Conditions imposed on borrowers continue to prevent a large number of Small and Medium Enterprises (SMEs) to access finance despite increased lending to the sector.
The National Bank of Rwanda, which regulates the financial sector, indicates that credit from banks to the SME sector rose to Rwf108 billion in 2010 from Rwf77 billion in 2008, while Microfinance Institutions loans to the SMEs soared to Rwf3.4 billion in 2010 from Rwf815 million in 2008.
One of the local lenders, Rwanda Development Bank (BRD), the custodian of the government initiated SME development fund, even exceeded its target for SME financing programs over the past year. The bank’s management said on Mar. 23 that it had budgeted Rwf3 billion to lend to the SMEs but the budget was exceeded by Rwf100 million.
But for SMEs, the increased lending does not mean that access to finance has become easier. SMEs say that the cost of borrowing is still high and other borrowing conditions such as collateral are too demanding. While lenders claim that borrowers including SMEs lack skills to design viable business plans that attract financing, in many cases, stringent conditions can overshadow a good plan.
Gilbert Kamanzi, an entrepreneur, says that it is still hard for entrepreneurs to get loans even when they have bankable projects because other conditions are unfriendly. “The requirements for collateral and capital are too harsh,” he says.
BRD, however, claims that the number of SMEs applying for loans is also still small despite the fact the bank as well as other local commercial banks now have more money to lend. The bank’s management adds that despite initiatives such as Business Development Facility (BDF) that provides loan guarantees, the SME sector is still failing to take advantage of the facility.
BDF, which operates under BRD, brings together all government initiated funds such as the women development fund, SME and agricultural development funds. The government decided to bring together all the funds under one management to minimize expenses and to create a wider impact.
The Head of Investments at BRD Christine Karangwayire believes that most entrepreneurs and SMEs in particular need stronger skills to improve their capacity to craft viable business plans, which will increase their chances to access loans. She also reckons that the capital and collateral requirements are high, which could potentially discourage prospective borrowers.
But Karangwayire says that with a viable idea and the right amount of training SMEs are not denied the loan. “It is true that it has been hard for entrepreneurs and SMEs to access finance but our rejection rate has fallen from 50% to 10 % in the past five years,” she explains. “I think we may be looking at a communication problem from our side.”
This year, BRD is increasing its capital from Rwf31billion to Rwf34 billion with the target to fund all loan eligible applications that will come on board including those from SMEs.
But Claude Niyibizi, Founder of Millennium Media, an advertising and Public Relations (PR) agency, says that there must be a mindset change within the banking institutions towards borrowers to provide equal treatment for both small and large borrowers.
“I think the biggest problem is concerning prejudice and trust,” he says. “When people in the bank see you are young, no matter how much experience you have within your field, they will not trust you enough to loan you the money.”
The government recognises the role the SME sector can play in the development of the country towards achieving the broader goals encompassed in the Vision 2020. By helping the SME sector to grow, the government believes that it would narrow down trade deficit, which grew to an estimated $770 million from $229 million between 2005 and 2009.
To grow the sector and meet its long-term goals, the government, through the Ministry of Trade and Industry (Minicom), developed an SME Development Policy and the cabinet passed it in July 2010. This is a guiding document for coordination and implementation of all the SME related programs at the national and institutional level.
The SME sector comprises 98% of the businesses in Rwanda and 41% of the private sector employment. Rwanda has over 72,000 SMEs. The sector, according to a local think tank, Institute for Policy
Analysis and Research (IPAR), generates over Rwf 4.9 billion in annual tax revenue to the government. This is a small portion of the total tax revenues although it can be increased as the sector grows.
Meanwhile, Minicom and its partners have embarked on the implementation of the SME policy with the aim of strengthening the capacity of SMEs. Through the new campaign ‘ Hanga Umurimo’ or ‘Create a Job’, at least 300 SMEs from across the country will be trained in business plan development and business management and they will be facilitated to access financing for their business ideas. This is expected to create at least 900 jobs.
The Capital Market Authority (CMA) is also contemplating to amend its guidelines to allow SMEs list on the Rwanda Stock Exchange (RSE) in a move that would help them raise long-term capital to finance their growth. Once in place, SMEs could no longer fall prey to the banks’ stringent borrowing conditions.
Original Article: http://allafrica.com/stories/201204040690.html