Microfinance banks would foster access to credit for SMEs
Financial Institutions like Microfinance Banks are seen as vital channel through which Small and Medium enterprises-(SMEs) mainly in rural areas can access credit to expand their businesses.
Due to their nature of operation, rural SMEs which are mostly household enterprises depending on meager family capital have been finding it difficult to woe banks to extend credit to them with the latter seeing the country’s budding sector as risky to lend to.
While on the other hand microfinance Institutions may not have enough line of credit to lend to the entire sector which as well as enough resources to ensure loan recovery as well as supporting the borrower technically to avoid defaulting.
“Their service delivery is more improved compered to the microfinance sector and they are still closer to the people they serve,” Jessica Massi, a microfinance Experts earlier said
Moreover, with their position as banks, they are able to access a credit line that would help extend loans to SMEs and the agri- business sector, thus trickling access to finance to rural areas.
For Example, Urwego opportunity bank, that in the past years graduated from Microfinance Institutions has negotiated a short time line of credit to boost its lending capacity to farmers and household enterprises.
With a financial agreement with the Development Bank of Rwanda that has extended a one year loan worth Rwf1 billion, the microfinance Bank is hopeful that it will increase its lending arm agri business from the current 40,000 agri business clientele to about 80,000.
“Thefacilitywill make it possiblefor us to double the numbers we are lendingto in the agri business,” said Emmanuel MawochaTineyi, chief executive officer atUrwego Opportunity Bank
This according to Financial experts will help boost economic growth considering the fact that the agriculture sector is the country’s largest sector by employment base with over 80 percent of the population get income from there.
“We are confident that this partnership will enable Urwego Bank to finance SMEs,” Alex Kanyankore, Chief Executive Officer at Development Bank of Rwanda-BRD noted adding that the most beneficiary is the SME segment that is not served by banks mainly BRD.
The bank that is in plans of expanding further in rural areas is looking at developing products that would suit the needs of their clientele as rural based SMEs.