7 June 2016

Rwanda: Farmers Cry Foul As Banks Shun Agric Lease Products

Photo: The New Times
Agriculture mechanisation is one of the strategies aimed at improving the sector's performance, as well as changing lives of smallholder farmers across the country.

The government targets to increase the level of agriculture mechanisation to 25 per cent next year, and 50 per cent by 2020 under its Agriculture Mechanisation Strategy. However, mechanisation uptake, especially by small farmers, is still low. This is despite the fact that a new law was adapted last year, where farmers can buy or hire farm equipment.

The lease law, which was gazetted on February 16, 2015 paved way for small entrepreneurs, including smallhold farmers, to acquire farm machinery, a development that was expected to significantly boost the agriculture modernisation and crop production.

Law n° 06/2005 of 03/06/2005, which was reviewed about two years ago, also establishes regulations and conditions governing lease operations in the country.

Bankers put on the spot

Though the lease law has been implemented, banks are still reluctant to embrace it, claiming there are still many risks involved.

"It's still hard...banks still ask for a lot of documents and collateral for anyone to get a lease," a farmer said.

Sylvestre Minani, a farmer from Bugesera District, said many farmers have not yet embraced mechanisation due to lack of enough tractors, and the high cost of machinery, coupled with lack of credit facilities and high loan rates levied on farmers. He said this will make possible for farmers to get lease facilities.

However, State Minister for Agriculture Tony Nsanganira has said the situation will soon change, saying government has been discussing with banks and other stakeholders to support the programme.

He said it essential that farmers acquire the best technologies to increase production to enhance their income and support the government's security initiative.

"We are also encouraging farmers to join co-operatives so they can easily access some of these inputs," he added.

According to Agriculture Minister Nsanganira, small-and-medium enterprises (SMEs), especially farmers, can access farm machinery to improve production and produce quality along value chain. He is optimistic, with right machinery and skills, farmers will be able to embrace modern farming and also improve post-harvest handling of produce.

"This will help increase productivity, reduce post-harvest losses, as well as enhance quality along the value chain," Nsanganira told Business Times.

He explained that the lease law aimed at promoting mechanisation by easing access to agriculture machinery, where farmers can either hire or buy of farm tools and equipment.

Rwanda's agriculture mechanisation level stands at 13 per cent, an increase from only 3 per cent in 2009.

Nsanganira, said though this is still way below the 25 per cent target for 2017, government is optimistic more farmers will have mechanised operations by the end of 2017.

Banks speak out

Charles Hussein Kayumba, the managing director of Duterimbere Microfinance, said mistrust, and cases of mismanagement of the leased equipment by most farmers discourage credit institutions from developing lease products.

"Besides, many borrowers do not want to pay back loans, which is often compounded by the mismanagement of the leased equipment," he said. He said there are limited safeguards to guarantee payment. "Remember, these are customers' savings," he added.

According to Article 20 of the new law concerning refund of costs incurred in respect of the leased asset, costs incurred in the maintenance or repair of the leased asset shall not be refunded to the lessee (client) unless otherwise provided in the finance lease agreement.

If, upon the lessor's (bank) written consent, the lessee has made changes to the condition of the leased asset, which add value to the asset, the lessee is entitled to the refund of any costs incurred taking into account normal wear and tear of the asset by the time when the asset is returned.

Nevertheless, experts urge bankers to embrace lease law as part of efforts to support government's initiative aimed at moderning farming practices.

The agriculture sector employs 72 per cent of the Rwandan population. Its growth rate is currently at 5 per cent, and the government targets 8.5 per cent growth for the sector by 2018.

Despite the current challenges, most farmers are, however, optimistic that the new lease law could play a significant role in improving the sector's performance.

The farmers called on banks to be flexible and support the programme through increased funding to the sector.

"This will allow us acquire farm machinery, which will help increase production, as well as promote value addition," Bugesera's Manani said.

Commenting on the issue, Reddy Hanumant, the director of the Voluntous Agricon Rwanda, said encouraging investors to build eco-systems, like spare part plants and repair shops, will help Rwanda realise its mechanisation ambitious plan.

"Farm machinery is always available...However, the government should assure investors on the payment modalities since many farmers may not be in position to pay," he said.

Shashi Gupta, the head of business unit at ETC Agro, the main supplier of farm tractors in Rwanda, supports this argument, saying the lease law is the best solution for farmers with limited funds as it will enable them secure machinery required to improve crop production.

Innocent Nzeyimana, the head of land husbandry, irrigation and mechanisation department at Rwanda Agricultural Board (RAB), said they want to ensure that at least four farmers should be owning a tractor by 2020.

"It is, therefore, critical that we identify sources of credit facilities and subsidies to help realise this objective," he said.

He added that there is need to ease access to finance and agriculture sector-targeted subsidies, as well as mechanisms acquiring farm machinery, and payment of credit. He called for clear guidelines on how farmer co-operatives and companies can acquire farm machinery through lease would be selected, arguing that a critical ingredient to facilitate mechanisation and hence increased productivity.

Currently, there are two farm machinery dealers and four machinery hire service providers in Rwanda and, yet more are interested in providing these services.

It is, therefore, critical for stakeholders to tap into the new lease law to enhance the sector's mechanisation process. Agriculture contributes more than 33 per cent to the national GDP, according to sector experts.

When the country's mechanisation programme was started in 2009, it mainly focused on promoting modern farming technologies among rural farmers by supplying combine harvesters, rice trans-planters, power tillers and their attachments.

In order to make the services readily available to farmers across the country, the government set up Village Mechanisation Service Centres, where rural small farmers could hire or buy farm machinery.

It is under this programme that more than 27,000 hectares of land has been mechanised so far, with over 1,500 farmers and agronomists trained on modern farming technology, Nzeyimana said.

Commenting on the programme, Patrick Rukundo, a farmer based in Rwamagana District, said understanding the need for agriculture mechanisation, and challenges experienced by different sector actors will help guide private sector intervention, especially increasing investments into farm mechanisation initiatives.

More about lease law

Article 10 of the new law gives rights to the bank to request for the lease rental payment due and compensation for late payment, monitor the use of the asset under finance lease agreement, and terminate the agreement and recover ownership of the asset in case the lessee fails to abide by the terms of the agreement among other rights.

The lessor is also expected to lease or buy an asset selected by the lessee and hand it over to the lessee in accordance with terms of the finance lease agreement.

Equally the lessee reserves the right to select the asset and supplier. He also gets a notarised copy of the property title for the asset leased.

The law gives the customer the right to compensation for losses incurred in case of default by the lessor in performing his contractual obligations. The client can also sue the bank in competent courts in case they do not comply with his rental obligations, either in terms of alteration of specifications or delay in delivering the asset, among other rights.

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