Agriculture Finance Diagnostic Rwanda © 2018 The World Bank Group 1818 H Street NW Washington, DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org All rights reserved. This volume is a product of the staff and external authors of the World Bank Group. The World Bank Group refers to the member institutions of the World Bank Group: The World Bank (International Bank for Reconstruction and Development); International Finance Corporation (IFC); and Multilateral Investment Guarantee Agency (MIGA), which are separate and distinct legal entities each organized under its respective Articles of Agreement. We encourage use for educational and non- commercial purposes. The findings, interpretations, and conclusions expressed in this volume do not necessarily reflect the views of the Directors or Executive Directors of the respective institutions of the World Bank Group or the governments they represent. The World Bank Group does not guarantee the accuracy of the data included in this work. Rights and Permissions The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly. All queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2422; e-mail: pubrights@worldbank.org. Photo Credits: World Bank Photo Library and Shutterstock WHEN AND HOW SHOULD AGRICULTURAL INSURANCE BE SUBSIDIZED? ISSUES AND GOOD PRACTICES B Table of Contents Acknowledgments.................................................................................................... V Acronyms and Abbreviations .............................................................................. VII Executive Summary................................................................................................ IX 1. Agriculture Sector and Financial Sector Overview.......................................... 1 2. Financial Inclusion of Farmers and Agricultural Small and Medium-Sized Enterprises.................................................................................. 9 3. Agriculture Finance Market Overview.............................................................13 4. Public Sector Support for Agricultural Finance............................................. 23 5. Challenges............................................................................................................27 6. Recommendations..............................................................................................31 Reference................................................................................................................. 39 Annex 1. BNR Classification of Credit Categories Related to the Agriculture Sector...................................................................................................41 Annex 2. List of People/Organizations Contacted............................................ 43 AGRICULTURE FINANCE DIAGNOSTIC — RWANDA iii List of Figures Figure 1. Financial access strand in East African countries.............................. 8 Figure 2. Financial access by population segment (percent)........................... 10 Figure 3. Savings behavior and saving locations (percent of segment)........ 10 Figure 4. Borrowing behavior and credit sources (percent of segment)........ 11 Figure 5. Access to insurance (percent of segment insured)............................ 11 Figure 6. Gender gaps in financial access............................................................ 12 Figure 7. Trend and composition of the agriculture loan portfolio (in RF billion and percent of agriculture GDP)............................................... 14 Figure 8. Trend in composition and performance of bank loans to the agriculture sector (in RF billion)........................................................................ 15 Figure 9. Composition of bank loans to agriculture production (percent of total agriculture production loans)............................................. 16 Figure 10. NPL ratio in major subsegments of loans for agriculture (percent of loans)................................................................................................. 16 Figure 11. Composition of bank loans to agribusiness (percent of total agribusiness loans)................................................................17 Figure 12. NPL ratio in major subsegments of agribusiness loans (percent loans).......................................................................................................17 Figure 13. Outstanding BRD agriculture loans by segment (2016)................17 Figure 14. Value of agricultural insurance policies (total sum insured in US$ 1,000)..................................................................... 21 Figure 15. BDF agriculture guarantees issued (in RF billion)............................24 List of Tables Table 1. Summary of main proposed actions......................................................XII Table 2. Distribution of financial sector assets, December 2016..................... 5 TABLE OF CONTENTS iv Acknowledgments At the request of the Ministry of Agriculture and Animal Resources (MINAGRI), a team led by Ajai Nair (Senior Financial Sector Specialist) prepared this report. The team included Toshiaki Ono (Financial Sector Specialist), Shadreck Mapfumo (Senior Financial Sector Specialist), Brice Gakombe (Financial Sector Specialist), and Aimee Marie Ange Mpambara (Agriculture Specialist). Jeffrey Stephen Allen (Consultant) analyzed the Finscope 2016 data and contributed to Chapter 2. Daniel Ayalew Ali (Senior Economist) analyzed data on credit usage in the Integrated Household Living Conditions Surveys and provided inputs. Mwiseneza Huguette and Oxana Shmidt (both Program Assistants) provided operational and logistics support, and Tora Estep copy-edited the report.  Several institutions shared information that was critical in preparing this report. These include Banque Nationale du Rwanda (Central Bank of Rwanda, BNR), the National Institute of Statistics (Rwanda), the Rwanda Business Development Fund, the Development Bank of Rwanda, the East African Commodity Exchange, the Rwandan Microfinance Association, the Council for Smallholder Finance, and Access to Finance Rwanda. The microdata shared by the National Institute of Statistics were instrumental for the analysis in Chapter 2. We would like to acknowledge particularly BNR’s efforts in putting together the consolidated agriculture finance data used for the analysis in Chapter 3. Annex 2 provides a list of the various financial institutions, producer cooperatives, and federations of cooperatives that also shared information. Gunhild Berg (Senior Financial Sector Specialist), Emiko Todoroki (Senior Financial Sector Specialist), Timothy Robertson (Senior Agriculture Specialist), Diego Arias (Lead Agriculture Specialist), Chris Jackson (Lead Agriculture Specialist), Juan Buchenau (Senior Financial Sector Specialist), Douglas Randall (Financial Sector Specialist), and Panos Varangis (Global Lead, Agriculture Finance) provided internal review inputs. Hedwig Siewertsen, Team Leader, Financial Inclusion, Alliance for Green Revolution in Africa; Fina Kayisanabo and Randy Smith, Private Sector and Agribusiness Team, Rwanda-Economic Growth Office, USAID; Octave Semwaga, Director General of Planning, and Caritas Kayilisa, Gender Advisor, MINAGRI; and Peace Masozera Uwase, Director General, Financial Stability, BNR provided external review inputs. AGRICULTURE FINANCE DIAGNOSTIC — RWANDA v Also, we thank Aichin Lim Jones and Amy Quach Framework, an initiative of the World Bank for overall design and production services. supported with funding from the Netherlands and the Bill and Melinda Gates Foundation. The report was prepared under the Rwanda Country Support Program of the Financial Inclusion Support ACKNOWLEDGMENTS vi Acronyms and Abbreviations AAPI adults reporting agriculture as the primary income AFR Access to Finance Rwanda AMIR Association of Microfinance Institutions in Rwanda BDF Rwanda Business Development Fund BNR Banque Nationale du Rwanda (National Bank of Rwanda, central bank) BPR Banque Populaire du Rwanda BRD Development Bank of Rwanda CAGR compound annual growth rate CIP Crop Intensification Program COGEBANQUE Compagnie Générale de Banque CSAF Council on Smallholder Agricultural Finance EAX East African Commodity Exchange EDPRS Economic Development and Poverty Reduction Strategy FIs financial institutions GDP gross domestic product GoR Government of Rwanda IFAD International Fund for Agricultural Development IFC International Finance Corporation ISIC International Standard Industrial Classification KCB Kenya Commercial Bank MFIs microfinance institutions MICT Ministry of Information and Communications Technology MINAGRI Ministry of Agriculture and Animal Resources MINECOFIN Ministry of Finance and Economic Planning AGRICULTURE FINANCE DIAGNOSTIC — RWANDA vii MINECOM Ministry of Trade and Industry MNO mobile network operator NAEB National Agricultural Export Development Board NAP National Agriculture Policy NFIS National Financial Inclusion Strategy NISR National Institute of Statistics of Rwanda NPL nonperforming loan PCG partial credit guarantee PFI partner financial institution PSTA Plan Stratégique pour la Transformation Agricole or Strategic Plan for the Transformation of Agriculture RAB Rwanda Agriculture Board RCA Rwanda Cooperative Agency RIPPS Rwanda Integrated Payments Processing System RDB Rwanda Development Board RF Rwandan franc RMA Rwanda Meteorological Agency RRA Rwanda Revenue Authority SACCOs savings and credit cooperatives SMEs small and medium-sized enterprises TA technical assistance UOB Urwego Opportunity Bank VAT value-added tax WB World Bank WRF warehouse receipts financing ABBREVIATIONS viii Executive Summary Agriculture is critical to Rwanda’s economy and a key sector in Rwanda’s Economic Development and Poverty Reduction Strategy (EDPRS). Agriculture contributes nearly a third of the national gross domestic product (GDP), employs more than three-fourths of the workforce, and generates more than half of the country’s export revenues. The sector is a key driver of national economic growth and is estimated to have contributed to 35 percent of the total decline in poverty rates in 2000–15. Agriculture finance is a national priority to achieve transformation of the agriculture sector and greater financial inclusion. The Financial Sector Development Plan (2013–18), the National Financial Inclusion Strategy (NFIS), and the National Agriculture Policy (NAP) (the latter two under development) include actions to support access to financial services for farmers and agribusinesses. The National Bank of Rwanda (BNR), the central bank, tracks lending to the sector disaggregated by key value chains and value chain stages. Rwanda also has two key market development entities—the Development Bank of Rwanda (BRD) and the Business Development Fund (BDF)—which are active in agriculture finance. Lastly, agri-finance is a key focus area for Access to Finance, Rwanda, a specialized donor-funded initiative and for World Bank’s lending projects in the agricultural sector. Prioritizing agriculture finance has yielded substantial achievements, but farmers’ use of formal financial services remains suboptimal. The level of access to the formal financial sector for adults reporting agriculture as their primary income is comparable to the rest of the population, but usage of formal financial services is significantly lower. Their access to the formal financial sector is primarily through nonbanks—savings and credit cooperatives and mobile money providers in particular. Nearly half save with formal providers, but only around one in 10 borrows from formal providers; informal providers remain the primary providers of credit. Lastly, only 6 percent report having any type of insurance (not including social medical insurance and social security programs), and less than 1 percent report using agricultural insurance. AGRICULTURE FINANCE DIAGNOSTIC — RWANDA ix Demand-side data on the use of financial substantial outreach of regulated financial services by agri-enterprises are not available. institutions, a relatively well-functioning retail An enterprise survey that includes questions payment system, an integrated financial regulator on access and use of financial services with an that supervises banks and nonbank service providers adequate sample size to allow comparative analysis (including insurance), a credit registry that covers between agri-enterprises and other enterprises both banks and nonbanks, and a functional secured (as done for individuals using Finscope 2016 transactions registry. Key agricultural sector data) is not available. However, interviews with foundations include a modern land-title system that key respondents suggest that agricultural small provides more than four-fifths of farmers with clear and medium-sized enterprises (SMEs) are likely land titles, a relatively well-functioning agricultural to have less access to financial services than input supply infrastructure, and a substantial number other enterprises. of farmers organized into producer cooperatives. The limited depth of the agricultural credit The report identifies four key opportunities to market is also reflected at the macro level. While further develop agriculture finance in Rwanda the overall credit to national GDP ratio is around and recommends policy and institutional actions 20 percent, credit to farmers and agri-enterprises to realize these opportunities effectively. These represented only 4.6 percent of the agricultural include opportunities to a) strengthen the enabling GDP in 2016. However, it is growing, having environment for agriculture finance, b) facilitate increased from 3.6 percent in 2012.1 The proportion financial inclusion of commercially oriented farmers of credit to agricultural GDP is also likely to be an and agri-SMEs, c) deepen the agricultural credit underestimate because a nontrivial portion of the market, and d) scale up the agricultural insurance noncategorized credit (8 percent of total credit) market. Table 1 presents the actions recommended and some credit reported under categories such to realize these opportunities, maps these actions to as construction, trading, and consumer loans, also expected outcomes, identifies the potential lead and flow to farmers and agri-enterprises. supporting entities for each recommended action, and finally prioritizes the recommendations. The report identifies several challenges to increasing access to financial services to the Two key caveats are important to note. First, agricultural sector. These relate to the enabling this report focuses on financial inclusion of environment (limited availability and quality of commercially oriented farmers and agricultural publicly available data and fiscal disincentives) SMEs. These segments are critical to achieving the and demand (limited financial capability of farmers transformation of Rwandan agriculture that was and producer organizations) and supply (limited envisaged under the NAP and the Strategic Plan operational capacity among financial institutions to for the Transformation of Agriculture (PSTA4). serve the agricultural sector and limited availability Financial inclusion of all individuals, including of medium- to long-term liquidity) of financial subsistence farmers and rural households relying services. mainly on off-farm income opportunities, is important to achieve the broader goals of poverty However, Rwanda has key institutional reduction. The actions needed to achieve this foundations in place to scale up agriculture objective are envisaged to be set forth in the NFIS finance. Key financial sector foundations include 1 It was 5.9 percent in 2015, but fell in 2016 as a result of decrease in lending to the sector. EXECUTIVE SUMMARY x under preparation. Second, this report is a diagnostic The report is organized as follows: Chapter 1 report and not an action plan or a strategy. It aims presents an overview of the agriculture and financial to provide robust analysis and recommend potential sectors. Chapter 2 presents an analysis of farmers’ actions to scale up agriculture finance in Rwanda financial access and use of financial services. sustainably. These actions can potentially be Chapter 3 discusses key trends in agriculture integrated into the national and sectoral strategies as credit and agriculture insurance markets. Chapter appropriate. Effectively implementing these