Rwandan farmers are pushing for the creation of an agricultural development bank in the country citing rigorous and prohibitive terms to access credit from commercial banks.
For a sector that accounts for 30 per cent of the country's GDP and employs about 70 per cent Rwandans, farmers contend, agriculture needs a special bank to unlock its potential.
They say this would make the sector - that accounts for about 50 per cent of exports revenue - a major driver of the country's growth agenda.
Theopiste Nyiramahoro, the president of Rwanda Coffee Cooperatives' Federation (RCCF), told The New Times, last week that commercial banks set very demanding conditions which lock out many farmers, and when they eventually get the money, it is too late to have an impact on their agricultural activities.
She gave an example of coffee washing stations where she said most, if not all, need money not later than December of every year for them to be able to pay farmers who supply them with coffee cherries.
Because of lack of understanding of the conditions in which those working in the agriculture value chain operate, banks often delay to disburse the money, she said.
"Some coffee washing stations resort to selling their produce at giveaway prices so they can pay farmers who want to be paid before the new season begins to offset costs of their own," she said.
Nyiramahoro said that the collateral that farmers can give - land and other immovable assets - are often rejected by banks. All these issues, she said, inform the rationale of calling for the creation of an agriculture bank.
According to information from the Development Bank of Rwanda (BRD), the value of land as collateral is devalued to a tenth, meaning that land worth Rwf10 million, for instance, is valued at Rwf1 million because of volatility in land asset valuation.
Low lending to the sector is partly attributed to various risks associated with agriculture such as crop and livestock diseases, drought and rainfall patterns that adversely affect yields.
Friendly loan terms
The president of Potato Farmers' Cooperatives in Rwanda (FECOPPORWA), Vincent Havugimana, told The New Times that an agricultural bank is a necessity.
He said that, if the bank is set up, farmers can have shares in it and be represented on its board, which would promote their interests at the top echelons of the bank.
Normally, he said, a farmer has to repay a loan on a monthly basis, yet they get money from their produce after a season (about four to six months), adding that the current payment terms were a challenge to farmers.
"We want to be servicing loans every end of the season. That can help us plan better," he said. "If a farmer has a guarantee to pay after a season, they can wait and sell their produce at a good price instead of selling it at a giveaway price," he said.
In addition, an agricultural development bank could give farmers credit at a much lower interest rate, about 13 per cent, as opposed to the average of 19 per cent that commercial banks charge presently, he added.
Christine Murebwayire, the chairperson of Agriculture and Livestock Chamber at Private Sector Federation (PSF), agreed that a specialised bank for agriculture is needed, citing countries such as Kenya, China, and Japan, where such institutions exist.
Affordable loans, she said, would come in handy in purchasing seeds and fertilisers, as well as employing irrigation technologies which are essential for increased productivity if they are availed on time.
She, however, added that in case the idea of an agricultural development bank is not feasible, the Umurenge Savings and Credit Cooperatives (SACCOs), which are structurally close to the people, should be tasked to introduce a special product for farmers on friendlier terms.
Rwanda Development Bank is the only current financial institution that comes close to promoting agriculture in a tangible way.
But the bank has several competing priorities.
Dr Livingstone Byamungu, the head of investments at the Rwanda Development Bank (BRD), said they have a fully-fledged department in charge of agriculture-related financing, explaining that farmers can access credit at BRD or through Micro-Finance Institutions (MFIs) or SACCOs that work with the bank to support farmers.
The interest rate ranges between 15 and 17 per cent, he said.
Asked whether Rwanda needs an agricultural development bank, he said it's a valid proposal, but added that "even in the absence of such an institution, government can do more in terms of mobilising more resources to support agri-lending.
However, the Government says it is not considering the idea of an agriculture bank. Claver Gatete, the Minister for Finance and Economic Planning, said: "We are instead working on (the idea to establish) a cooperative bank. We are working with FinTech on linking all SACCOs as a prerequisite to having one cooperative bank."
We are quite advanced in this process and the target is to have the bank in place by end of 2017, the minister added.
In recent years, Government has also extended support to farmers through Business Development Fund, which provides partial guarantee for loan seekers, including farmers. This is done through different commercial banks.
BDF has also extended direct support to farmers, including equipment and grants.
As of November 2016, the Fund had provided nearly Rwf30 billion in guarantee for agricultural projects.