RWANDA Agriculture Finance Year Book 2018 has highlighted the lack of data on farmers' operations and limited knowledge on climate-smart agriculture techniques, lack of agricultural insurance, inadequate availability of financial products as some of the main challenges that limit agricultural financing in Rwanda.
The book was produced by Institute of Policy Analysis and Research (IPAR-Rwanda) in partnership with Access to Finance Rwanda (AFR).
The Executive Director of IPAR-Rwanda, Eugenia Kayitesi said, "Agriculture is a major source of income for the majority of rural families. However, it faces many challenges and access to adequate and affordable financial services remains its biggest challenge. The Agriculture Finance Year Book, therefore, highlights the latest innovations and lessons that are vital for improving access to agriculture financing."
"The lack of data on farmers leads to high perceptions of risk in the agriculture the sector, which exacerbate the finance challenge in the sector. The perception needs to be demystified by providing timely data to financing institutions and building the capacity of lenders to align financing products to the agricultural cycles and the unique nature of agriculture," reads part of the analysis.
The challenges also include insufficient competence by lending institutions in the sector to assess and manage risks, the inadequate infrastructure of rural bank branches.
The publication also noted that lack of information related to environmental risks, the business capability of farmers, value chains, price risks, yields risks and others create market failures, which result in insufficient credit, low levels of investment and low the productivity of agriculture.
"This is illustrated by the low level of loans to the agriculture sector which account for only an average of 6.15 per cent of the total loans in the country considering the period from September 2014 to March 2018 according to Central Bank," the publications shows.
The challenges related to the agricultural finance demand, researchers said, include the failure to present tangible collaterals to financial institutions.
However, it explains that this might also be because the financial institutions require liquid collaterals, which creates a mismatch on the market.
While most of the farmers do not have enough awareness about the importance of credit to boost their farming activities, some cooperative leaders and the farmers lack skills in loan and project management.
This implies that once the loan is obtained, it is mismanaged, which poses threats to the sustainability plan of the agriculture financing scheme.
The study shows that agriculture insurance products are still costly; thus without subsidies farmers are not in a position to it.
Price fluctuation of harvests, it explains, also affects the agricultural loan system whereby lenders extend credit according to the price expected on the market.
Working to meet the ambition
With mechanisms to address the mentioned challenges, the government and its stakeholders could double the credit to agriculture sector from 5.2 per cent2017 to 10.4 per cent in 2024.
According to Waringa Kibe, the Access to Finance Rwanda Country Director, farmers, financial service providers, policymakers, funders, investors and technology companies ought to tap into such opportunities.
In Rwanda the financial sector is composed of 504 institutions, including 17 banks, 16 insurance companies, 470 microfinance institutions and one pension fund.
The whole sector is very important as its total assets represented 53.7 per cent of the total national Gross Domestic Product (GDP) as of 2018.
Nevertheless, commercial banks have also been trying to increase their outreach by introducing mobile banking services which provide micro-services.
The number of mobile banking users was almost 1.2 million (10 per cent of the total population) as of December 2017.
This service also enables banks to lend small amounts of money, ease the lending process and decrease transaction costs.
In public financing, Rwanda's agriculture sector, the proportion of the amount spent on agriculture varies between 8.5 per cent and 9.7 per cent of the total national budget between 2015 and 2019.
Under the 2003 Maputo Declaration, member countries committed to allocating at least 10 per cent of the public expenditure on agricultural and rural development.
The analysis recommends cooperation between insurance companies and the Ministry of Agriculture to share the risks in agriculture through insurance.
This will lead to de-risking the agribusiness as a whole and improve its eligibility of farmers to access credit.