actions 4 discusses the key institutions and instruments will require further consultations and may require of public sector support for agriculture finance. setting up an effective coordination mechanism, Chapter 5 identifies key challenges that are such as a steering committee. constraining the growth of agriculture finance, and lastly, chapter 6 identifies major opportunity areas and makes key recommendations to capitalize on the identified opportunities. AGRICULTURE FINANCE DIAGNOSTIC — RWANDA xi Table 1. Summary of Main Proposed Actions Action Outcome Lead Supporting Priority entity entities Strengthen enabling environment for agriculture finance Include financial inclusion in Improved data on agriculture NISR, BNR MINAGRI Medium key household and enterprise finance to enable policy and surveys and improve quality of making and business decision MINECOM supply-side agriculture finance making data Strengthen agricultural and Enhanced availability of MINAGRI RDB, RMA, High weather information system and information for analysis and MINECOM, establish an agriculture decision making of public and and BNR dataplatform private players Remove fiscal disincentives that Facilitated growth of credit MINECO- RRA and Medium constrain the development of the and insurance markets FIN MINAGRI credit and insurance markets Facilitate financial inclusion of commercially oriented farmers and agri-SMEs Support professionalization and Improved creditworthiness of RAB and RCA and High automation of producer producer cooperatives NAEB AFR cooperatives and their federations Support digitization of Improved financial inclusion RAB and MINAGRI, High agricultural payments of farmers and credit NAEB RDB, MICT, worthiness of agri-SMEs and AFR Publish a directory of Improved creditworthiness of MINECOM RAB and Medium agribusiness enterprises agri-enterprises, particularly NAEB SMEs Deepen the agriculture financing market Build capacity of commercial Improved access to credit and Banks and AFR, AMIR, Medium banks and MFIs in agricultural other financial services for MFIs and MINE- finance agri-enterprises (including COFIN SACCOs) Assess impact of ongoing Improved effectiveness of MINECO- BDF and High grant and guarantee programs grant and guarantee programs FIN BRD Enhance BDF’s capacity to Strengthened role of the BDF BDF MINECO- High serve the agricultural sector as a market maker in the FIN agricultural credit market Strengthen BRD’s capacity to Strengthened role of the BRD BRD MINECO- High serve the agricultural sector as a market maker in the FIN agricultural credit market Scale up the agriculture insurance market Commission a detailed options MINAGRI AFR High assessment for a public-private partnership in agriculture insurance Sustainable national scale up of agricultural insurance Build technical capacity and MINECO- MINAGRI, Medium awareness on insurance FIN AFR, and BNR Note: AFR = Access to Finance Rwanda. AMIR = Association of Microfinance Institutions in Rwanda. BDF = Rwanda Business Develop- ment Fund. BNR = National Bank of Rwanda. BRD = Development Bank of Rwanda. MFI = microfinance institutions. MINAGRI = Ministry of Agriculture and Animal Resources. MINECOFIN = Ministry of Finance and Economic Planning. MINECOM= Ministry of Trade and Industry. MICT = Ministry of Information and Communications Technology. NAEB = National Agricultural Export Development Board. NISR = National Institute of Statistics of Rwanda. RAB = Rwanda Agriculture Board. RCA = Rwanda Cooperative Agency. RDB = Rwanda Development Board. RMA = Rwanda Meteorological Agency. RRA = Rwanda Revenue Authority. SACCO = savings and credit cooperative. EXECUTIVE SUMMARY xii Agriculture Sector and Financial Sector Overview Agriculture Sector The agriculture sector remains the backbone of the Rwandan economy in terms of contributions to national gross domestic product (GDP) and employment and income generation for the majority of households. Agriculture contributed nearly one-third (32.7 percent) to national GDP in 2015, and it continues to be a critical driver of economic growth (4.8 percent during the 2000–16 period).2 Further, it contributed an estimated 35 percent to the decline in poverty over the past decade (World Bank 2017b). In 2014, the sector was the largest contributor to total employment in the country (more than 70 percent of 5.6 million total employment) and was the fourth largest contributor to nonfarm private sector jobs in the economy (contributing 7.4 percent of the estimated 351,000 jobs).3 The agriculture sector has an estimated 3.65 million agricultural operators, and most cultivate extremely small plots of land. Of these agricultural operators, an estimated one million are women (Seasonal Agriculture Survey, NISR 2016). Although agricultural land plots are generally very small (often divided into three to four plots), this masks a wide range. About 30 percent of households cultivate less than 0.2 hectares (accounting for about 5 percent of total arable land), while about 25 percent cultivate more than 0.7 hectares (accounting for 65 percent of the national farmland). Staple crops such as roots and tubers and bananas dominate Rwanda’s agricultural production in terms of volume and land use. These two groups of crops account for two-thirds of production volume4 and more than half (55 percent) of the land use. Within these groups, cassava, 2 GDP share and GDP growth contributed by agribusiness and trading of agricultural goods are accounted under industry and services respectively. Hence, the GDP share and growth captured in national accounts underestimate the contribution of agriculture if it is defined broadly to include production, trading, and processing. The overall economy grew 7.8 percent during this period, with industry growing 10.1 percent and services 9.7 percent. 3 Rwanda Firm Growth and Performance (2016) with data from the Establishment Census (NISR 2011, 2014). There were 26,151 nonfarm private sector jobs in the agriculture, forestry, and fishing economic sector. Between 2011 and 2014, jobs in this sector grew 16 percent, and the sector had some of the highest growth in jobs per firm. 4 65 percent and 73 percent of agriculture production volume in Season A and B respectively in 2016. AGRICULTURE FINANCE DIAGNOSTIC — RWANDA 1 bananas, and sweet potatoes seem to be more widely In contrast, staple crop value chains tend to produced than other crops. Agricultural products have more and more heterogeneous buyers and account for 35–40 percent of all Rwandan exports, traders, leading to less-organized transactions with coffee and tea representing about 50 percent of in the chain. Some producer cooperatives play total agricultural exports. more active roles than others in aggregating and marketing crops, but formal contracts with buyers Some value chains are better organized than rarely exist due to the high risk of side selling. others, providing secure market opportunities Although maize is more organized than others and to farmers. Coffee and tea have more organized financed by banks and MFIs, side selling remains value chains with exporters, traders, processors, rather common. Rice and potato value chains seem and established cooperatives (Box 1) that supply to be the most commercially oriented and organized products according to the quality and quantity among the staple crops. Rice is often produced at requirements of formal contracts. Buyers in the the government-developed wetland, and producers tea value chain in particular provide or facilitate tend to have designated buyers. Potato producers are technical assistance, inputs, and credit to their required to sell their products at the local collection suppliers to maintain long-term and secure business centers, which ensures structured transactions in the relations. Coffee value chains are less organized chain. compared with tea value chains. Traders, processors, and cooperatives aggregate coffee cherries for While Rwanda has a relatively well-organized specific buyers, and financial institutions fund system of producer cooperatives structured some of these transactions. While most agriculture along major value chains, its coverage of the transactions in these chains remain cash based, agricultural population remains suboptimal. The some buyers use transaction accounts in banks, Seasonal Agricultural Survey (NISR 2016) found microfinance institutions (MFIs), and/or mobile that just over 20 percent of agricultural operators network operators (MNOs). (primarily smallholder farmers) are members in Box 1. Rwanda’s Commodity Cooperative Federations FERWACOTHE, the federation of tea cooperatives, has 19 member cooperatives with around 43,000 tea- leaf producers as members. Along with its member cooperatives, it is involved in procurement and supply of fertilizers, while only member cooperatives play a role in facilitating their members’ access to financial services. Pricing is set following a nationwide formula that tea factories and producers have agreed upon. Rwanda Coffee Cooperatives Federation has 13 member cooperatives with nearly 19,000 coffee producers as members. The federation procured and supplied more than 500,000 seedlings to its member cooperatives and facilitated access to RWF 200 million in credit for four member cooperatives. It does not play a role in marketing. Other major commodities that have cooperatives and cooperative federations are rice, maize, dairy, and horticulture. Source: Author interviews AGRICULTURE SECTOR AND FINANCIAL SECTOR OVERVIEW 2 producer cooperatives. This suggests that even a professionalization of agriculture cooperatives under substantial proportion of those who have agriculture the National Agribusiness Investment Promotion as their primary occupation are not yet members Strategy 2017 is a step in the right direction. in cooperatives.5 These cooperatives are organized Rwanda’s agricultural sector has several along major commodity segments such as rice, strengths. These include a diversified agri- maize, potatoes, beans, coffee, tea, horticulture, and ecological environment that permits the production diary. Most of these cooperatives are also organized of a wide variety of agricultural and livestock into federations, also by commodity. Interviews with products; reasonably favorable rainfall, with at the National Cooperatives Confederation of Rwanda least two growing seasons in most areas; a strong and the Rwanda Cooperative Agency suggest that state with popular support committed to economic rice and tea cooperatives have the largest coverage development and poverty reduction; high population among operators engaged with these commodities density; a relatively good primary and secondary and among the most active. Some advanced road network, which facilitates market access; and federations and cooperatives in better-organized location in the heart of Africa, with access to a large value chains often provide various support services and rapidly growing regional market. to member farmers such as group procurement of inputs, provision of technical assistance, facilitation However, the sector also faces several challenges. of finance, aggregation, and group marketing. These include relatively fragile soils that have been severely depleted and eroded; a hilly or The agribusiness sector, including food mountainous terrain that contributes to erosion; manufacturing and trading, is expected to long distance and high transport costs to and from grow as Rwandans consume more high-value the sea; small population size, limiting domestic and processed foods. According to the Integrated market demand; and high and growing population Business Enterprise Survey Report 2014 (NISR density, which limits access by a large part of the 2016), food processing represents the largest rural population to enough land to sustain itself.6 In number of companies (56 out of 198 in the survey addition, the small landholdings limit the potential sample) and is the biggest manufacturing employer. to use any mechanization. The challenges faced by Other businesses along agriculture value chains the livestock subsector include scarcity of good- such as agriculture commodity trading and food quality animal feed, poor genetic performance of retailing are expected to grow, although no official local breeds, and limited knowledge regarding statistics are available. One of the major issues that livestock management. agribusiness companies face is stable procurement of crops (raw materials) from cooperatives and Rwandan agriculture has yet to meet its full farmers. For example, processors of staple crops potential and remains highly vulnerable to often suffer from side selling and must cope with climate change. Although key agricultural yields issues concerning quantity and quality of raw have greatly increased since 2000, they reached a materials. In this context, the envisaged support for plateau in 2011 and are estimated to be at only 40–50 5 It is, however, notable that more than 70 percent of large farmers with more than 10 hectares report being members, indicating that many are likely to be providing “value for money.” 6 More than half of Rwanda’s soils are unsuitable for demanding crops. The very good soils occupy a small space and are found mostly in densely populated areas. Erratic rainfall in eastern Rwanda limits the production potential of crops sensitive to water stress. In mountainous western Rwanda, abundant rainfall has leached most soils and severely eroded others, requiring substantial investment to bring this land back into production. More than 70 percent of agricultural land is on slopes ranging from 5–55 percent. AGRICULTURE FINANCE DIAGNOSTIC — RWANDA 3 percent of their potential. Similarly, livestock yields for the Transformation of Agriculture. The GoR has have remained consistently low over time. With completed three phases of the PSTA and is currently less than 20 percent of agricultural land irrigated, preparing the fourth phase (PSTA4), placing strong Rwanda’s agriculture relies strongly on rain-fed emphasis on commercialization and transformation agriculture (NISR 2016). While Rwanda already of the sector. Agricultural GDP growth in the first experiences periodic floods and droughts with three phases of the PSTA was 5.8 percent; growth substantial economic impacts, climate change could over the past decade in Rwanda has been among raise these costs to one percent of GDP per year the highest in Africa (among the top seven out of by 2030 (Downing et al. 2009). Climate change– 48 countries). sensitive crops include ones that Rwandans depend A key component of the PSTA is the Crop upon as staple and cash crops, namely common Intensification Program (CIP). In 2007, the GoR bean and maize, projected to decrease in suitability, launched the Crop Intensification Program with and groundnut, cassava, and banana, projected to the goals of increasing agricultural productivity increase in suitability. of priority food crops, achieving food security, Notwithstanding these challenges, production and increasing rural households’ income. The of major agricultural commodities has made CIP had four main components: farm land use substantial gains over the past decade and half. consolidation, access to affordable farm inputs The total production of cassava and maize, as well through government subsidies, proximity extension as milk, meat, fish, and eggs, more than doubled services, and post-harvest handling and storage. between 2005 and 2015. Substantial productivity The CIP’s design and implementation approach gains have also been made in other commodities has evolved over the years; particularly relevant (e.g., cereal and cassava yields have trebled, and is that subsidy levels have fallen over time.8 sweet potato yields have doubled). Production Notwithstanding the need to strengthen the design areas of maize, cassava, Irish potato, and rice have and implementation further, the CIP is estimated to increased rapidly, and increasing percentages of have contributed substantially to the agricultural households are cultivating these crops.7 sector’s growth in general and productivity gains in the targeted crops.9 Rwanda is among the few A well-established policy framework and African countries with close to 10 percent public implementation and increased public investment spending on agriculture. in agriculture and rural infrastructure represent attempts to address some of the challenges A major policy reform particularly relevant to and have contributed to positive agriculture agriculture finance has been the land tenure sector performance. The overall policy platform regularization program (ADB n.d.). Rwanda is that the Government of Rwanda (GoR) has one of the few African countries that have undertaken implemented is the Plan Stratégique pour la major land tenure regularization programs. During Transformation Agricole (PSTA), or Strategic Plan the program implementation in 2009–13, more than 7 Reported increases include Irish potatoes (from 53 to 61 percent), cassava for cooking (from 52 to 59 percent), and maize (from 75 to 81 percent) from 2010 to 2014 (NISR 2015). 