Article written

  • on 26.05.2013
  • at 11:00 AM
  • by Kevin Hind

Rwanda: Financial innovation for growth 0

With agriculture as the backbone of its economy, Rwanda is focusing on various innovative financing mechanisms to further boost its agricultural development. Interview with the Rwandan minister of Financing and Economic Planning, Claver Gatete.

Which innovative development financing mechanisms do you consider the most suitable for a country like Rwanda?

I wouldn’t necessarily say that one financing mechanism is more suitable than another. However, we consider value chain financing to be crucial in Rwanda. In Rwanda, agriculture has been prioritised within our development strategy, ‘Vision 2020’, because it is critical to poverty reduction, particularly as the majority of our population is dependent on the sector in various ways for their livelihoods and income. Through this development strategy, we intend to implement modern and innovative approaches to agriculture. In terms of financing, the Government, through the Central Bank, has been using a system of long term loans to commercial banks when they lend to the agricultural sector. For example, we have recently launched the Business Development Fund (BDF) which provides loans to youth and women, amongst others, who are involved within the agricultural value chain. As long as someone meets the criteria, the BDF guarantees the loan.

What other financing mechanisms are being put in place in Rwanda?

Different banks in Rwanda have been operating various models for financing agriculture. But today they are coming up with new approaches that fit with the agricultural season and also with the length of time needed to produce a crop. Under the ‘warehousing receipt’ system, for example, banks agree to wait until a harvested crop is sold before a farmer has to start paying back the loan. This warehousing receipt system is now common for commodity crops such as maize and coffee. Innovative mechanisms of this kind have been very successful in promoting investment in Rwanda.

Rwanda already has an established stock exchange and bond market. However, we will also soon have our own commodities exchange, the East Africa Exchange Rwanda, where farmers will be able to trade various commodities, such as coffee, tea and maize, at a good price. The exchange is not only for Rwanda but for the whole East African community, including Kenya, Tanzania and Uganda. So now, the Rwandan Central Bank and the capital market are all working together to ensure that the commodities exchange is established and operational before the end of June 2013.

Should these innovative mechanisms focus on risk reduction, so that agriculture and food value chains become attractive for investment, in order to boost agricultural productivity?

What is going to be useful in applying these innovative financing mechanisms is the guarantee known as ‘micro-insurance’. In Rwanda, as well as other African countries, this approach is a very valuable means by which the banking system can get extra insurance against unexpected events and risks. Different financing institutions of course have different objectives. Some of them, like microfinance institutions, are contributing in terms of poverty reduction while others, such as commercial banks, are focusing on the value chain.

This should be a lesson for African countries, that within the value chain, you cannot work only at the processing level without also looking at the primary producers. Some of these industrial food processing companies, for instance, are helping farmers by providing seeds, education and other services. By doing this, they seek to ensure that the farmers can supply the industry, generate an income and at the same time be able to feed their families. So the value chain is really attractive, especially to investors in that particular area.

What is the level of engagement of the private sector in discussions over the future of the new financing mechanisms, post-2015?

We are trying to see how we can use our capital market to raise long term investment. We are aiming not only to go to the banks to negotiate loans, but also to think about how to raise money from whoever wants to invest as a shareholder. Post-2015, we consider that while the private sector will be much more active in using the capital market, it will also help to tap other domestic and foreign resources. But apart from that, Rwanda is making good progress in achieving the Millennium Development Goals; we are ahead of many countries in Africa and there is currently a more ambitious development agenda beyond 2015 to ensure an encouraging investment climate for private sector development.

We believe that by 2015, Rwanda will be considerably advanced in its use of modern agricultural methods, and that financing of agriculture will also not be seen as a great challenge. The new financing mechanisms – which today can seem confusing – by then will be fully understood by farmers, who will surely cope with them and benefit from them.

Source: Spore Magazine

Claver Gatete is the Rwandan Minister of Finance and Economic Planning. Specialising in agricultural economics, Minister Gatete has solid experience in public finance, including as former Governor of the National Bank of Rwanda, and in international institutions (NEPAD, United Nations).

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