AFR's Agricultural Credit Units (ACU) project was designed to address existing market failures on the supply and demand sides of the agricultural finance market which have resulted in agricultural loans comprising only 6% of outstanding loans in Rwanda. 

AFR launched the two-year Agricultural Credit Units (ACU) project in collaboration with Unguka Bank (UB) and Umutanguha Finance Company (UFC) in 2017, to improve the quality and delivery of financial products and services to the agricultural sector. The project enabled the two financial institutions to efficiently provide credit to agricultural clients and thus expand and sustainably diversify their agricultural portfolios, by supporting them to de-risk agricultural credit. Ultimately, the project was expected to improve the liquidity, productivity and output levels of agricultural value chains through increased investment and to encourage others to follow a similar model.

By the end of the project, AFR support had enabled the participating financial institutions to:

“First we improved our products. We improved our service to farmers. We increased our portfolio and the number of our clients significantly, … and we increased our profits. It also increased the skills and knowledge of our staff.”

Project activities and results:

The project resulted in both institutions growing the client bases for agricultural loan products and significantly expanding the loan portfolios devoted to agriculture. Increased loan portfolios improved the ability of loan officers to earn performance-based income incentives. The increased confidence of FI staff in their agricultural lending abilities enabled the FIs to consider expanding lending to new value chains. 

The results of the ACU project have persisted since the project ended in late 2018. Both institutions have committed to agricultural finance, maintained the ACUs and are continuing to offer new agricultural products. At UFC the agricultural loan portfolio outstanding and the number of new borrowers continue to grow while at UB, the agricultural loan portfolio one year later is still twice as high as it was a project start. 

Lessons learned:
  • Agricultural finance can be profitable if the financial service providers have the knowledge and skills to work with farmers. This requires a broader set of skills than those needed to serve other clients. 
  • FIs report that providing agricultural finance requires continuous innovation. 
  • More importantly, FIs have learned that if they go into agricultural finance, they need to be prepared to meet the demand which means being prepared to manage liquidity requirements. 
  • All project partners have recognized the need for better mechanisms for managing agricultural lending risks, particularly those due to climate change. 
  • Another solution which can help farmers manage risk is for the financial institutions to be more flexible with farmers in the case of a bad season, allowing them to refinance and then repay all their loans when the harvest improves. 

“The loan has enabled me to produce much than before: before I produced only one ton of potato, but today I can produce 1.5 tons per season.”

43-year-old male farmer

“We used to produce potato, but there was no much profit. When we joined Unguka Bank we started garlic production which earns more profit and we can pay the loan on time and improve our economic livelihood.”

46-year-old female farmer

  • Provide sustainably based technical assistance and coaching for FIs at the sector level, make the sector more resilient in agricultural credit expertise and aid the sector to scale-up agricultural finance.
  • Pursue solutions for the substantial cash flow fluctuations that financial institutions experience with agricultural lending. 
  • Provide challenge grants to support pilot projects aimed at sustainably increasing access to agricultural finance for women, youth and people living with disabilities. 
  • Support mapping of value chains with data on the financing opportunities by commodity as a public good for the entire sector to encourage expanded agricultural lending.
  • Pilot solutions to collateral constraints, possibly through challenge grants. Combine this with support for policy-level work on collateral alternatives. A more enabling policy environment is needed particularly in the area of collateral requirements for microfinance institutions.
  • Play a convening role to promote the development of the agricultural finance market system in Rwanda. 
Read the full focus note here
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