8 Currently subsidized fertilizers are available for smallholder producers of maize, wheat, soybeans, rice, beans, cassava, Irish potatoes, and vegetables, while only maize, wheat, and soybean seeds are subsidized. From 100 percent in 2007–08 and 50–75 percent in 2009–10, the current subsidy levels are 16–36 percent for macrofertilizers and 50 percent for micronutrients. Seeds are currently subsidized at 75–85 percent for imported seed (hybrid maize, soybeans, and wheat) and 41–57 percent for locally produced seed (AGRA 2016). 9 Between 2006 and 2015, the total volume of fertilizers used in the country rose sharply from 6,000 tons to 59,000 tons and from 4.0 kg to 35.0 kg on a per hectare basis. AGRICULTURE SECTOR AND FINANCIAL SECTOR OVERVIEW 4 10 million parcels of land, accounting for 97 percent Financial Sector Overview of the total land, were demarcated. The Rwanda Rwanda’s financial sector has become Natural Resource Authority issued titles for the 83 increasingly diversified in recent years. It consists percent of the parcels that had claimants. Following of a broad array of financial institutions (Table 1), these efforts, the majority of rural households report comprising commercial banks, microfinance banks using their land as collateral for loans. In the fourth and nonbank microfinance institutions, savings round of the Integrated Living Standards Survey and credit cooperatives (SACCOs), insurance (EICV4), undertaken during 2013–14, among rural companies, and pension funds. The banking sector households that reported having a loan in the past still dominates the financial landscape with a 66.9 12 months from a formal or semi-formal source, 54 percent share of total financial sector assets at the percent reported having used land as collateral. end of 2016 (Table 2). The banking sector consists of The draft National Agricultural Policy (NAP) 16 institutions, including 11 commercial banks, three identifies key priorities for further development microfinance banks, one development bank, and one and transformation of the sector. These priorities cooperative bank. Nonbank financial institutions include a) shifting the role of the state from being include 10 private insurers and two public insurers; a market actor to becoming a market enabler, b) one public pension fund and 54 private funds; two strengthening farmer cooperation and private- payment system operators, 13 payment service sector-led development of the agri-food economy, providers (including three MNOs), nine remittance c) enhancing resilience to adverse impacts service providers; and one credit reference bureau. from climate change and market shocks, and d) In addition, a capital market is nascent but growing, supporting digitization to enable more effective with seven listed equities (two domestic and five sector administration and operations. The PSTA4 cross-listings) and 12 listed bonds (10 government (under preparation) is expected to take actions and two corporate) on the Rwanda Stock Exchange. toward achieving the goals of the NAP. Total market capitalization of the debt and equity market stood at 43 percent of GDP at the end of 2016, or US$3.4 billion. Table 2. Distribution of Financial Sector Assets, December 2016 Sector # FIs % Share of Total Assetsa % of GDP Banking 16 b 66.9 38.0 Insurance 15 9.7 5.5 Pension 1 17.1 9.3 Microfinance institutions 472 6.3 3.6 TOTAL 504 100 56.4 Source: BNR 2017. Note: FI = financial institution. a. As of December 2016, total financial sector assets amounted to RF 3.5 trillion. The value considers assets of regulated financial institutions (banks, insurance companies, pension funds, and all microfinance institutions) and excludes the BNR (2017) Monetary Policy and Financial Stability Statement. b. These are banks operating in Rwanda. The number excludes the Commercial Bank of Africa. AGRICULTURE FINANCE DIAGNOSTIC — RWANDA 5 The microfinance sector plays a critical role MoKash, a suite of mobile-based banking products in driving financial inclusion by connecting offered to MTN Mobile Money customers, which the rural population and lower-income groups offers both a deposit product (microsavings with up to financial services. This subsector comprises to 7 percent interest) and a loan product (microloans entities with limited company status and SACCOs. with a one-time fee of 9 percent levied for each loan). As of December 2016, out of the 472 microfinance Rwanda has a relatively modernized national institutions operating in Rwanda, 17 are payment system. The main pillar of the Rwanda microfinance institutions with limited liability Integrated Payments Processing System (RIPPS) company status and 455 are SACCOs. The latter is the real-time gross settlement system for the include 416 Umurenge SACCOs and 39 non- country, which constitutes the main system for the Umurenge SACCOs. Umurenge SACCOs are settlement of interbank activities in the financial SACCOs that have been promoted at the level system. The system has commercial banks and of Umurenges, the third level of administrative the central bank as direct participants. Other key subdivision after provinces and districts. elements of the RIPPS include the central securities Supported by agents, the financial sector depository for holding both private and public ecosystem/footprint has grown substantially. In securities, the automated clearing house, and a terms of the banks’ branch network, as of December domestic switch for card-based transactions. The 2016, 194 bank branches, 174 subbranches, banks also participate in the automated clearing 181  outlets, 400 automated teller machines, 1,885 house system through which check clearing, direct point-of-sale devices, and 4,411 banking agents credit transfers, and direct debits are processed. were in operation. The insurance sector had A key limitation that remains is the lack of full 15  insurance brokers, eight loss adjusters, and interoperability among all retail payments service 415 insurance agents. Mobile-money providers providers. Nonetheless, the ratio of electronic combined had 59,952 mobile money agents. retail payments transactions to GDP has steadily increased from 0.3 percent in 2011 to 21.6 percent Mobile money infrastructure has grown rapidly in 2016. and has contributed to the exponential growth rate in its use. Just in 2016, the number of mobile Rwanda also has a strong credit infrastructure. money agents increased 48 percent, from 40,467 Rwanda has a strong creditor and insolvency to 59,952  agents. During this period, registered framework and a notice-based collateral registry. mobile money accounts increased to 9.7 million, The credit bureau includes both positive and active mobile money users increased to 3.3 million negative information, provides online access, and (by 34 percent from 2.5 million), and the number includes coverage clients of SACCOs. In the Getting of transactions increased 22 percent to 205 million. Credit index of the World Bank’s Doing Business The value of mobile money transactions, however, database, Rwanda gets 11 out of a maximum value decreased marginally in 2016 over 2015 to RF of 12 in the collateral subindicator and eight out of 1,040 billion. A notable recent development has 12 in the depth of credit information subindicator. been the introduction of mobile banking products to Credit bureau coverage of individuals is 16.6 complement mobile money products. In partnership percent.10 with MTN, Commercial Bank of Africa introduced 10 1,056,117 individuals and 27,216 firms (World Bank 2017a). AGRICULTURE SECTOR AND FINANCIAL SECTOR OVERVIEW 6 Banks, MFIs, and insurance companies are The Rwanda Financial Sector Development regulated and supervised by the National Bank Plan II (2013–18) has advanced key aspects of Rwanda (BNR). BNR has dedicated departments of financial sector development relevant to for the supervision of banks, nonbank financial agriculture finance. These include ongoing efforts institutions (excluding MFIs), and microfinance to consolidate and automate Umurenge SACCOs; institutions. All departments carry out regular build capacities of SACCOs and MFIs and their offsite and onsite inspections of the supervised supervisors; facilitate access to the credit reporting entities, although this has been a challenge for the system for SACCOs and other MFIs; strengthen microfinance supervision department given the customer protection and build financial capability large number of supervised entities. This is however of financial services customers; modernize payment expected to be addressed to a substantial extent systems, integrate the mortgage and land registry, once the ongoing effort to automate and consolidate and provide access to this information via mobile the Umurenge SACCOs is completed. phones; and encourage use of moveable assets as collateral. The performance of the banking and MFI sectors weakened in 2016. While the banking and MFI Rwanda has achieved a commendable level of sectors remained profitable, the banking sector’s financial inclusion with 68 percent of adults gross nonperforming loans (NPLs) increased to 7.5 having access to formal financial institutions. percent and those of the MFI sector increased to The “other formal/nonbank” group, defined to 9 percent. Nevertheless, NPLs are at much lower include SACCOs, other microfinance institutions, levels compared with the high levels of 25 percent insurance companies, and mobile money providers, in 2006 and 2007. However, the deterioration drives access to formal service providers: this group of portfolio quality in the case of the Umurenge reaches 42 percent of the adult population, while SACCOs is an area of greater concern because banks only reach 26 percent. Access to mobile money the NPLs have been steadily increasing over the accounts (e-wallets) has increased exponentially last five years and stood at 13.4 percent in 2016 in recent years and is currently estimated to reach (BNR 2017). more than 2.3 million adults, followed by SACCOs, which reach around 2 million adults. The level of The insurance sector’s overall performance formal inclusion is comparable to that in Kenya, improved in 2016, but private insurers’ losses among major East African countries (Figure 1). deepened. Total insurance sector capital grew by Umurenge SACCOs and uptake of mobile money 16 percent, the sector’s total gross premium written were the primary contributors to the growth in increased by 14 percent, and net profit also increased population with access to the formal financial by 12 percent. However, the public and private sector, from 42  percent in 2012 to 68 percent in insurers had a strikingly different performance: 2016. Twenty-one percent of the adult population while the public insurers’ net profits increased, the only uses financial services provided by “informal” private insurers’ net losses increased. The regulator service providers: savings groups, shops, farmer’s assessed that the private insurers’ poor performance organizations, and employers. The “excluded” was driven by unhealthy competition leading to neither use financial services from the formal price undercutting and an erosion of premiums providers (banks and nonbanks) nor from informal underwritten, exacerbated by high claims ratios and providers; if they use any financial services at all, management expenses. The Rwandan insurance they depend on family and friends. industry comprises nine non-life insurers, four life insurers, and two public medical insurers (BNR 2017). AGRICULTURE FINANCE DIAGNOSTIC — RWANDA 7 Figure 1. Financial Access Strand in East African Countries Rwanda 26 42 21 11 Kenya 20 34 31 15 Kenya 29 38 8 25 Tanzania 14 43 16 27 0 20 40 60 80 100 Banked Other Formal Informal Excluded Source: FinScope 2016. Usage of financial services from the formal sector Substantial increases in access and usage has increased substantially. In 2015, 49 percent have also been achieved among traditionally of adults reported saving with the formal financial underserved groups, though gaps remain. sector (up from 36 percent in 2012). An increase in Between 2012 and 2015, the proportion of women savings with SACCOs and mobile money providers reporting access to the formal financial sector (which increased from 22 percent in 2012 to 36 increased from 36 to 63 percent, and the gender gap percent in 2015) primarily drove this increased in access to the formal sector decreased from 15 to usage. Borrowing from the formal financial sector 9 percentage points. During the same period, the also increased, though less markedly (from 9 proportion of adults in rural areas with such access percent in 2012 to 15 percent in 2015). Informal increased from 38 to 64 percent. The rural-urban sources remain the major source of credit and have gap remained substantial at 25 percentage points also grown (from 43 percent to 51 percent). Around in 2015 though, having decreased only marginally 9 percent of Rwandans reported using at least one from 28 percentage points in 2012. type of insurance in 2016. AGRICULTURE SECTOR AND FINANCIAL SECTOR OVERVIEW 8 Financial Inclusion of Farmers and Agricultural Small and Medium- Sized Enterprises Based on Finscope 2016 survey data, this chapter presents a comparative analysis of the levels of financial inclusion of adults reporting agriculture as the primary income (AAPI) and the rest of the population. The AAPI comprises 36 percent of the total Rwandan adult population. While more of the population is involved in agriculture generally, this chapter focuses on the narrower group considered critical for the agricultural transformation agenda in Rwanda—the group that reports agriculture as primary income.11 Focusing on the AAPI segment is not to suggest that financial inclusion of the broader segment is not important. It just suggests that focusing on financial inclusion of the smaller group should be a priority for agricultural sector stakeholders. A brief methodological note: The “AAPI” segment is constructed based on those who responded that their main source of income is farming or fishing. The “others” segment, in turn, corresponds to all non-AAPI survey respondents. Proportion tests were carried out to evaluate the statistical significance of the differences between the AAPI segment and the rest of the population for the indicators discussed in the following discussion. Additionally, regressions were run for certain indicators to further examine whether being a member of the AAPI segment still appears to be associated with particular financial access and usage propensities after controlling for key sociodemographic and socioeconomic factors, such as age, gender, education, location, and wealth category. AAPI have a comparable level of access to the formal financial sector as the non-AAPI population but a higher dependence on nonbanks. Among both the AAPI and the rest of the population, 67 percent report having access to the formal financial sector. However, as Figure 2 indicates, the agricultural population has much higher levels of access through nonbanks (primarily from SACCOs and mobile money providers). Controlling for key sociodemographic and socioeconomic factors, the AAPI segment still appears to be associated with higher levels of access through nonbank formal channels alone. The general differences in channel access proportions are statistically significant. 