As Rwanda works toward closing the trade deficit gap, the availability of export finance still remains a big challenge as banks insist on collateral, a new study on export finance mechanisms in the country has shown.
The study, commissioned by the Ministry of Trade and Industry, was conducted this year by an Indian Export-Import Bank (EXIM Bank) in conjunction with International Trade Centre (ITC) through its SITA project (support India Trade and Investment in Africa).
Unveiled on Monday in Kigali,a workshop on ‘Institution Capacity Building for Export Credit and Insurance to Enhance Trade Competitiveness in Rwanda’, the report highlights challenges impeding Rwanda’s export potential under the National Export Strategy.
The study done by Shri N.Shankar, the executive director of EXIM Bank in India, assessed the needs of credit, guarantee and insurance fund.
It says banks insist on collateral to secure export financing which limits a number of exporters.
This export funding product is also not specifically covered by commercial banks in Rwanda, yet acceptability of mining rights as collateral is also lacking, the report stated.
Commercial banks, according to the report, extend production credit (pre-shipment) but these are not based on production cycle or export cycle as post-shipment finance for export is also limited in the market.
The findings further highlight the high cost of borrowing with high deposits rates, while little incentives to banks impede offering new products such exporter’s requirement.
However, the report shows that lending to coffee and tea dealers is easy due to intervention of the National Agriculture Export Board (NAEB).
The report also reveals absence of export credit insurance in Rwanda such as the African Trade Insurance (ATI).
The political risk and trade credit risk insurance is no longer operational since 2012 due to lack of expected business level and awareness drive.
The report also notes that the Business Development Fund (BDF) targets few segments, yet its export specific guarantee facility is yet to take off.
The report warns that with no export credit insurance, exporters could not venture into new markets as 92 per cent of loans require collateral.
The EXIM Bank was contracted by the ministry of Trade and Industry, to review the availability and needs of export guarantee fund, design a blue print for setting up an export credit guarantee fund agency, implementation and management. The study covers the first assignment.
Recommendations
The report recommends that government sets up a credit guarantee institution to factor services at the initial stage to cover commercial and political risks.
It also recommends establishment of a national agency for export credit, guarantee and insurance with government legal structure.
It calls on the National Bank of Rwanda (BNR) to advise banks to put in place a lending policy and strategy to expand export finance, promote incentives for first time exporters and capacity creation for exporters.
Stakeholders speak out
Reacting to the report, Emmanuel Hategeka, the permanent secretary at ministry of Trade and Industry, said the findings would inform decisions of partners to build the capacity of recently approved Export Guarantee Fund (EGF).
“Seeing that the export credits are still low, the report shows challenges, weaknesses and best practices we can adopt to move exports growth from current 20 per cent to 28 per cent growth every year,” Hategeka said.
The Government has already injected Rwf500m in the EGF. The Rwanda Development Bank also contributed Rwf500m after signing a deal with KWF – Germany Development Bank to provide $8m for the fund.
Hategeka explained that the fund has three components. These include; investment catalyst fund to subsidise bank interest rates for exporters to get affordable, long-term credit.
The second part will cover facilitation for penetration of international market for export starters while the third will be providing guarantee to solve collateral issues for small medium exporters.
The fund, he said, will cover all risks as insurance both for banks and exporters on losses, incidences and security issues. For example, if a bank gives them money and they disappear, it will be covered or if exporters are victims of theft due to insecurity, insurance will cover it.”
Regina Mukansinga, the in-charge of the equity investment unit at BRD, said a new export department is being established.
According to Govind Venuprasad, the coordinator of the SITA five-years project under International Trade Centre, the programme will support EAC countries to improve the value chain, production and quality delivery.
It will also support business processes and information on exported products like spices, oils, leather, cotton and coffee to raise competitiveness of companies.
Innocent Bulindi, the chief executive of BDF, said the proposed national export guarantee agency could need private sector involvement.
Emmanuel Twagirimana, an official from the Ministry of Finance, called for close collaboration with EXIM Bank to bring on board the best models for export financing.
Ephrem Twahirwa, the chief executive of Banque Populaire du Rwanda, said the EGF should also consider the entire value chain of exports.
The New Times
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