SME support Rwanda

Tailored loans for small businesses

Expansion of the financial sector in Rwanda creates new jobs

Two hands holding coffee beans
Coffee cultivation in Rwanda plays a major role in the export economy.

Rwanda is experiencing impressive growth, driven primarily by small and medium-sized enterprises (SMEs). This growth could be even stronger if more of these companies had access to need-based loans. KfW is therefore promoting financial services for growth- and export-oriented SMEs in Rwanda on behalf of the German Federal Government. This is helping to create employment and income.

Coffee, tea and minerals account for about half of Rwanda’s exports, while at 80%, the vast majority of this East African country’s population works in the agricultural industry. This sector could generate even more employment and income if exports were expanded. However, the agricultural industry is overwhelmingly comprised of SMEs, hardly any of which have received loans from domestic banks so far. As a result, these businesses have not been able to expand. Rwandan banks consider the risk of lending to SMEs to be too high.

Rwanda is well placed to expand its export economy: it is a politically stable country, its mild climate enables reliable harvests and economic growth has been above that of neighbouring countries for years at an average of 8%. Nevertheless, there is still widespread poverty. With a per capita income of close to USD 700 per year, Rwanda is one of the poorest countries in Africa.

Two hands holding banknotes
The expansion of financial services is intended to close the financing gap for SMEs in Rwanda.

Employment through export growth

Rwanda could export more, especially agricultural products, if the sector’s SMEs had growth opportunities. However, until now, they have lacked the financing required to expand their activities. There are only 17 banks in Rwanda, of which eleven are commercial banks. The country’s three microfinance institutions specifically target microenterprises and households, while most other banks mainly target large businesses. SMEs have received no financing – a gap that is now being closed.

Since 2016, KfW on behalf of the Federal Ministry for Economic Cooperation and Development (BMZ) has been funding the expansion of financial services in Rwanda, first with EUR 8.5 million and then another EUR 14 million. KfW funds are disbursed to the state development bank (Development Bank of Rwanda/BRD), which passes them on to partner banks so that they can offer loans to SMEs on economically viable terms. At 10 - 12%, the interest rate from this project is significantly below the market average of 17 - 19%.

Employees working with plants in a nursery
Employees of a nursery take care of seedlings.

This allows small businesses to receive loans and invest, creating jobs. This in turn helps to alleviate poverty, especially in rural regions of the country. The now strengthened companies will pay more taxes in the future and thereby increase government income, giving Rwanda greater independence from international donors.

Advancing business growth

The results of the project so far have been impressive: 85 companies have been supported, their business sectors ranging from the production of tea and coffee, fruit, mushrooms and cut flowers to horticulture and potato processing. As repaid loan funds are re-issued, loans worth around EUR 26 million have so far been committed.

The International Growth Centre as well as Yale and Harvard universities provided scientific support. They confirmed in an evaluation that the probability of producing for export increased by 10 percentage points as a result of the promotion. It also led to a 50% increase in revenue for companies two years after the loan was granted and a 30% increase in permanent employment. The project displayed a high level of effectiveness, particularly for smaller companies. According to the study, the project will be cost-neutral in no more than five years due to the higher tax revenue.

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