11 Fifty-one percent of adults receive at least some income from agriculture, and 84 percent are estimated to live in rural areas. AGRICULTURE FINANCE DIAGNOSTIC — RWANDA 9 Figure 2. Financial Access by same level as saving to buy livestock while saving Population Segment (Percent) for farming expenses is reported at much lower levels. These findings indicate an opportunity to 100 10 13 strengthen access to formal saving opportunities for 80 22 20 the agricultural population in general and potential need for specialized savings product not just for 60 agricultural investments but also for nonagricultural 47 38 40 needs such as school fees. 20 AAPI borrow more than others, but have a 29 20 higher dependence on the informal sector. 0 AAPI Others About 79 percent of the AAPI segment borrows, Banked Other Formal (Nonbank) compared with about 72 percent of the rest of the Informal Only Excluded population. As Figure 4 shows, AAPI maintain a Source: Author estimates using Finscope 2016 survey data. higher dependence on informal sources and family and friends. While the difference in borrowing The main means of access are also reflected in from nonbank entities is not statistically significant, usage of formal financial services. As Figure differences in borrowing from other channels 3 indicates, the AAPI save more than others, but are significant. Additionally, controlling for key save primarily with nonbanks. AAPI use informal sociodemographic and economic factors, AAPI still sources substantially more. The differences are appear to demonstrate a higher propensity to borrow. statistically significant, and the relationship holds General living expenses are reported as the primary even after controlling for variations in other key reason for borrowing, far outweighing other reasons variables. Saving for general living expenses (as in the case of savings). While farming expenses far outweighs any specific purpose reported, but and buying livestock are significant reasons for among AAPI saving for an emergency (medical and borrowing for the agricultural population, so are nonmedical) and for school fees is reported at the emergencies and school fees. This again suggests Figure 3. Savings Behavior and Saving Locations (Percent of Segment) 8 38 AAPI 63 46 9 16 34 Others 48 42 15 0 10 20 30 40 50 60 70 80 Not Saving Save at Home Informal Only Other Formal (nonbank) Banked Source: Author estimates using Finscope 2016 survey data. FINANCIAL INCLUSION OF FARMERS AND AGRICULTURAL SMALL AND MEDIUM-SIZED ENTERPRISES 10 Figure 4. Borrowing Behavior and Credit Sources (Percent of Segment) 21 42 AAPI 66 12 2 28 37 Others 56 13 5 0 10 20 30 40 50 60 70 80 Not Borrowing Family and Friends Informal Other Formal (Nonbank) Banked Source: Author estimates using Finscope 2016 survey data. that access to credit in general is as important compared with the supply-side data. This suggests for the agricultural population as it is for the that many of those who have access to agricultural nonagricultural population, while also confirming insurance are not aware that they have such access, the need for specialized credit products for working indicating potential design and financial capability capital and agriculture-related investment needs. issues. Notable is that 63 percent of adults reported experiencing a crop failure or loss of livestock, the Access to insurance is limited. Access to third highest incidence of risk reported (after health insurance services (not including the social health events and price increases), probably indicating insurance through the Mutuelle de Santé program) an unmet demand for a well-designed agricultural is substantially lower for the agricultural population insurance product.12 than it is for the nonagricultural population. This difference is also statistically significant. However, the significance does not hold after controlling Figure 5. Access to Insurance for other key factors, suggesting that the lower (Percent of Segment Insured) insurance access for AAPI may be related to broader 12 sociodemographic, socioeconomic, and market 10 development factors than due to factors uniquely 8 associated with the AAPI category.  6 Among the 6 percent of the agricultural 4 population that reports any access to insurance, 2 only 7 percent reports access to agricultural 0 insurance (See Figure 5). However, this seems AAPI Others to be a substantial underreporting of access when Source: Author estimates using Finscope 2016 survey data. 12 Thirty-five percent reported coping by reducing expenses, 9 percent by using their savings, 6 percent by taking loans, and 5 percent by selling assets. AGRICULTURE FINANCE DIAGNOSTIC — RWANDA 11 The gender gap in access to and usage of financial Agricultural SMEs services among AAPI is comparable to the gap An equivalent analysis of access to and use of in the others category. As Figure 6 shows, the financial services by agricultural small and gender gap in access to formal financial institutions medium-sized enterprises (SMEs) was not among AAPI is 11 percent, which is comparable to possible due to the lack of a comprehensive SME 10 percent in the others category. The gender gap finance survey. The World Bank Enterprise Survey in savings with formal financial institutions among from 2011, which included some finance-related AAPI is nearly twice that at 19 percentage points, questions, was not used because the survey sample which is comparable to the 18 percentage point gap (241 firms) was too small to allow a comparative observed in the others group. Finally, the gender analysis between agricultural SMEs and all other gap in borrowing among AAPI is 5 percentage firms. The Rwanda Integrated Business Enterprises points compared to 7 percentage points in the Survey 2014 had a larger sample size (3,790 others group. enterprises), but did not include questions on access to and use of financial services. Figure 6. Gender Gaps in Financial Access (Percent) Gender Disaggregated Financial Access Gender Disaggregated Financial Access (AAPI) (Others) 100 11 9 100 11 15 80 17 80 16 26 22 60 60 41 52 36 40 44 40 20 20 32 19 22 27 0 0 Female Male Female Male Banked Other Formal (Nonbank) Informal Only Excluded Source: Author estimates using Finscope 2016 survey data. FINANCIAL INCLUSION OF FARMERS AND AGRICULTURAL SMALL AND MEDIUM-SIZED ENTERPRISES 12 Agriculture Finance Market Overview Agriculture Credit This report defines “agriculture credit” to include not only loans for agricultural production, but also loans for agricultural trading and agricultural processing. This approach is intended to capture, to the best extent possible, lending for all stages of the agricultural value chains. This is particularly relevant in a context of transformation toward more commercialization and value addition in the agricultural sector, as is the case in Rwanda. The agricultural production category includes farming, fishing, and livestock. For a full listing of loan purposes identified by the BNR for reporting by banks and those included in this report under the “agricultural credit” by banks, see Annex 1 (BNR Classification of Credit Categories Related to the Agriculture Sector). The BNR does not require a similar level of detailed/disaggregated reporting by MFIs (including SACCOs). The loan portfolio to the agriculture sector from the formal financial sector has increased since  2012. The agriculture loan portfolio (agriculture production, trading, and processing) in the formal financial sector (banks, MFIs, and SACCOs) increased from RF 57 billion in 2012 to 90 billion in 2016 (Figure 7). The Development Bank of Rwanda (BRD), the largest lender in the agriculture sector accounting for 41 percent, increased its lending from RF 21 billion to 37 billion (compound annual growth rate or CAGR of 16.2 percent). This growth was mainly driven by agri-processing and tea production. Other banks followed with a share of 36 percent, but the growth for the last five years has been 3.8 percent. MFIs and SACCOs, representing 22 percent of loans, experienced the fastest growth among the three categories (with a CAGR of 25 percent) and reached RF 20 billion in 2016. During this period, the agriculture credit portfolio as a proportion of the agriculture GDP increased from 4.4 percent in 2012 to 5.9 percent in 2015, but decreased to 4.6 percent in 2016. Several important caveats need to be made on the data for agricultural credit. First, these data are based on self-reported information from financial institutions and depends fully on the accuracy of the loan purpose classification at the time of loan origination. Second, the reported value of credit to the sector is an underestimate for several reasons: a) loans often classified under AGRICULTURE FINANCE DIAGNOSTIC — RWANDA 13 other categories (e.g., salary loans) are likely to production (except in 2016). Average outstanding be used in the agriculture sector, b) financing by loans from banks for agriculture production were value chain actors (e.g., processors and traders) is RF 30.1 billion in 2016, while outstanding loans not captured, c) the loans from MFIs and SACCOs for agribusiness (agri-processing and agri-trading) include loans for agricultural production only and were RF 40 billion. Figure 8 shows that loans the BNR’s aggregate data do not disaggregate loans to agribusiness grew quicker than they did for for agricultural processing and trading within the agriculture production; over the last five years, the broader manufacturing and trading categories, d) CAGR for loans for agriculture production was the central bank also reports a substantial share 5.9 percent, while that for agribusiness was 12.7 (8 percent) of the total credit portfolio as unclassified, percent. The higher rate of growth of lending to and e) lending by specialized lenders to the sector agribusiness may reflect the growth of agribusiness who are not regulated by BNR is not captured. activities in the country resulting from ongoing And lastly, it is not clear if wholesale lending by agriculture sector transformation and higher the BRD and other banks specifically targeted at demand for high-value processed food products agriculture are included in the data on agricultural and the reduction in agribusiness NPLs until 2015. lending reported by them. If this is the case, this During this period, the agribusiness NPL ratio was would overestimate total agricultural lending. even lower than that of overall banking sector (5–6 percent from 2012  to 2015). Agribusiness NPLs Banks increasingly focus on agribusiness increased substantially in 2016, driven primarily by probably driven by growth and low NPLs. NPLs in the coffee subsector (to levels comparable An increasing proportion of the bank lending to the overall banking sector NPL rate of 7.5 percent (including by the BRD) is going to agribusiness at the end of 2016). (processing and trading) rather than agricultural Figure 7. Trend and Composition of the Agriculture Loan Portfolio (in RF Billion and Percent of Agriculture GDP) 120 7% 100 6% 19.2 20.0 5% 80 4% 12.1 60 9.9 44.9 8.2 32.8 3% 27.3 23.2 40 28.3 2% 20 33.8 37.3 1% 30.6 33.6 20.5 0 0% 2012 2013 2014 2015 2016 BRD Other Banks SACCOs/MFIs % of Agri-GDP (Total Agri Loans) Source: National Bank of Rwanda, BRD, and the National Institute of Statistics of Rwanda. Note: Other bank figures are an average of the quarterly data. The MFI/SACCOs figures are as of December of the respective years. AGRICULTURE FINANCE MARKET OVERVIEW 14 Figure 8. Trend in Composition and Performance of Bank Loans to the Agriculture Sector (in RF Billion and NPLs in Percent of Total Loan Portfolio) 100 20% 18% 80 16% 14% 60 12% 50.8 40.0 10% 33.6 40 8% 28.2 24.8 6% 27.3 27.9 4% 20 30.1 24.0 25.6 2% 0 0% 2012 2013 2014 2015 2016 Agri Production (Banks) Agribusiness (Banks) NPL (Agri Production) NPL (Agribusiness) Source: National Bank of Rwanda. Note: The figures are an average of the quarterly data. Agricultural production loans have been on a lending in 2016. The share of lending for tea has decreasing trend, probably driven by the high increased while continuing to maintain very low rate of NPLs. While the aggregate banking sector levels of NPLs, which is not surprising given that portfolio of agricultural production loans has been tea is the most structured of all major value chains increasing in absolute terms, its share in overall in Rwanda. However, coffee production loans suffer agriculture sector lending has been contracting. from high levels of NPLs, amounting to more than The very high NPL ratios are probably driving this 30 percent in 2016. trend. The NPL ratio of agriculture production loans has been constantly higher than that of agribusiness Within agricultural trading and processing, loans and overall banking sector NPLs, and the gap lending for coffee has the largest share but has increased for the last five years. also suffers from high levels of NPLs (Figures 11 and 12). NPLs are particularly high for loans Within production lending, lending for staples made for coffee collection (which is categorized seems to be the largest segment, although its under “coffee processing and trading”). This may share is falling. Lending for staples represents be because some coffee cooperatives and traders around 40 percent of production lending followed provide prepayments to coffee producers, but by lending for livestock, which is about 25–30 are not able to enforce purchase agreements. In percent; both segments have high levels of NPLs contrast, NPLs for coffee export have been zero for (Figures 9 and 10). The loans for export of tea and the last several years, indicating that some value coffee account for about 30 percent of production chain actors manage risks better than others. The AGRICULTURE FINANCE DIAGNOSTIC — RWANDA 15 share of lending for tea processing has decreased offer a wide range of financial products covering consistently although the credit risk seems to be pre- and post-harvest for select commodities such very low. Bank credit seems to have been replaced as maize, rice, Irish potatoes, and coffee. Urwego with self-financing. Overall loan quality decreased Opportunity Bank (UOB) and Kenya Commercial substantially in 2016, especially in businesses such Bank (KCB), while operating with different market as storage of food products, other food processing, segments, pursue transaction volumes by focusing and coffee processing and collection. on widely produced crops (maize and rice) and taking a structured-financing approach (see Box 2). The public-sector lender, the Development Despite the inherent risks involved, these financial Bank of Rwanda (BRD), primarily lends to institutions (FIs) pursue businesses in the agriculture agribusinesses. The BRD primarily provides large sector to fulfill their mission and/or capture profit- loans for agri-processing companies and producer making opportunities. Other commercial banks organizations in cash crop value chains such as with significant exposures to the agriculture sector coffee and tea. In 2016, agri-processing was the are Banque Populaire du Rwanda (BPR) and the largest borrower in the BRD’s agriculture portfolio, Compagnie Générale de Banque (COGEBANQUE). accounting for 40 percent, followed by coffee/tea production (22 percent) and coffee/tea processing MFIs, particularly Umurenge SACCOs, likely (21 percent; Figure 13). finance a larger number of farmers. MFI loans increased from RF 8.2 billion in 2012 to 20.0 Some commercial banks have agriculture billion in 2016 (a CAGR of 25 percent). This finance strategies and dedicated agriculture represents approximately 22 percent of agriculture teams to execute those strategies. These banks Figure 9. Composition of Bank Loans Figure 10. NPL Ratio in Major to Agriculture Production (Percent of Subsegments of Loans for Agriculture Total Agriculture Production Loans) (Percent of Loans) 100 5.6 5.3 9.6 7.1 6.5 30 13.2 20.7 23.4 26.5 80 26.2 25 20 28.5 60 29.2 33.3 28.5 24.6 15 40 10 48.7 5 20 42.9 37.7 39.7 42.7 0 0 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 Total Agri-production Staple Crops Staple Crops Livestock Livestock Tea for Exports Tea for Exports Others Source: National Bank of Rwanda and the World Bank. Note: The figures are an average of the quarterly data. “Staple crops” may include other crops. “Others” primarily include coffee production and fishing, etc. AGRICULTURE FINANCE MARKET OVERVIEW 16 Figure 11. Composition of Bank Figure 12. NPL Ratio in Major Loans to Agribusiness (Percent of Subsegments of Agribusiness Loans Total Agribusiness Loans) (Percent Loans) 100 4.6 5.6 19.2 12.2 20 21.8 17.5 80 25.8 20.6 40.7 15 60 34.6 33.4 22.5 43.7 10 40 12.5 14.5 43.4 5 20 37.7 34.6 29.1 25.9 0 0 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 Tea Processing Other Trading Total Agribusiness Coffee Processing and Trading Tea Processing Other Processing Other Processing Coffee Processing and Trading Other Trading Source: National Bank of Rwanda and the World Bank. Note: The figures are an average of the quarterly data. credit from all financial institutions and about 40 Figure 13. Outstanding BRD percent of credit for agricultural production. Given Agriculture Loans by Segment (2016) their higher rural outreach and focus on lending (100% = RF 37.3 Billion) to individuals, they are likely to finance a much larger number of farmers and micro and small agri- enterprises than the banks. 