By Samuel Ouma
The Bank of Kigali has stated that it will issue loans totalling Ksh17.9 billion ($126 million) to farmers and enterprises along the agricultural value chain.
Dr Diane Karusisi, CEO of the bank, stated that the funds, which will be distributed over the next five years, will expedite Rwanda’s and East Africa’s continuous transition from subsistence to commercial farming.
“The agriculture sector is heavily underfunded yet it comprises the biggest portion of our GDP. This fund is expected to scale up commercialization of farming by providing affordable loans to farmers and agribusinesses,” said Dr Karusisi.
According to CEO Karusisi, a portion of the finance will be supplied at a concessionary interest rate of as low as 8% per annum, less than half of the normal loan cost of 16% to 18%.
This comes amid banking data in Rwandan banking data that indicate the agriculture sector accounts for just approximately 7% of the industrial loan book but accounts for 30% of GDP.
The lack of reliable financial data, on the other hand, has been a major impediment to the flow of capital to the agricultural sector since banks lack instruments to assess farmers’ creditworthiness.
However, the Bank of Kigali CEO says this is progressively changing as agricultural value chains like tea, coffee, maize, rice and dairy become more mature.
Under the Commercialization and De-risking for Agricultural Transformation (CDAT) project, borrowers will get loans at an interest rate of 8% for 90% of the loan applied, while the remaining 10% will be advanced at commercial rates.
The second tier, Economic Recovery Fund II(ERFII), will see farmers and agro-processors get 60% of their loan application at 8% and the remaining 40% at market rates.
“There is an option to access full funding at 8% per annum depending on the value chain and the size of the agribusiness,” said Dr Karusisi.
