17 February 2013

Rwanda: BRD, Exporters Gear Up for New Coffee Season

BRD, the country's leading financier of the coffee sector, has clarified that it will continue disbursing loans to coffee exporters in local currency except in special cases for which approval will be sought from the central bank for US dollar denominated loans.

According to the director of credit administration at the Development Bank of Rwanda (BRD), Emmanuel Karuranga, there has been no policy change at the bank to disburse loans in US dollars as had been previously reported in the local media. He said the bank will however examine requests for such loans on a case-by-case basis and seek approval from the central bank in accordance with the country's financial regulations.

"Such requests will be handled on a case-by-case basis. A client has to submit a formal request to BRD with convincing reasons. We at the bank will then assess the reasons put forward and if we are convinced, we make a request to the central bank. If the central bank allows, then a client will be lent money in dollars," he said.

The issue of dollar loans was raised by some exporters during this year's new coffee preparatory meeting between the bank management and its clients in December last year.

As part of the preparation for a new coming coffee season, BRD holds annual strategy planning meeting with clients in the coffee sector to chart the way forward.

Exporters speculated for higher prices because Brazil, the leading exporter had supply problem in 2011 but by the time the Rwandans reached the market, the situation in Brazil had changed and a lot of coffee had entered the market.

During the meeting, management and the clients assessed the coffee activities of 2012 season and planned for the new season that is expected to start in March.

During the meeting, the bank also asked clients to submit request for 2013 financing in time so that the bank can assess their financial needs ahead of the next season.

According to Emmanuel Karuranga, some clients requested for dollar denominated loans to remove the risk of currency conversion losses when they change earns from their exports into local currency to settle Rwandese Francs denominated loans.

He however said he did not expect clients to ask for loans in foreign currency because the prevailing situation favored exporters who earn in dollars and settle their obligations at home in the local currency. According to figures from the central bank, the Rwanda Franc has depreciated by 4.5% against the dollar in the past one year. This means that the local currency has remained largely stable, but the slight depreciation actually works in favor of exporters who earn in dollars because they spend fewer dollars to get Francs.

The meeting noted that the 2012 season was generally good with credit finance to the sector hitting Frw 8 billion. More than half of the loans have already been repaid and the rest will be cleared as soon some exporters get paid soon.

Low season

In their assessment, exporters expect lower volumes in the coming season compared to the 2012 season due to seasonal coffee cycle in which a bumper harvest season is immediately followed by lower yields as trees take time to rejuvenate.

Another reason to expect lower volumes is the fact that some exports that did not make profit following a fall in international coffee prices in 2012 compared to 2011, may this time be less enthusiastic.

Coffee prices have fallen to $3-4 per kg on the international market--eating into the profit margins of exporters who bought the beans locally based on 2011 coffee price boom. Coffee prices short up in 2011 after Brazil, the leading producer, had its crop damaged by bad weather.

Karuranga however blamed it on the competition among exporters themselves who rushed to pay high prices for coffee beans only to reach the market to find prices had fallen. Some exporters paid as high as Frw 350 per kilogram.

Exporters speculated for higher prices because Brazil, the leading exporter had supply problem in 2011 but by the time the Rwandans reached the market, the situation in Brazil had changed and a lot of coffee had entered the market.

During the meeting, clients also raised the issue of the bank being far from its customers. Management however assured them that plans are underway to take services closer to customers through agency, mobile banking ATM services this year. BRD operates only three representative offices outside Kigali.

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