MFIs to devise ways to make agro-lending less risky

A new initiative that will safeguard micro-finance institutions (MFIs) against bad agro-loans is in the offing. The product is aimed at encouraging MFIs to lend to the agricultural sector without fear of incurring losses. “Agriculture has high risks, but we are trying to develop a product that will assist MFIs lend to the sector without making losses,” Rita Ngarambe, the executive secretary of the Association of Micro-finance Institutions of Rwanda (AMIR), said in an interview yesterday. “We are working with OXFAM to develop the product, which we shall share with MFIs. We hope they will start lending to farmers without reservation in the near future.”Agriculture in Rwanda depends on unpredictable weather conditions, creating uncertainty in production, which banks see as risky venture. Besides, many farmers do not have financial management skills, meaning that they cannot efficiently use the loans acquired.The industry currently employs over 80 per cent of the Rwandan population. Ngarambe said the yet-to-be named product would cover the whole value-chain, giving banks options of funding either the production stage or the storage, harvesting and marketing stages. She said when it is developed and implemented, farmers would use their stored harvests as collateral. The initiative is similar to a warehouse receipt system, where farmers, under co-operatives, can acquire loans using the receipts of the produce they stored with registered warehouses as collateral. The farmers then repay the loan when the produce is sold.“We have co-operatives and can guarantee each other with our crops or animals to assure banks that they are safe lending to us,” Sam Mugabo, a farmer in the Eastern Province, argued.Juvenal Musine, another farmer, said they need loans to buy inputs such as fertilisers, pesticides and farm implements to improve output.According to the Central Bank, the sector’s contribution to GDP dropped by 1.3 per cent in the last quarter of 2012.John Gabo, a micro finance and entrepreneurship consultant, warned that farmers must first be trained in financial management if lending to agriculture is to succeed. This, he added, would also help avoid non-performing loans. “Because most farmers don’t understand that a loan is a debt they have to pay back with interest, they use the money for unproductive activities.” Experts are optimistic that if financial institutions increase lending to agriculture, it will boost the country’s food security position and the economy.

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MFIs to devise ways to make agro-lending less risky