8.2% 7.9% However, Umurenge SACCOs, the major group 21.3% of MFIs, typically do not have tailored financial products for agriculture. Umurenge SACCOs 40.4% are somewhat small, which typically means relatively weak management, officers with limited 22.2% capacity, and rather basic lending practices with smaller loans and frequent repayments. However, the proposed consolidation of the SACCO sector Agri-processing Coffee/Tea Production presents a major opportunity to build up their Coffee/Tea Processing capacity to offer services tailored to the needs of the Livestock agriculture sector. However, exceptions exist. For Primary Agriculture example, MFIs such as Duterimbere, RIM (Réseau Source: BRD agriculture financing presentation. Interdiocésain de Micro Finance), and Ejo Heza focus strategically on the commodities grown in their respective districts (e.g., potatoes in the north and coffee in the east) with specific loan products. AGRICULTURE FINANCE DIAGNOSTIC — RWANDA 17 Box 2. Examples of Commercial Banks’ Agriculture Finance Practices Urwego Opportunity Bank (UOB) has a dedicated agriculture finance unit comprising 11 loan officers with an agronomy background. The UOB offers pre- and post-harvest credit mainly for maize, rice, and potatoes, and tries to expand to other commodities such as beans, horticulture, coffee, and dairy. It also provides loans for capital investment (e.g., trucks, irrigation equipment, dryers, etc.). Their primary target has been individual farmers rather than cooperatives based on thorough household financial assessments. The agriculture sector accounted for 17 percent of its overall loan portfolio in 2016. Kenya Commercial Bank Rwanda (KCBR) is also scaling up its operations in agriculture finance. The bank has a team of 11 staff that focuses on agriculture and provides input finance, post-harvest finance (including warehouse receipt financing), and investment finance. In 2017, the bank disbursed 81 agribusiness loans amounting to US$5.3 million, benefiting 34 individual clients and a cooperative with 198 members. The bank’s year-end portfolio was US$2.7 million, and the NPLs on its outstanding portfolio at the end 2017 were 6.6 percent. The bank expects to finance at least 25 cooperatives with more than 15,000 members in 2018. KCBR is partnering with the International Finance Corporation (IFC) to scale up its financing to the agriculture sector. IFC has provided KCBR a US$4.5 million farmer financing facility, which can be used to provide financing to producer cooperatives, which are procuring maize for the World Food Programme’s (WFP) procurement platform (Farm to Market Alliance), and for agricultural producers’ working capital needs. In 2017, IFC also provided a US$2.2 million risk-sharing facility, which partially covered KCBR’s credit risk in this portfolio. Source: Personal communication Some banks and MFIs are using traditional signed one month before the harvest. While this and innovative risk-mitigation mechanisms to delayed engagement allows producers to remain deal with smaller cooperatives and individuals flexible in selecting crops to produce, they have to in less-organized value chains. Pre-harvest loans procure inputs by themselves. In contrast, others, in maize and rice are often backed by contracts especially SACCOs, lend to farmers and producer with off-takers. UOB, KCB, and some MFIs organizations without formal market arrangements. manage credit risks by relying on such contracts. Some FIs provide loans to individual farmers, For example, Duterimbere (an MFI) offers two taking advantage of group guarantees, while other kinds of input loans for maize: smaller initial FIs prefer lending to cooperatives and taking input loans with asset collaterals and larger pre- physical collaterals. Warrantage systems13 seem to harvest loans backed by contracts that are usually be widely used in post-harvest financing. 13 Warrantage is an inventory credit system where farmers or farmer organizations use crops stored in warehouses to obtain credit. The producer organizations usually own and manage the warehouses, which are double locked by the producer organizations and local financial institutions. The crops from member farmers are stored and used as collateral to access loans from the local financial institutions. When the market price recovers, crops are sold and loans are repaid. One of the advantages of this system is lower transaction costs based on the trust among the stakeholders. However, the warrantage system often lacks proper risk-mitigation mechanisms against possible challenges such as mismanagement of stored crops and fraud. AGRICULTURE FINANCE MARKET OVERVIEW 18 The establishment of the East African Commodity Specialized lenders focused on aggregators Exchange (EAX) in 2014 has facilitated the or smallholders provide a significant volume introduction of warehouse receipts financing of financing. Data shared by the Council on in Rwanda, but the scale remains limited. Over Smallholder Agricultural Finance (CSAF), the last two years, the EAX issued 760 warehouse which includes lenders that focus on lending to receipts against 15,850 metric tons of commodities aggregators, indicate that CSAF members provided stored in the EAX’s 11 warehouses in the country. more than US$50 million (approximately RF 40 Four banks provided US$2 million in financing for billion) in loans during the period 2013–16. In an average tenure of 5 months against 141 receipts, 2016, CSAF members disbursed US$11 million and accounting for 13,500 metric tons of commodities. had an NPL rate of just 1.3 percent. CSAF clients The volume of warehouse receipts financing consist of 26 businesses, including cooperatives (WRF) is expected to grow as the total volume of and exporters. The bulk of financing provided was commodities traded through the exchange grows. working capital financing and went to aggregators Given that the EAX is still new to the market, in the coffee value chain, whose working capital stakeholders—both banks and agribusinesses— loans and trade credit are usually backed by have limited understanding of the risks and returns purchase contracts and used to purchase crops from associated with WRF. For example, one of the farmers and cover other expenses. Root Capital, banks that provided WRF reported that some of formerly an International Finance Corporation their borrowers incurred losses and returned to the (IFC) investee, accounts for nearly 70 percent of the informal warrantage system to avoid the EAX fees. financing that CSAF members provide.14 One Acre See Box 3 for more information on EAX. Box 3. East African Commodity Exchange (EAX) Established in 2014, the EAX offers warehousing, collateral management, and commodity-trading services to more than 200 members in Kenya and Rwanda. Its members include producers, traders, brokers, millers, and banks. Its members also include agricultural cooperatives with more than 80,000 producers. Member banks include Ecobank, BPR, GT Bank, Equity Bank, and Urwego Opportunity Bank. In Rwanda, the EAX operates 11 warehouses, issues electronic warehouse receipts, and facilitates financing against these receipts. It currently covers maize, beans, rice, wheat, and soy. The amount of trade was about 8,000 tons in 2015 and 2016, the exchange’s first two years of operation, and reached 13,500 tons in 2017. It charges a storage fee of RWF19 per kg or US$22 per metric ton to cover warehouse management expenses and other administrative costs. Source: Personal communication and www.ea-africaexchange.com 14 CSAF members active in Rwanda include Oiko Credit, Shared Interest, responsAbility, and Rabo Rural Fund. After growing steadily from 2013 to 2015, CSAF disbursements fell by 30 percent in 2016, largely attributed to high NPLs in 2015. This was caused by several CSAF clients suffering financial losses because of low coffee prices. Many cooperatives held on to stocks during the early part of the season speculating that prices would increase; however, prices continued to fall and the cooperatives finally had to sell at low prices because their inventories were full. AGRICULTURE FINANCE DIAGNOSTIC — RWANDA 19 Fund (Box 4), however, provides credit directly to funds that have invested in the agriculture sector smallholder farmers for farm inputs (fertilizer and include AgDevCo and Growfin. AgDevCo has seed), accompanied by insurance, training, local invested in a mushroom-producing SME that delivery, and market facilitation. One Acre Fund engages 2,000 farmers as suppliers. Growfin, a has also played a key role in developing Rwanda’s SME fund management company, has invested in a agricultural insurance market. One Acre Fund few agribusiness SMEs. contributed to more than 90 percent of the value of Value chain actors such as traders and processors agricultural insurance in Rwanda in 2012–16 and also provide some credit to cooperatives and 100 percent in 2017. farmers, but aggregate data on financing SME-focused investment funds are attempting provided from these sources are not available. to address the limited availability of medium- In coffee and tea value chains, some traders and term and long-term financing for capital processors provide inputs on credit and post- investments in the agriculture sector. Although harvest finance for aggregation based on their some commercial banks provide longer-term loans business transactions with cooperatives and farmers to agriculture clients with solid track records and (AFR 2016). ample collateral, the BRD seems to be the main provider of medium-term and long-term finance Agriculture Insurance (defined as two to five years and more than five Agricultural insurance was piloted in Rwanda years, respectively). Definitive information on this in 2011, but has failed to scale up in subsequent is not available, however, because disaggregation of years. Figure 14 shows that the value of agricultural the loan portfolio or new lending by tenor was not insurance (sum insured) was on a downward trend available from the BNR. Examples of investment from 2013 to 2016, whereas farmer outreach Box 4. One Acre Fund—A Vertically and Horizontally Integrated Distribution Model One Acre Fund is a not-for-profit social enterprise that provides farm inputs, credit, and training to 614,800 smallholder farmers in Sub-Saharan Africa (Kenya, Rwanda, Burundi, Tanzania, Malawi, and Uganda). Agricultural insurance is bundled into One Acre Fund’s comprehensive service package.  In 2017, One Acre Fund reached more than 216,000 farmers in Rwanda, provided inputs worth more than US$5 million on credit, and provided more than US$4 million in agricultural insurance coverage in addition to its training and market facilitation services. Its service package also includes a benefit akin to credit-life insurance, which waives its clients’ outstanding debts if the client or his/her spouse dies, as well as a benefit that compensates farmers for poor input quality. In 2017, nearly 114,000 farmers received claims under agricultural insurance, 13,000 farmers received compensation for poor input quality, and 634 farmers had their outstanding debts waived due to his/her or spouses’ death (with value of US$171,516, US$21,633, and US$11,264, respectively). One Acre Fund estimates that its clients increased their productivity by around 30 percent and incomes by more than 50 percent because of its services. Source: Personal communication and https://www.oneacrefund.org/results/impact AGRICULTURE FINANCE MARKET OVERVIEW 20 (number of farmers insured) presents a mixed Of the three companies that offered crop picture. As discussed in the following paragraphs, insurance in Rwanda in the past, two now local insurers have either exited the market or offer livestock insurance. These companies are were not underwriting any insurance in 2017. The Sonarwa and UAP Old Mutual. Sonarwa was the substantial increase in both the value of insurance first to launch livestock insurance in 2011, and UAP and coverage in 2017 is due to the growth in Old Mutual added it to its insurance products in insurance coverage offered by One Acre Fund in 2013. Statistics on the number and value of policies direct partnership with an international reinsurer. issued could not be obtained. Three insurance companies and three One Acre Fund (Box 4) has played a key role reinsurance companies have been involved in in developing Rwanda’s agricultural insurance Rwanda’s agricultural insurance market. The market. One Acre Fund contributed to more than insurance companies are Soras, Sonarwa, and 90 percent of the value of agricultural insurance UAP Old Mutual, and the reinsurance providers in Rwanda in 2012–16 and 100 percent in 2017. are Hollard, Swiss Re, and Great Lakes. Among Insurance companies often work together with these, Soras and Swiss Re have been the main organizations such as input suppliers, microfinance service providers. Sonarwa, one of the two local institutions, cooperatives, or banks that act as insurers that piloted agricultural insurance in 2011, intermediaries to reach smallholder farmers more exited the market in 2013. Soras remains active easily. The KCB and agriculture cooperatives in Rwanda, but did not underwrite any policies in have reportedly shown interest, but insurers 2017. UAP Old Mutual entered the market in 2015 and reinsurers find the volumes to be too low to and offered agricultural insurance in 2015 and 2016, warrant investing their resources. ACRE Africa, but did not underwrite any polices in 2017. Both an insurance intermediary, also reports difficulty in weather index insurance and area yield insurance generating volumes that would interest insurers and have been offered in Rwanda, and crops covered reinsurers and has since reduced the resources for include maize, rice, potatoes, and beans. market development in Rwanda. Figure 14. Value and Outreach of Agricultural Insurance Total Sum Insured # of Insured Farmers $6,000,000 250,000 $5,000,000 200,000 $4,000,000 150,000 $3,000,000 100,000 $2,000,000 50,000 $1,000,000 $0 0 2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017 Source: Acre Africa, One Acre Fund, and UAP Old Mutual. AGRICULTURE FINANCE DIAGNOSTIC — RWANDA 21 Global reinsurance providers were active in the low premium volumes and the effect of a 15-percent market but have recently exited. Reinsurance withholding tax, which makes developing a product is critical to any scalable agricultural insurance that offers sufficient coverage at an affordable solution. Historically, Swiss Re Corporate Solutions premium rate difficult. Great Lakes started offering used to provide reinsurance coverage, but has since reinsurance directly to One Acre Fund in 2016 and stopped offering this capacity citing two reasons: is currently the only active reinsurer. AGRICULTURE FINANCE MARKET OVERVIEW 22 Public Sector Support for Agricultural Finance The main instruments of public support for agriculture finance in Rwanda are retail and wholesale financing by the BRD, the public-sector bank, and matching grants (which are funded by donors) and partial credit guarantees provided by the BDF. Donors have also provided some support for institutional development. Notable is that Rwanda’s public sector support is market oriented, in contrast to policies seen in several countries such as interest rate caps or mandatory lending quotas for agricultural loans. The BRD is the only public-sector provider of both retail and wholesale loans for agriculture in Rwanda. The BRD has a professional management and board, and its profitability and loan portfolio have been showing an increasing trend. In 2015, the BRD had a return on asset of 2 percent, and the NPL ratio was 5.6 percent, slightly lower than the overall NPL ratio of the