Govt reviews conditions for recovery fund amid low uptake

The Government is reviewing the terms and conditions for local firms eligible to receive the Economic Recovery Fund to increase the number of local businesses eligible for the support. The Rwf100 billion Economic Recovery Fund was launched in June to aid the recovery of local businesses significantly affected by the Covid-19 pandemic. The fund was in two portions; hotel refinancing which was to enable the restructuring of loans held by hotels and working capital for businesses most affected by Covid-19 to keep them operational and avoid lay-offs. However, in August, it emerged that there was relatively low uptake of the fund especially for working capital. At the time, the low uptake was blamed on low understanding on how the fund works amongst both banks and clients. Five months into the implementation of the fund, the Central Bank said that the uptake remains lower than was expected. Among the reasons for the continued low uptake officials say include the terms and criteria which are in the process of adjustments to improve eligibility of local businesses affected by the pandemic. John Rwangombwa, the Central Bank Governor told The New Times, that the criteria has been under review since about a month ago reviewing aspects that have been pain points for target beneficiaries of the fund. Among key changes so far implemented include reviewing the extent of losses resulting from the pandemic from 50 per cent to 30 per cent. The fund has also reviewed criteria that initially considered the impact of businesses on the first 5 months of the year extending it to 9 months. With that, the fund is considering at least 30 per cent losses in the first 9 months compared to the same period last year. “We had a committee meeting yesterday (Wednesday) and we think we can still review and adjust it further to make any improvements possible. We will continue adjusting the conditions based on the reviews done based on the demand of the private sector affected by the pandemic. We hope that by the end of the year, we will have had a better uptake,” he said. While adjustment of the fund’s criteria is important to ensure its success and impact in the economic recovery process, the committee involved in the review has to trend a thin line balancing between improving eligibility and ensuring most affected benefit. “Because we have limited resources, we need to target those who were hit and need hand holding, when you open it up entirely, everyone will be happy to get cheaper money and you will end up not having the impact desired,” the Central Bank Governor said. Farmers package avocadoes for export in Nyanza District. / Photo: Courtesy Businesses who spoke to The New Times said that among the bottlenecks to accessing the fund include having a recent tax clearance certificate for period under review while others say that while their losses were less than 50 per cent, their value chains are likely to be adversely affected in the near future. This they said requires capital injection to seek alternative sources of input, alternative markets and stakeholders among other aspects. In a recent interview with The New Times, Rolande Pryce, the World Bank’s Country Manager said that the flexibility of government and the committee to adjust the criteria has been important to ensure that more businesses can make the most of it. The World Bank is in the process of tailoring a fund that will target Micro, Small and Medium Enterprises that will need to access finance to build resilience. “We are still in discussions with the government to prepare a set of financing that will go into the Economic Recovery Fund and would be implemented by the Central Bank but looking at specific instruments that they could access,” Pryce said. For the Working Capital facility, banks are lending to clients at around 8 per cent interest rate with a grace period of up to 12 months and a repayment period of 5 years. The Central Bank is in turn lending to local banks at 3 per cent interest rate. Applications are made through respective banks which are conducting a case by case debt sustainability assessment. Banks then submit the applications to the Central Bank for review leading up to the final approval. On approval, banks disburse the funds to a borrower’s account then submit proof of the disbursement to the regulator who then credits the Bank’s account with the disbursed amounts.

News

Govt reviews conditions for recovery fund amid low uptake