"Empowering Market Actors" Learning Series: Access to Finance
In Rwanda, 72,000 agricultural small- and medium-sized enterprises (SMEs) present a major opportunity to effect change in the sector and spur broad-based economic growth inclusive of smallholder farmers. Over the past five years, the USAID/Rwanda Private Sector Driven Agricultural Growth project (PSDAG), has explored, developed, and refined its multi-pronged approaches to helping increase smallholder incomes by promoting private sector investment in Rwanda.
The cornerstone of PSDAG’s success in improving local private sector partners’ market viability has been a US$5 million Value Chain Competitiveness Fund (VCCF), through which the project identified SME partners and provided co-investment grants that allow them to invest in technology upgrades and strengthen relationships between themselves, producers, investors, and financial institutions. The VCCF was utilized to reduce risk and accelerate private sector investment; help partners pilot new technologies and business models; support capacity building via knowledge transfer; facilitate increased access to finance in the sector; and enable SMEs and associations to strengthen organizational and advocacy skills. PSDAG has partnered with over 50 SMEs, 92 cooperatives, and four civil society associations to address their investment and advocacy challenges.
Through this five-part Agrilinks Learning Series, we will share some of our key thinking, processes, and lessons learned related to Cooperative Professionalization, Access to Finance, Social Inclusion, Business Development Services, and Public-Private Dialogue. We hope that donors, governments, and partners will find these learnings useful as they design and implement their own efforts moving forward.
Access to Finance
Ready access to affordable finance is crucial to increasing private investment into agricultural value chains. But lending to the agriculture sector in Rwanda is stymied by factors such as high market price volatility, low profit margins, seasonality, and a high risk of crop failure. These issues are exacerbated by the limited capacity of financial service providers (FSPs) to undertake risk-mitigation efforts such as assessing business models and using alternative forms of collateral like non-real estate assets or contracts. In order to address these challenges, PSDAG has implemented demand- and supply-side access to finance activities, engaging with both agricultural SMEs as well as FSPs to assess needs, ameliorate constraints, and develop partnerships and linkages.
The attached PSDAG Learning Brief highlights the key takeaways from our October 2018 convening in Kigali, Rwanda, and summarizes PSDAG’s approach to increasing access to finance, its challenges, and its results.