banking sector (the annual report for 2016 was not yet available). The bank made a strategic decision to refocus on its development agenda and divested its commercial business in 2014. Its Strategic Plan 2016–2020 commits to investing US$712 million in its priority sectors, including agriculture, to facilitate Rwanda’s transformation. As was mentioned previously, the BRD is Rwanda’s largest lender to the agriculture sector, representing 41 percent of the total lending to the sector in 2016. Agriculture has traditionally accounted for the bulk of the BRD’s lending, although its share in the BRD’s loan approvals fell substantially in 2016. The BRD seems to have a comparative advantage in larger loans for agri-processing companies and production or aggregation of cash crops, mainly coffee and tea. The BRD also offers wholesale loans to SACCOs and MFIs. Under its Strategic Plan 2016–2020, agriculture is highlighted as one of five priority sectors, and the BRD has an ambitious plan to approve loans for agriculture worth RF 286 billion for the next five years (BRD n.d.). The BDF also provides loans to SACCOs and MFIs, however, the operation seems to be rather small and lending is often based on specific development objectives such as promotion of start-up companies by youths. AGRICULTURE FINANCE DIAGNOSTIC — RWANDA 23 Matching grants are provided to farmers The guarantees are mainly funded through various and agribusiness SMEs to stimulate government programs, and therefore the eligibility technology adoption, increased input use, and and qualification criteria vary depending on funding commercialization. In Rwanda, the major sources sources. The BDF manages these funds and issues of matching grants include projects managed by the guarantees in exchange for the management fees. International Fund for Agricultural Development Figure 15 shows that the amount of agriculture (IFAD) and bilateral projects managed by the U.S. guarantees has been largely flat for the last five Agency for International Development (USAID). years. The BDF provides guarantees to banks The Business Development Fund (BDF), an and MFIs (including SACCOs), and the BRD entity jointly owned by the GoR and the BRD, is continues to be the largest user of the guarantees responsible for managing these grants. In 2015, RF for the agriculture sector by value, accounting for 2.8 billion was provided in matching grants, and more than half in 2012 and 2013. The share has these grants leveraged RF 11 billion in loans. decreased in recent years, but was still 46 percent All such matching grants are channeled through in 2016 (RF 3.0 billion). The share of other banks in the banking system to help leverage credit to BDF guarantees has decreased substantially, but the farmers and SMEs benefiting from these grants. share of MFIs, including SACCOs, has increased Upon approval from the BDF, the grant is deposited significantly. at a partner financial institution (PFI) when a loan is The guarantees for the agriculture sector targets disbursed to a borrower. Once the borrower repays loans below RF 500 million for both short- and a predetermined portion of the loan, the grant is long-term loans and covers 30–75 percent of used to offset the balance of the loan. The level the loan amount depending on the purpose of grant coverage differs by grant programs and and target borrowers. The average size of the beneficiaries. If borrowers default, the PFI must agriculture guarantees was RF 3.5 million, but return the grant to the BDF. The grant program and the BRD’s and other banks’ average agriculture the guarantee are managed independently from one guarantees were much larger, RF 74.5 million and another, and both could be used for the same loan. 29.0 million, respectively, in 2016. This suggests The BDF proactively promotes its grant program that the BRD guarantees tend to cover larger loans to potential beneficiaries and financial institutions. The BDF is the major provider of partial credit Figure 15. BDF Agriculture guarantees (PCGs) in Rwanda, and agriculture Guarantees Issued (in RF Billion) is the main economic sector that benefits from BDF guarantees, accounting for more than 65 7 percent of the guarantee portfolio. PCGs are a 0.1 0.4 6 financial instrument often used to reduce lenders’ 1.6 2.0 5 3.2 risk in lending to market segments such as SMEs, 2.7 4 3.6 which are considered a priority in an economy, 1.8 1.5 but are riskier due to lack of adequate credit 3 history and/or collateral and production or market 2 3.4 3.5 2.6 2.7 3.0 risks. In 2016, the BDF provided RF 6.5 billion 1 in guarantees to the agriculture sector, which 0 leveraged RF 17.9 billion in loans, accounting for 2012 2013 2014 2015 2016 around 33 percent of total lending to the sector. BRD Other Banks MFIs and SACCOs PUBLIC SECTOR SUPPORT FOR AGRICULTURAL FINANCE 24 for commercial farmers, producer organizations, Sustainable Agriculture, under this program. The and SMEs in cash crop value chains such as coffee program offers farmers insurance bundled with and tea. loans for fertilizer and other inputs. In 2012, a total of 13,000 Rwandan farmers had their loans While the BDF’s primary services to the insured through area yield index insurance. After agriculture sector are matching grants and loss verification from the Ministry, more than 1,600 guarantees, the fund also offers business advisory drought-affected farmers received payouts through services and, at a very limited level, venture the insurance company Soras. In 2013, Hinga capital investments. In recent years, including Urishingiwe reached 50,000 farmers. Information 2014, the organization was financially self- for later years was not available. sufficient, covering operating costs by investment and operating income (advisory/guarantee fees). There are various institutional development support However, the expansion of its branch network in mechanisms for financial institutions in agriculture 2015, when it opened 30 new branches and increased finance. In addition to the support provided through employees from 26 to 144, resulted in operating the BDF and the BRD, development partners have expenses that exceeded investment and operating supported technical and operational capacity in income. The government subsidy partially covered select financial institutions to provide services to the additional costs for this expansion (BDF 2015). the agriculture sector. During 2010–13, the World Bank supported the BPR in building an agriculture In 2015–16, the World Bank Group provided finance team, producing value chain sector studies, multiyear technical assistance to the BDF to establishing a dedicated management information strengthen its governance, management, and systems system for agri-finance, building new operations. The BDF is currently implementing products and guidelines, and training staff. During several recommendations made under this technical 2014–16, Access to Finance Rwanda (AFR) assistance provided under its Financial Inclusion supported the UOB and RIM in developing Support Framework country support program. agriculture finance units at the head offices and field The government has played a limited role in teams. Among other efforts in access to finance, the development of the agricultural insurance AFR also supported value chain financing for coffee market. The Ministry of Agriculture has supported wet mils by involving coffee exporter and financial the establishment and operation of the Hinga institutions such as the BRD, the BPR, and Root Urishingiwe Program, an agriculture and livestock Capital. Technical assistance was also provided to insurance program. The Ministry partnered develop an electronic warehouse receipt system with two agriculture insurance intermediaries, through the East African Exchange. MicroEnsure and Syngenta Foundation for AGRICULTURE FINANCE DIAGNOSTIC — RWANDA 25 26 Challenges The findings presented in chapters 2, 3, and 4 identify several challenges in enhancing access to financial services for farmers and agricultural enterprises in Rwanda. These include supply-side and demand-side challenges and challenges related to the enabling environment. This chapter discusses the major challenges. Enabling Environment for Agriculture Finance Although Rwanda has a fairly developed and conducive enabling environment for agriculture finance, some important limitations exist, especially around data availability and reliability and fiscal disincentives. Agriculture finance data availability and use are limited. Various public institutions such as the Rwanda Agriculture Board (RAB), the Rwanda Development Board (RDB), the National Institute of Statistics of Rwanda (NISR), the National Agricultural Export Development Board (NAEB), and the BNR already collect quite extensive data on the agriculture sector. For example, the NISR issues its Seasonal Agricultural Survey, which contains detailed information on agriculture production. The BNR has relatively good data on bank lending to the agriculture sector based on International Standard Industrial Classification (ISIC) codes. The RDB promotes concrete investment opportunities backed by market intelligence. However, the information does not seem to be adequately aggregated, analyzed, and disseminated to enable market monitoring and development by stakeholders, including financial service providers. While the BNR data contributed important insights to this diagnostic study, a need exists to further improve on the extent and quality of the data. For example, MFI and SACCO lending data only identifies credit to agricultural production and does not identify credit to agri-processing and agri- trading within manufacturing and trading respectively. The ongoing effort to automate data collection from FIs presents an opportunity to address this issue. There is limited availability of high-quality crop yield data, weather data, and livestock mortality and morbidity data have limited availability. Until 2013, MINAGRI collected and reported district-level production data for a wide variety of crops. The NISR then took up this role; however, it uses a AGRICULTURE FINANCE DIAGNOSTIC — RWANDA 27 different data sampling and reporting methodology. High mortgage registration costs create The NISR has more expertise and capacity to disincentives for provision of agriculture credit. carry out data collection, analysis, and reporting, As discussed previously, recent improvements in making this change more beneficial in the long run. the land tenure system have allowed households However, insurers now have difficulty in offering in Rwanda to use their land as collateral to obtain the same area yield insurance products they had credit. In EICV4, among rural households that had developed as the new data are no longer comparable a loan from a formal or semi-formal source in the to the historical MINAGRI data. This challenge is past year, 54 percent reported having used land as expected to continue until the NISR has collected a collateral. However, only a small proportion of these quantity of data sufficient for product development. land pledges seem to be registered. The EICV4 data In addition, the NISR currently reports crop yield indicate that nearly 103,000 rural households had data based on broad agri-ecological zones. This used land as collateral for a loan from a formal or complicates the provision of area yield–based semi-formal institution in the year prior to the time insurance products. For insurers offering livestock of the survey (2014–15). However, by the end of insurance products, arriving at a fair premium to 2015, cumulatively, fewer than 15,000 mortgages charge for such products is difficult, which can against agricultural land had been registered in the affect long-term profitability. Additional efforts are collateral registry by the Rwanda Development required to estimate the frequency and severity of Board (Ali et al. 2017). This suggests that only insurable risks. The availability of weather data is a very small proportion of the agricultural land also limited. Despite these challenges, the decision being pledged as collateral with banks and other to give data collection and analysis responsibilities nonbank credit providers is being registered. A key to the NSIR was the right one given its strong factor driving this is likely the high effective cost of technical skills, giving insurers comfort in the registering small mortgages because the registration credibility of data and reported results. fee is a flat fee of RF 20,000 (approximately US$25) irrespective of the mortgage value. The Association Limited public availability of information on of Microfinance Institutions in Rwanda (AMIR) agricultural NPLs, disaggregated by value reports that this indeed acts as a disincentive to chains and geographic areas, also adversely MFIs, and hence they often just use written pledges affects lenders’ ability to monitor and control from borrowers. Written pledges are however not their credit risks effectively. The BNR already legally enforceable in case of default, and hence has relatively good data on lending volumes and AMIR has been advocating for a change to a NPLs disaggregated by major value chains or proportional fee. commodity groupings. Making this aggregate data publicly available and adding additional data Although agriculture insurance has specifically points such as geographic regions, number of loans, been exempted from the value-added tax (VAT) number of customers, etc., would further improve on premiums of 18 percent, the 15-percent the usability of this information. Furthermore, reinsurance withholding tax remains. This reg-tech initiatives such as the BNR’s electronic makes insurance expensive for farmers and limits data warehouse are already making the process of the revenue generated by insurance companies, collecting this information faster and more cost- without making a substantial contribution to the effective. government’s tax revenues. CHALLENGES 28 Agriculture Financing quality of loan applications and management of Several factors constrain the growth of the loan funds. While some proportion of the high NPL agriculture credit market in Rwanda. These rates in the sector are indeed attributable to genuine include few FIs possessing the institutional business failures, a substantial portion are also capacity to lend to the sector; liquidity constraints; likely due to mismanagement of loan funds. While and a limited number of farmers, cooperatives, and good results have been achieved in improving agribusinesses with the capacity to borrow and coordination among key value chain actors in value repay loan funds prudently. chains such as tea, coffee, potatoes, and rice, a need exists to further strengthen collaboration in many FIs’ capacity is limited. As discussed in chapter 3, of these value chains and initiate similar efforts in the agriculture finance market overview, only a few other value chains. The notable contrast in portfolio financial institutions seem to possess the necessary quality between lending to the tea and coffee sectors institutional capacity (skills in appropriate market suggests the need to strengthen coordination, even and credit-risk analysis and appropriate products) among the relatively more structured value chains. for lending to the sector. This limits their ability to realize all opportunities and to manage optimally the Agriculture Insurance risks inherent in the loans they make. A particular Successfully scaling up agricultural insurance need exists to further develop institutional capacity requires several challenges to be addressed. The among institutions with a strategic commitment to major one relates to the data challenges previously financing the sector, such as most SACCOs, many discussed under the enabling environment section. MFIs, and select banks. The increasing outreach of Additional ones are discussed in the following mobile money in Rwanda and the ongoing effort paragraphs. to automate SACCO operations offer significant opportunities to develop appropriate products Microclimates vary widely. The country’s that can better address the needs of the sector, mountainous terrain of means that the climatic particularly those of smallholder farmers. patterns usually have large variations over fairly short distances. The Rwanda Meteorological Availability of medium- to long-term financing Agency’s network of weather