Ploughing funds into agriculture in Rwanda

Agriculture remains the main source of livelihood in Rwanda, currently employing approximately 70 percent of the labour force.  Since 2000, economic growth in the agricultural sector has contributed to helping hundreds of thousands of people out of poverty, particularly in the rural areas.  While the Rwandan government is pushing the creation of off-farm jobs, continued growth in the agricultural sector is essential for achieving the official target of 11.5 percent average annual growth of the Gross Domestic Product in accordance with Vision 2020.

According to the Rwandan Ministry of Agriculture and Animal Resources higher private sector involvement is necessary to trigger agricultural transformation in the country.  However, poor financial management, lack of skills and limited production capacity cause many investors to regard the agricultural sector as being too risky for business investment.

The Rwandan agricultural sector has shown impressive growth over the past decade and its transformation to become a market-orientated, value-creating sector is well under way.  The Minister of State in charge of Agriculture, Tony Nsanganira, believes the agricultural sector is ready for private sector players to engage and take advantage of great market potential. However the dependence on rain, the lack of financial management and limited access to technical expertise and know-how are some of the factors that make investors, agro-processing companies, banks, and insurance companies consider the sector as a “risky business.’

Access to finance and loans is still a challenge for farmers.  However, the issue of high rates and lack of collateral demanded by banks before they will consider issuing loans to farmers will soon be a thing of the past—thanks to an innovative deal reached with 450 micro-finance institutions, according to Innocent Bulindi, Chief Executive Officer of the Business Development Fund (BDF).  The BDF is an independent government entity established in collaboration with the Development Bank of Rwanda (BRD) to implement the “Access to Finance” programme.  The BDF is working to invest in rural farming and to develop different finance mechanisms that can help solve funding challenges. High interest rates affect farmers when they need to buy agricultural inputs like seeds and fertilisers. Adverse weather conditions in areas like the Eastern Province, and recent floods in Gakenke devastated harvests and presented serious challenges to borrowing.  Contracts have now been signed with the 450 micro-finance institutions all over the country to refinance rural agriculture.

Innovative financing products will help Rwandan farmers to access what they need at the right time. The government is also working hard to come up with comprehensive irrigation systems so that this will avoid dependence on rains and to some degree, mitigate the impacts of the climatic changes.

Innovative Financing for Development could support the Rwandan government’s efforts to find funds for the refinancing of agriculture.  One secure and sustainable way of providing the revenue is to focus on domestic resources and Innovative Financing for Development (IFD) to determine new sources of revenue and manage, leverage and protect these revenues—at the same time not relying on external aid.

This could be done with the assistance of the global IFD specialist LSL World Initiative (LSL) and its technological partners. LSL has a solid track record of partnering with governments to set up and operate national strategic development initiatives tailored to the local context and in line with national development priorities.  These initiatives operate with revenues generated by a comprehensive suite of micro-levies or micro-contributions in key globalised sectors—offering the best opportunities in terms of volumesgrowth potential and sustainability.

There are a whole range of potential revenue-creating opportunities that could be explored.  Micro-contributions on telecommunications and money transfers are funding many different projects in a variety of fields in emerging countries who have harnessed the power of IFD.

The revenues from IFD mechanisms generated in this way could be used to feed a government Agricultural Fund set up to supplement the existing programmes, provide revenue for support services, additional grant programmes and set up training programmes aimed at improving technical expertise and sharing best practices and experiences. Boosting the “Access to Finance” programme could accelerate positive growth and the transformation of the agricultural sector, in line with the Rwandan government’s priorities.