Local firms in Agriculture and urbanization stand a chance to acquire loans on subsidized interest rates to ensure they boost productivity and competitiveness of their respective products.
This comes after the National Industrial Research and Development Agency (NIRDA) secured a grant from Enabel- the Belgian Development Agency to support the two sectors in specific value chains.
The grant agreement between the two institutions was signed on Tuesday 23, March 2020.
During the same occasion, NIRDA also signed an agreement with the Development Bank of Rwanda (BRD) to manage the funds. The development bank will work with other commercial banks, MFIs or SACCOs where eligible firms will receive a reduction of 8% in interest rate.
Companies to benefit from the support include those piggery, poultry and animal feeds in the agriculture sector as well as those in the stone and clay value chain in the urbanization sector.
According to officials, the grant agreement comes to boost investment by SMEs in critical sectors for national economic growth and poverty reduction by lowering interest rate firms were charged whenever they sought loans.
A total of 2.3 million Euros (about Rwf2.5billion) will be used to support the value chains, officials said.
Firms in the piggery, poultry and animal feeds value chain (Agriculture sector) will benefit from 1.8million euros while those in the clay and stone value chain will share 500,000 euros according to officials.
The current cost of finance at an average of 21% interest rate in different financial institutions, strict collateral and administrative requirements are challenging for many firms.
Besides, the process of acquiring loans is lengthy and is costly (both in terms of the cost of financing and the administrative cost for the process).
The funds granted by Enabel will serve to de-risk investments in the value chains and in reducing the barriers for investment to the value chain actors.
“We believe that this is a huge contribution in that it will offload companies and enable them to acquire loans that they will be able to service-hence use the loan to improve their productivity and competitiveness,” said Dr. Christian Sekomo Birame, NIRDA Director general
“This is so critical because in most cases, companies shy away from seeking loans in financial institutions due to high interest loans they charged among other factors,” he added.
NIRDA, also with support from Enabel is in the final stage to support selected firms in the said value chains to acquire upgraded equipment, technical support, and business advisory services through its Open Calls Program
With the two packages namely the support from the Open calls program and the subsidized interest rates, it is believed that companies in agriculture and urbanization sectors will be able to get support and run their business smoothly.
All beneficiary companies applying for loans will first be required to comply with the loan criteria of their respective bank, MFIs or SACCOs.
According to Kampeta Sayinzoga, BRD’s Chief Executive Officer, the interest rate subsidy is a positive move as it would offload those who may seek loans from commercial banks, Microfinance institutions and Saving and Credit Cooperative (SACCO).
She said the high interest rate that banks charge was a big issue adding that firms would pick interest in securing loans with subsidized interest rates.
“This partnership opportunity has a double objective as a contributor towards economic growth and poverty reduction, in particular it provides reduced interest rates and further provides accessible and affordable long-term financing for SMEs”
BRD will just manage the funds and will work with banks and microfinance institutions from which eligible companies would apply for loans.