stations is currently is limited. The diagnostic was not able to make insufficient to cover all areas with microclimates. definitive estimates on the proportion of medium- The agency has worked on improving this network in and long-term loans in the agriculture sector portfolio recent years; however, because many stations were because this information was not readily available. recently installed or recommissioned, the quantity However, interviews with financial institutions of weather data they provide is not yet sufficient suggest that limited longer-term financing remains for product development. This requires providers a constraint. In contrast, commercial banks and of weather index–based insurance products either SACCOs generally report adequate liquidity for to assist the Rwanda Meteorological Agency in short-term loans from deposits available from installing a dense network of weather stations or depositors or members. to obtain access to satellite-based sources with The limited number of credible projects very high spatial resolution to minimize basis risk, and coordination failures among the key which can be expensive. stakeholders continue to be a challenge. Many Robust product distribution channels are farmers and producer organizations have limited absent. Given that many Rwandan farmers operate management skills and systems, which affects the on a small scale, robust distribution channels AGRICULTURE FINANCE DIAGNOSTIC — RWANDA 29 that can reach many of these farmers in a cost- insurers are not always in a position to bargain for effective manner are critical. While many farmers better rates if they do get reinsurance. And most are organized into cooperatives, most of these important, given the high volatility of agricultural cooperatives are also not large enough to generate risks and relatively small size of the market, local premium volumes and be cost-effective. Federations insurers cannot sustainably offer agricultural of cooperatives in some major value chains have insurance without reinsurance in place. the scale and could potentially take on this role but Local technical capacity is limited. Capacity in have not done so yet. The increasing outreach of the insurance industry in the country is limited mobile money in Rwanda also offers the potential for all general insurance classes. In particular, to address the distribution challenge. few insurance professionals have expertise in Global reinsurance providers show limited designing, underwriting, and implementing interest. Given the persistently low volumes of indemnity and index-based agriculture insurance premium generated, at least one of the two global products. This includes the availability of service reinsurers that were engaged in past years has exited providers such as crop loss assessors and inspectors the market. The agriculture reinsurance market with experience in agriculture insurance to support in Africa currently has very few players, hence offering multiperil crop insurance products. CHALLENGES 30 Recommendations Financial inclusion of commercially oriented farmers and agricultural SMEs is critical to achieving the national priority of accelerating the transformation to a more commercialized agriculture sector set out in the NAP and the PSTA4. The analysis and findings presented in this report and evidence on the impact of financial inclusion and access to finance for SMEs provide the rationale for focusing on these two segments.15 This chapter presents several recommendations to achieve these goals. The recommendations are organized into four areas: a) strengthening the enabling environment for agriculture finance, b) facilitating financial inclusion of commercially oriented farmers and agri-enterprises, c) deepening the agricultural financing market, and d) scaling up the agricultural insurance market. Financial inclusion of all individuals, including subsistence farmers and rural households relying mainly on off-farm income opportunities, is important to achieve the broader goals of poverty reduction set out by the Economic Development and Poverty Reduction Strategy (EDPRS). However, this is not the focus of this report. The actions needed to achieve this objective are set forth in the National Financial Inclusion Strategy under preparation. Strengthening the Enabling Environment for Agriculture Finance Incorporate financial inclusion into the major surveys that cover farmers and agri-enterprises. The primary source of data on financial inclusion of farmers is currently the Finscope Survey. This survey provides robust analysis of nationally representative data on financial inclusion and identifies individuals engaged in agriculture and those who report agriculture as a source of primary income. However, because it is a specialized financial inclusion survey, it does not provide the opportunity to analyze financial inclusion in 15 Key literature on the economic benefits of financial inclusion include Ratna et al. (2017) on the linkages between financial inclusion and macroeconomic growth; Suri and Jack (2017) on the impact of mobile money; Demirgüç-Kunt et al. (2017), who present a literature review of select papers related to payments, savings, credit, and insurance; Banerjee et al. (2015), who report on limited benefits from programs that just focus on increased access to microcredit; and Dinh et al. (2010), who present evidence of the economic benefits of increased access to credit for SMEs. AGRICULTURE FINANCE DIAGNOSTIC — RWANDA 31 31 cohort with other critical information such as crops such data can also help in identifying and taking cultivated or business performance. This would nonfinancial actions to reduce the risk in financing be possible if a limited set of financial inclusion the sector and thereby contribute to increasing questions were integrated into surveys such as the financing for agriculture. The government could Seasonal Agriculture Survey and the Integrated undertake various initiatives to achieve this, Business Enterprise survey. This would allow including: better analysis of financial inclusion of farmers • Data granularity. The NISR should report and agri-enterprises, which can enable designing production statistics at a more granular level than more evidence-based policy and business solutions the current level of agri-ecological zones. This tailored to specific value chains and client segments. would make the data more useful for area yield– Strengthen the quality of supply-side data based insurance products. Allowing registered on agriculture finance and publish data private companies with specialist skills in yield disaggregated by subsectors, client groups, and estimation to provide production statistics also geographic regions. The BNR already collects should be explored, as this is the most preferable supply-side data that are disaggregated by major option for international reinsurers. These options subsectors. However, the quality of these data are currently being pilot tested in Kenya and will could be improved significantly by collecting soon be tested in Nigeria. information related to clients (disaggregated • Livestock mortality statistics. The government by gender), products, tenor of financing, etc. should consider commissioning regular (e.g., Providing better guidance and support to financial annual or biannual) surveys to collect data on institutions to improve the quality of data at causes of livestock mortality, availability of origination is critical to improve the overall quality animal feed, animal growth and productivity of industry information and thereby the potential level, and prevalence and occurrence of disease, to use it. The BNR’s electronic data warehouse across different parts of the country. This project can further improve the quality of data information could then be used by providers of at origination and their timely availability. The livestock insurance in assessing the level of risk BNR is currently able to collect data from eight involved. banks, three MFIs, and one MNO automatically.16 Last but not least, data are only useful if they are • Ground-based rainfall data. The Rwanda available to institutions and individuals to undertake Meteorological Agency should expand the further analysis, produce value-added products, density of automated weather stations and make and carry out research. Hence, it is important that the data available to potential providers of BNR not only improves the quantity and quality of weather-based insurance products. These data available supply-side agriculture finance data but are also necessary to calibrate satellite-based also makes it publicly available online. rainfall data. Strengthen the quality of agricultural and Satellite and remote-sensing-based data. • weather data. This is the most important action to Researchers and providers of ground-based help scale up agricultural insurance. Offering good- weather station and satellite-based weather quality insurance is not possible without granular data, such as the University of Reading, EARS and consistently high-quality data. Furthermore, Earth Environment Monitoring BV, and the 16 http://blogs.worldbank.org/psd/leveraging-suptech-financial-inclusion-rwanda. Accessed 06/22/17. RECOMMENDATIONS 32 International Research Institute for Climate The GoR needs to assess the costs and returns of and Society, should be engaged invalidating reducing mortgage registration costs for the small and providing high-resolution data that also loans. The Financial Sector Development Program show strong correlations with on-ground II includes an action to waive the registration fee for experience. Such data would still be useful in mortgages on loans under RF 10 million, but this claims management even where area-yield and action has not yet been implemented. GoR needs to multiperil insurance product options are chosen. consider implementing this action or taking other Remote-sensing-based data could also be used to actions such as moving toward a proportional fee fill the spatial and historical gaps, thus improving for smaller loans, which can reduce the effective data series. cost of registration. Having all or most collateral (both movable and immovable) registered has broad Establish an agriculture data platform for economic benefits. Furthermore, to complement its proper analysis and decision making by public initiative in exempting the agriculture sector from and private players. Rwandan public sector the VAT, the government should consider removing organizations already produce various useful data reinsurance tax on insurance premiums to make on the agriculture sector, including number of farms, the product more affordable. The reinsurance crops produced, land ownership and usage, crop withholding tax is reported to be among the yield, usage of inputs, and degree of mechanization. reasons for the major reinsurers’ decision to exit the However, most of the data tends to remain at the Rwandan market. national or regional level. Moreover, some critical information, such as rainfall and livestock mortality data, is rather limited or completely missing. Easy Facilitating Financial Inclusion of access to accurate information is indispensable for Commercially Oriented Farmers and any decision making for both public- and private- Agri-SMEs sector stakeholders in agriculture development, Strengthen producer cooperatives’ and their including financial service providers. The GoR federations’ operations and facilitate their should make an extra effort to compile available data business transparency. As discussed previously, and to collect new and more detailed information producer cooperatives play a key role in the in the sector and proactively disseminate them to a agriculture sector and can play a key role in wider audience. increasing access to financial services for their members. A critical prerequisite for them to be able Remove fiscal disincentives that constrain the to play their role effectively is to have professional development of the credit and insurance markets. management and information systems. Building Box 5. Electronic Book Keeping and Business Transparency AFR enabled 84 coffee cooperatives to use electronic book keeping using mobile phones. Key performance indicators based on this accounting information are then made publicly available through the web portal (www.coffeetransparency.com), which coffee buyers and financial institutions can access. This has facilitated improved access to productivity and price information for all stakeholders and enabled US$10 million in loans from the BRD to facilitate purchase of cherries from more than 60,000 farmers (32 percent women). Source: AFR Phase 1 report. n.d. AGRICULTURE FINANCE DIAGNOSTIC — RWANDA 33 on the AFR-supported initiative discussed in a stepping stone toward helping farmers access a Box 5, the government should support scaling up broader range of financial services. Building on the similar efforts with the objective of strengthening lessons from the initiatives described in Box 6 and the operations of major producer cooperatives and drawing on similar experiences from other countries their federations and making their noncompetitive (CGAP 2017; BTCA 2015), the government should business data available to key stakeholders. This encourage increased use of electronic payments can enable financial service providers to assess by agri-enterprises in their financial transactions business opportunities and risks at a lower cost with farmers. Apart from the immediate benefits and thereby enhance the supply of services to the discussed, benefits in the medium term can most deserving organizations. Lastly, producer include allowing improved savings and borrowing cooperatives can also be an effective platform to opportunities for producers. The experience of the build the financial capability of their members, use of the Colombian Coffee Growers Federation’s which in turn can be critical in increasing demand smart ID to disburse a wide variety of payments for financial services and simultaneously ensuring (commercial payments, public income support their prudent use. Rwanda’s experience in building payments, and loan payments) to the federation’s the financial capability of SACCO members can be nearly 500,000 members is particularly relevant replicated with its producer cooperatives.17 to the Rwandan context given the existence of a large number of producer cooperatives and their Facilitate electronic payments in commercial federations. Further, digitization of payments is transactions of agricultural commodities and also an opportunity to build financial capability of in public income support programs targeting payment recipients. farmers. Electronic payments to producers can be Box 6. Payments to Smallholder Tea Producers and Loan Repayments Using Mobile Wallets With support from AFR, three SACCOs, comprising primarily smallholder tea growers, are making electronic payments to their members. Nearly 2,000 producers receive payments through the e-wallet. The immediate benefit is reducing time from delivery to payment from 5–15 days to a maximum of three days. This required installation of core-banking software in these SACCOs and deployment of a mobile banking platform that allows the SACCOs to make payments for tea leaf delivered via a Tigo e-wallet. One Acre Fund is supporting the use of MTN and Tigo e-wallets by 13,000 farmers in four districts to make loan repayments. Source: AFR Phase 1 report. n.d.; One Acre Fund, personal communication. 