SEVERAL SMALL and medium enterprises (SMEs) had their loan applications turned down by banks last year because they presented projects with low startup capital and weak cash flows, a new report has revealed.
The National Bank of Rwanda (BNR) said that lack of collateral and bad credit history also worked against SMEs seeking for credit.
According to the biannual Monetary Policy and Financial Stability Statement released on Wednesday by BNR governor, John Rwangombwa, some 5,940 loan applications were rejected-a 7.5 per cent increase from 4,865 turned down in 2012.
Commercial banks approved loans worth Rwf 472.5bn against Rwf 544.3bn applied for by entrepreneurs.
Rwangombwa said that some entrepreneurs often don't prioritise the purpose of the business loans they get and end spending on un-necessary things such as luxuries. As a result, most experience cash flow problems, fail to run the businesses and pay back loans.
He called on the ministry of trade and industry to work with the SMEs, through its Hanga Umurimo programme, to sharpen the projects and make them bankable.
The minister of trade and industry, François Kanimba admitted that most of the loan applications that were turned down were from enterprises nurtured under Hanga Umurimo (create your own employment), a government programme aimed at encouraging younger people to be job creators rather than jobseekers.
"There is still room for increment of credit to the private sector, especially through the small and medium enterprises which are the backbone of the economy," said Kanimba.
He said that the ministry is in the process of reforming the Business Development Fund (BDF) so that it fulfills its mandate of providing loan guarantees to the agricultural sector as well as SME.
The Fund has not been directly involved in risk assessment and management of the loan applications Kanimba said. "That is why, under the new reforms, we shall instruct BDF to build its capacity to deeply analyse the feasibility of the projects before issuing them loans," he said.
James Gatera, chief executive officer of Bank of Kigali commended the new move by the government and noted that some of the banks that went on to lend the first group of SMEs under the Hanga Umurimo programme had taken a "beating" as the borrowers failed to service their loans.
"This new mechanism will change the whole approach on access to finance and see more of the BDF funds more efficiently utilised," said Alex Kanyankole, chief executive officer Development Bank of Rwanda.