The New Times (Kigali)

Rwanda: Dairy Sector Not a Bad Borrower

The dairy sector remains perceived as unattractive by financial institutions - banks and micro financial institutions alike. I personally believe that this type of perception is misguided.

There are two key elements which I think have bruised financiers' levels of confidence towards extending credit to dairy projects and individual dairy farmers. 1) The dairy farming has lagged behind in terms of evolution and remained a cultural practice rather than a real business practice that fits into this modern era. 2) It is concluded at the various levels of our society that organising or developing the dairy sector is complex.

If we change this mindset or the way we perceive the dairy sector and extend a significant amount of attention to it, a substantial number of our citizens will see an awe-inspiring migration from the bondage of extreme poverty to better life. No?

This is an economic segment that needs more collaborated efforts by government through its effective local government structures and ministries like Minicom and Minagri, economic development agencies or federations and international development partners.

With this type of collaboration, we would collectively devise strategic ways to thrust the dairy sector into an attractive position. The strategic interventions would draw in awareness of the opportunities within the dairy sector and steer it from mediocrity and share space with fashionable sectors like energy, mining, constructions, ICT and others.

Like I earlier mentioned, we need to identify and package the opportunities within the sector and sell it the same way we do with other sectors.

We need to see banks and MFIs embark on changing attitude towards financing the dairy sector. The diary sector will never stand tall without working with financial institutions.

Often times, financial institutions have based on erroneous assumptions to conclude that dairy projects or activities are not creditworthy, thus likely to be a bad borrower. It's mostly because financial institutions lack marketing information that would help them adjust or form a customised lending repayment cycle that suits agribusiness.

I recently learnt from a colleague from a finance consulting firm working across Africa, that there is no such a thing as a bad borrower. It is instead a bad lender. He says if you lend a fool you are a fool. The moral of the story is that a bank needs to ascertain that the borrower is able to service the loan by analysing the cash flow and income statement that reflects sales. But then again, if financial institutions are going to continue dispersing and viewing the dairy sector as a risk business, the interest is likely to be higher thus minimal loans will be approved for the sector. This is not healthy for sector growth.

Customarily, a dairy farmer that is creditworthy should be able to earn enough to service the bank loan and remain with a same amount of money to keep him in business. You don't need to form a situation where a businessman curses you all the time and says to his friends that he is working for the bank and remains with nothing in his wallet

Well, all banks have their way of giving credits. They do carryout a comprehensive review on the veracity of client's application and verification of his ability and willingness to repay and ability to convert the borrowed amount into profit. True, this is important for risk management.

But banks need to get on ground and adjust their conventional credit application procedures for agribusiness. You will be shocked that a dairy farmer who is able to sell his milk in the morning and afternoon is creditworthy.

Therefore, the assessment question should rather be how frequently do you sell your milk rather than how much do you sell. This will help you to know that this dairy farmer is creditworthy because he has a market for his milk.

Did you know that there are 40,000 households engaged in dairy farming in Rwanda who could be considered for loans? Startlingly, only 11 per cent of those are banked. This means the banks need to up their marketing game and put these farmers on their roster.

Bank them first, understand their trade and develop suitable products for them. Your bank and their businesses will grow faster.

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