but government’s guarantee funds, which cover up to 75 per cent of the total loans applied for by an entrepreneur should be sufficient enough for banks to ease their lending restrictions.SMEs comprise approximately 98 per cent of the total businesses in Rwanda, and for them to drive economic growth and create jobs, they need increased access to formal financial services under right conditions.

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Ease lending restrictions to Small Enterprises