17 The Rwanda Financial Inclusion Support Framework Country Support Program, a technical assistance program implemented by the World Bank in Rwanda, supported the first phase of the national Umurenge SACCO financial education program. Management and leaders from 135 SACCOs received training and financial education materials and trained nearly 70,000 individuals, mostly SACCO members, 53 percent of whom were women. An impact evaluation showed that providing financial education to members of SACCOs and giving the SACCOs more operational autonomy to implement the program had the following effects: increased financial knowledge of SACCO members, shift in financial attitudes of SACCO members toward views that emphasize saving and responsible borrowing, increased likelihood of SACCO members reporting having and adhering to a written budget and financial plan, and increased propensity of SACCO members to save toward financial goals. However, no impacts were found on account usage, borrowing behavior, or financial security. RECOMMENDATIONS 34 Assess the feasibility and benefit of digitizing Deepening the Agricultural the GoR inputs subsidy scheme. As discussed Financing Market previously, the GoR has been subsidizing the retail To deepen the availability of financing for cost of fertilizers for several years under the Crop commercially oriented farmers and agri-SMEs, Intensification Program. The subsidy disbursement the data and demand-side actions described mechanism has evolved over the years and is previously need to be complemented by supply- currently made directly to importers. A few years side and enabling environment actions discussed back, MINAGRI piloted the use of electronic retail in this section. These actions are related to building vouchers to provide the subsidy directly to farmers, agriculture sector domain knowledge among but the pilot failed due to technological challenges. financial service providers, improving effectiveness In the years since, the penetration of mobile money of the BRD and the BDF, and further facilitating in Rwanda has grown substantially, and efforts to secured transactions. automate the operations of Umurenge SACCOs, which provide the majority of farmers’ access to the Strengthen the operational capacity of commercial financial sector, are ongoing. These developments, banks, MFIs, and Umurenge SACCOs to taken together with potential efforts to rationalize provide financial services to agriculture sector and reform the program, offer an opportunity for clients. Although some FIs have been supported in the GoR to reassess the feasibility and benefits agriculture lending through donor-funded projects, of digitizing the next version of the program, if a need exists to scale up such support to increase the one is retained under the PSTA4. The GoR can number of FIs that not only have this capacity, but draw upon the experience in Nigeria in this effort also have the capacity to assess and provide other (CGAP 2014). financial services, such as appropriate payments, savings, and investments. Such support should be Publish a directory of agricultural small and provided to competitively selected FIs based on medium enterprises. The two major government criteria that include strategic commitment in the boards, the RAB and the NAEB, can support sector. The consolidation of Umurenge SACCOs financial inclusion of agricultural SMEs by offers an opportunity to build such capacity in the publishing a directory of agricultural SMEs. This district SACCOs and the national apex envisaged. publication can provide key self-reported financial Key areas of operational capacity building include data on the enterprises that can serve as the first recruiting staff with strong domain knowledge; point of credit analysis for financial institutions building staff knowledge on value chain financing considering financing them. This effort can start approaches; strengthening information systems with well-established producer cooperatives and to allow analysis that is disaggregated by gender, their federations and the active agricultural input value chains, client types, geographic area, etc.; dealers and, based on the uptake of the service, can developing a segment strategy; and incorporating be expanded to other agricultural enterprises. In sector-specific elements into credit analysis and the medium term, this effort can also be potentially credit risk management. transferred to the private sector, along the lines of the “Blue Book Services” in the United States.18 18 https://www.producebluebook.com/ AGRICULTURE FINANCE DIAGNOSTIC — RWANDA 35 Assess the impact of the BRD’s and the BDF’s BDF for approval because their claims have been role as market makers in agriculture finance. rejected in the past under the portfolio approach. As discussed previously, the Government of Improved domain knowledge in agriculture and Rwanda has supported matching-grant and analytical capacity to analyze both its exposure guarantee programs through the BDF and retail and to the sector and market trends that can impact wholesale lending by the BRD with the objective its exposure will enable the BDF to not only of facilitating increased access to credit for priority strengthen the performance of its guarantee sectors, with agriculture being the main one. portfolio in the sector, but also allow it to provide While the grant programs and guarantee programs strategic advice to its partners—both FIs to which managed by the BDF have both been credit linked the BDF offers its guarantees and multilateral and and have facilitated access to credit for farmers, bilateral projects, whose grant funds it manages. A producer cooperatives, and agricultural SMEs, it is need also exists to assess alternatives to its current not clear if these programs have had an systemic model of having banks originate grant recipients, impact on increasing the number of financial which has the potential of loans and guarantees institutions sustainably providing services to the being misunderstood as grants, leading to willful sector, have targeted enterprises that were credit defaults on the loans. The BDF should also constrained while also being growth oriented, incorporate gender-disaggregated information of and have maximized/sustainably crowded in the end beneficiaries of its guarantees so that that financing from private financial institutions. The it can develop gender-sensitive approaches and, if GoR should commission a robust evaluation of the necessary, even subprograms that target women. impact of these firms that can then be used to make Lastly, the BDF may also want to transfer its policy decisions that could increase their impact wholesale lending program to SACCOs to the BRD on priority sectors without compromising their (discussed further in the following paragraph). financial sustainability. Reduce retail lending and expand wholesale Strengthen BDF operations in general lending to the sector by the BRD. As in the case and enhance its agriculture sector domain of the BDF, an opportunity exists to streamline knowledge and analytical capacity. The ongoing BRD operations to serve the agriculture sector BDF reforms that aim to streamline its core better—in this case by focusing more on wholesale services and strengthen its governance as well as lending to SACCOs and MFIs—and reducing its the aforementioned assessment of BDF and BRD retail exposure to select high-impact investments. represent an opportunity to strengthen its role in In view of funding shortages in some MFIs, the providing key financial services to the agriculture BRD’s wholesale lending, which currently accounts sector. Of particular importance are efforts to for about 40 percent of its agriculture portfolio, can improve the management of the BDF’s portfolio be expanded to facilitate more on-lending to the guarantees (because most agricultural loans are agriculture sector. As mentioned previously, the small loans for which individual loan guarantees BDF’s wholesale lending program can be taken would not be appropriate) and efforts to reduce the over by the BRD to achieve further efficiency and NPL levels of the guaranteed portfolio (because the accumulate experience and learning. As discussed in bulk of the NPLs are in the agriculture sector). While chapter 3, the agriculture finance market overview, the BDF’s stated approach is to prefer portfolio commercial banks are already expanding lending guarantees, in practice many guarantee users are to the agribusiness sector and managing the credit submitting individual guarantee applications to the risk effectively as indicated by the modest NPL RECOMMENDATIONS 36 ratio. Hence, in its retail lending, the BRD should level of subsidies considered should be clearly primarily focus on crowding-in private sector explained and justified. capital into potentially high-impact investments. It • Estimate premium rates considered affordable and can do this by scaling up its syndicated financing sustainable for each identified market segment. operations. However, to do this it needs to further strengthen its agricultural sector domain knowledge • For each identified distributor segment in the value and credit analysis skills. chain, clearly document the value proposition for bundling insurance with its current and planned Scaling Up the Agriculture bouquet of services. Insurance Market • Using data from the above tasks, estimate the Commission an options assessment for a public- number of potential farmers and enterprises for private partnership. To fully assess the various each identified market segment and for the whole options to scale up agricultural insurance, including market. This information will help in evaluating premium subsidies and bundling of insurance with whether business volume will be sufficient to GoR programs such as the input-subsidy program interest local and international risk carriers. and the one cow per poor family program, the GoR should commission a detailed options assessment. • Evaluate the various options of delivering The assessment should evaluate the costs and agriculture insurance either through a pool or benefits of the various options and help the supporting individual companies and explore government select an option that provides maximum whether to support agriculture insurance through economic and social benefits. The assessment can direct premium subsidies or through a stop-loss also provide insight into the commercial viability of facility. agriculture insurance for select high-priority value Enhance technical capacity and awareness. chains. The study should also include an effort to Once the options assessment has been carried draw lessons from the efforts to date. The key tasks out and an option chosen following broad would include: consultations both within the government and • Identify different farmer and distributor segments with external stakeholders, the government within each value chain and evaluate the value of should make substantial investments to build the insurance and the ability of each cohort to pay required expertise among key entities that will the premium at full commercial rates and with participate in the national scale-up efforts. Within different levels of government subsidy. This the public sector, capacity building is needed so analysis should look at distributors such as seed that officials can actively develop tools to support companies, off-takers, agribusinesses, MFIs, farmers, producer organizations, other agricultural nongovernmental organizations, and banks enterprises such as input dealers, and financial that support farmers and document the kind institutions by closing existing gaps in knowledge of services provided by each player and their or data. Substantial efforts would also be needed potential role in the distribution of insurance. in raising awareness and understanding about the benefits of agricultural insurance among farmers • Perform a detailed analysis of current and and other stakeholders. These efforts should ideally projected net profit margins at the farmer/ be undertaken in partnership with regional and enterprise level with and without insurance, international training institutions and development clearly identifying assumptions underlying the organizations so that the Rwandan effort can benefit profit margin analysis. Premiums should be from the substantial global experience in this area. considered both before and after subsidies. The AGRICULTURE FINANCE DIAGNOSTIC — RWANDA 37 References ADB (African Development Bank). n.d. “Land Tenure Regularization in Rwanda: Good Practices in Land Reform.” Case study, https://www.afdb.org/ en/documents/document/land-tenure-regularization-in-rwanda-good-practices- in-land-reform-93890. AFR (Access to Finance Rwanda). n.d. Phase 1 Report. ———. 2016. “Value Chain Financing Analyses: Coffee, Tea, Maize, Dairy, and Irish Potatoes.” AGRA (Alliance for Green Revolution in Africa). 2016. 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BNR Classification of Credit Categories Related to the Agriculture Sector 1000: AGRICUL TURE 1100: AGRICULTURE AND OTHERS 1110: AGRICUL TURE FOR EXPORTS 1111: AGRICULTURE FOR COFFEE EXPORTS 1112: AGRICULTURE FOR TEA EXPORTS 1113: AGRICULTURE FOR PYRETHRUM EXPORTS 1118: AGRICUL TURE FOR EXPORTS 1119: OTHER AGRICULTURAL EXPORTS 1190: OTHER AGRICULTURE 1200: LIVESTOCK AND RELATED ACTIVITIES 1300: SYLVICULTURE 1400: FISHING AND PISCICULTURE 1900: OTHER AGRICULTURE, LIVESTOCK, FORESTRY AND FISHING 3000: MANUFACTURING INDUSTRIES 3100: MANUFACTURING OF FOOD PRODUCTS 3110: COFFEE FACTORIES 3120: TEA FACTORIES 3190: OTHER MANIFACTURING OF FOOD PRODUCTS 6000: TRADE, RESTAURANTS AND HOTELS 6121: COLLECTION OF COFFEE 6122: COLLECTION OF TEA 6123: COLLECTION OF LEATHER 6131: COFFEE STORAGE AGRICULTURE FINANCE DIAGNOSTIC — RWANDA 41 6132: TEA STORAGE 6133: LEATHER STORAGE 6310: COFFEE EXPORT 6320: TEA EXPORT 6330: PYRETHRUM EXPORT 6350: QUINQUINA EXPORT 6360: LEATHER EXPORT Note: The categories 1000 to 1900 are used to estimate lending for agricultural production, 3100 to 3190 to estimate lending for agricultural manufacturing, and 6121 to 6360 to estimate lending for agricultural trading. ANNEX 1. BNR CLASSIFICATION OF CREDIT CATEGORIES RELATED TO THE AGRICULTURE SECTOR 42 Annex 2. List of People/Organizations Contacted Organization Title Name Access to Finance Rwanda (AFR) Head of Agriculture & Rural Finance Livingstone Nshemereirwe Association des Assureurs du Executive Secretary Jean Pierre Majoro Rwanda (ASSAR) Association of Microfinance Senior Programs Manager Jean Pierre Uwizeye Institutions in Rwanda (AMIR) Capacity Building and SACCO Emmanuel Ruterana Promotion Senior Officer Banque Populaire du Rwanda Head of Corporate Jean Luc Cyusa (BPR) RM Corporate Banking Jonas Kamili COOPRORIZ-Cyili Cooperative Manager Oswald Ndizihiwe (rice cooperative) COOPRORIZ-Ntende Agriculture Dept. Manager Etienne Isabane (rice cooperative) Cristal Venture Chief Corporate Officer Iza Irame Development Bank of Rwanda Senior Manager in Charge of Juvenal Kalema (BRD) Agriculture Investments Investment Officer Jackson Ndaruhutse Duterimbere CEO Dative Nzasingizimana East Africa Exchange Head of Operations Olivier Ngoga Equity Bank Head of Credit Chantal Mukandoli FERWACOTHE Coordinator Hermenegilde Shyaka (tea cooperative) IABM (maize cooperative) Cooperative Manager Viateur Nsengumuremyi ICCO-Terrafina Microfinance Martin Gapita KCB Bank Rwanda Agribusiness Manager Alex Bizimana KOABUNYA/TWITEZIMBERE Cooperative Manager Christine Uwumuremyi (beans cooperative) KOABURA (beans cooperative) Cooperative Manager Japhet Kwitonda KODBMB (beans cooperative) Cooperative Manager Fidele Manirakarama MINAGRI Director General Octave Semwaga MINECOFIN Director General Eric Rwigamba AGRICULTURE FINANCE DIAGNOSTIC — RWANDA 43 National Bank of Rwanda (NBR) Manager, Financial Stability Valence Kimenyi Monitoring & Policy Principal Analyst, Data Management Elonie Mukandoli Director, Non-Bank Financial Sangano Bonaventure Institutions Supervision Department National Cooperatives Confedera- Executive Secretary Gerald Ngabonziza tion of Rwanda (NCCR) One Acre Fund Policy Analyst Doreen Ndishabandi Senior Associate Kristen Foster Insurance Associate Junho Hyun-Sack Head of Partnerships, Rwanda Sarah Bilson RIM Managing Director Damien N. Gatera Root Capital Executive Vice-President, Strategy & Brian Milder Innovation Rwanda Business Development CEO Innocent Bulindi Fund (BDF) Fund Manager Janet Kanyambo Finance Manager Jacqueline Nkwihoreze Investment and Portfolio Manager Diana Kareba Rwanda Cooperative Agency Cooperatives Inspection Division Gilbert Harerimana Manager Rwanda Coffee Cooperative President Theopiste Nyiramahoro Federation Rwanda Development Board Head of Investment Promotion and Winifred Ngangure Facilitation Dept. Kabega Rwanda Federation of Chairperson Devothe Mukaselire Horticulture Cooperatives Soras Commercial Director Esdras Nkundumukiza UAP Rwanda Chief Operating Officer James Mbithi Assistant Underwriter Robinah Batamuriza Urwego Opportunity Bank Head of Credit Christian M. Kamari Agriculture Finance Officer Jackson Munyaneza USAID PSDAG Project Deputy Chief of Party Kirsten Pfeiffer WFP Coordinator, Farm to Market Saori Kitajima Alliance ANNEX 2. LIST OF PEOPLE/ORGANIZATIONS CONTACTED 44