For the private sector to really become the backbone of the economy, it is necessary to put more emphasis on the development of small and medium enterprises (SME’s), which constitute the majority of the companies in the country.

Yet one of the main constraints they face, is access to finance – the question of collateral is always a big problem, and interest rates seem to be high. To make it easier for SME’s to find a solution for their funding problems, the center for support to small and medium enterprises (Capmer) has now published a booklet on access to finance in Rwanda.

During the launch of the booklet, Capmer’s director Pipien Hakizabera said that the function of Capmer is to help small and medium enterprises with information on access to markets, finance and business information. He explained that after the genocide, there was a restructuring and recapitalization of banks; the obligatory social capital increased from Frw 300 million to Frw 1.5 billion, and then to Frw 5 billion.

He pointed out that SEM’s are to benefit from the entry into the market of different financial institutions. “With several commercial banks and a number of microfinance institutions, with new products, aggressiveness and competition the SME’s will find a solution to their financial woes,” Hakizabera said.

According to David Kuwana, the managing director BCR which is a partner to Capmer, there are strong sentiments within the private sector that banks are not willing to issue loans to SME’s especially due to the high interests that the banks charge. “This is an issue both the private sector and banks need to address,” Kuwana said.

He added that the private sector needs to perform to the best of standards if it is to assert itself as the engine of the economy, as government expenditure only facilitates creation of wealth but does not create wealth, which is up to the private sector.

“The government has made the business environment conducive and it is up on the private sector to jump at the opportunity and take advantage of the infrastructure,” he urged. According to BCR’s managing director, the government currently has an upper hand in the development of the country, when the private sector still lags behind. “Every issue that has been raised by the private sector, the government has tackled it.”

Not a social service

Asked why some businesses tend to shy away from bank loans, Kuwana replied that most people do not have access to the right information concerning loans, and it takes a lot of time because of a lot of ideas they get from different institutions. He also said that there are other institutions such as Rwanda development bank and some NGO’s that offer subsidized interest rates.

One of the businessmen present during the launch of the booklet, Ignatius Rwema, complained that the interest rates charged by the banks are too high. According to him and other entrepreneurs, banks are not taking into consideration that most businesses need time to be established and that access to markets is still slow. “Banks need to reduce the credit rate if the SME’s are to develop other wise business people tend to fear loaning money from the banks,” he said.

In response, the managing director of BCR denied this. “The interest rates charged are not high, especially when you look at the country’s inflation rate which is at 6%; therefore, a credit rate of 16% is not high,” David Kuwana said. He further pointed out that banks are not a social service but businesses offering services.

While most SME’S tend to worry about collateral, there other important factors to be considered before one approaches a bank for a loan: a sound business plan, good credit records, good supplier buyer relationship, clear strong cash flows and asking for a reasonable debt which can be paid with out complications. “If such factors are clear, the question of security would be minimal,” Kuwana assured.

According to the director of Capmer, most businessmen operating SME’s lack the right information about banks and the loans they are offering. “If one earns a net profit of 30% while paying and interest rate of 15% to 16%, that shouldn’t be a problem because it keeps the business alive; but if one makes a profit of 10% while the credit rate is 16% then that will be operating at a loss,” Pipien Hakizabera concluded.