Vulnerable Rwandans, who receive support through Vision 2020 Umurenge Programme (VUP), will start accessing interest-free loans effective the next fiscal year that starts in July, according to Rwanda Cooperative Agency (RCA).
VUP, which was rolled out in 2008, is a social protection programme that aims at spurring socio-economic transformation in communities, especially through job creation.
VUP also has a microcredit scheme that extends small-scale loans to disadvantaged citizens at 11 per cent interest.
It was established to help extremely poor individuals in the first and second categories access micro-credit facilities to start income generating activities and progressively graduate from poverty.
Prof. Jean Bosco Harerimana, the Director General of RCA. Net photo.
Other services under the scheme include financial literacy as well as coaching on micro-enterprise management.
However, the scheme was found ineffective due to what beneficiaries said was the prohibitive interest on loans and many ended up either defaulting or even shunning these loans.
The issue came up during the National Dialogue held in December last year, as one of the reasons poverty levels were not reducing at the speed that had been anticipated.
The meeting, which was chaired by President Kagame, called for reforms within the scheme.
According to Prof. Jean Bosco Harerimana, the Director General of RCA, the reforms have been completed and, starting with the next fiscal year, beneficiaries of VUP financial services will access loans with no interest charged.
"We have slashed the interest rate from 11 per cent to zero. The beneficiaries will only incur an administrative fee of two per cent for the services provided by Umurenge Savings and Credit Cooperatives (SACCOS)," he said.
When VUP started out, just over 50,000 needy Rwandans could access the funds every year and in 2014 and 2015 the number increased to about 80,000 since only 2 per cent per cent interest rate was being paid.
But when the interests were imposed, only 30,000 benefited last year.
Harerimana said that, since the inception of the scheme, over Rwf6 billion have been disbursed in loans as of December last year.
"The report shows that over Rwf1.7 billion of the money became non-performance loans and, eventually, SACCOs became reluctant to release the money fearing the beneficiaries would default, which is why we had to introduce reforms," he said in an interview.
Under the proposed system, the viability of projects by beneficiaries will no longer be left to SACCO managers as has been the case before, but will also include leaders at the district and sector levels.
Generally, while the money will still be disbursed by SACCOs, the VUP financial service scheme will be overseen by a taskforce that includes local leaders, RCA and the National Bank of Rwanda.
"The funds will be disbursed through decentralised entities (districts and sectors) accounts in Umurenge SACCOs, and a joint team will collectively analyse the projects presented by the beneficiaries before giving a go-ahead to the SACCO to release the money."
Other obligations of the taskforce include following up on the beneficiaries to ensure their projects help them graduate from poverty.
It was not clear how much will be earmarked for this in the upcoming budget.
However, under the budget framework for 2019/20, Local Administrative Entities Development Agency (LODA) that is in charge of VUP programme has been allocated Rwf219 billion.
According to Yves Bernard Ningabire, the Director General of Planning, Monitoring and Evaluation at the Ministry of Local Government, the social protection programme for the upcoming year will put special focus on 17 districts with the highest poverty levels.
"We also want to ensure that at least 2,000 sustainable jobs are created in every district," he said.
The Director General of LODA, Laetitia Nkunda told The New Times that the recovered loans from previous disbursements will be the starting point and that they will get supplementary funds from the coming fiscal year.
"We are working with Rwanda Cooperative Agency that regulates SACCOs to help us in the transition of previous VUP financial services management to the new system but the funds will still be deposited in accounts opened in SACCOs," she said.
Civil society reacts
Eugene Rwibasira, Executive Secretary of Rwanda Development Organization (RDO), a local civil society organisation, told The New Times that, apart from slashing the interest rate, separating these funds from other commercial loans under Umurenge SACCOs is itself an important decision.
"Such funds would be deposited into SACCOs and employees would not distinguish these funds from money of their clients; the consequences were that would be beneficiaries would be given similar conditions like other clients, which was untenable," he said.
He, however, called for caution in the management of the funds by local administrative entities to ensure that the initiative achieves the intended result of lifting people out of poverty.
"There is need for proper management of the funds, accountability to ensure they go to bona fide beneficiaries and those in charge should desist from nepotism, favouritism or corruption".