Increasing the external connectivity of Rwanda’s economy and boosting exports is a key priority of EDPRS 2 and a powerful tool to spur economic growth, raise living standards and reduce poverty.
The specific course of actions recommended for consideration to address the export finance gap is the establishment of an Export Growth Facility (EGF) between Ministry of Trade and Industry (MINICOM) and the Development Bank of Rwanda (BRD) which is open to other development finance institutions to invest in the facility to support the growth of the export sector.
The EGF is designed as a single facility with three separate windows: (1) an investment catalyst fund, (2) a matching grant fund for market entry related costs, and (3) an Export Guarantee Facility.
Matching Grant Fund for Market Entry Related Costs: Matching grant to firms investing in activities specific to exporting that are not necessarily a consideration when not exporting;
Investment Catalyst Fund: Provision of a subsidy on the interest rate of loans targeted toward private sector investments in export oriented production;
Export Guarantee Facility: Provide transaction-related guarantees to commercial banks to securitize export finance transactions up to 80% of value.
This MoU is envisaged to avail sustainable financial services appropriate for Export oriented small and medium enterprises (SMEs). To achieve this, BRD in conjunction with its partners designed a finance mechanism that will help to fast track and assist local exporting firms to expand their business by providing finance.
The principle objectives of the facility are:
- To broaden the range of financial services of Rwanda’s formal finance sector;
- To facilitate access of export-oriented SMEs (with a turnover ranging between 50,000 to 1M $) with growth potential to tailored export finance products and services;
- To provide access to finance at competitive prices for Export oriented SMEs;
- Improve knowledge of SMEs on export related finance via Technical assistance;
- Improve knowledge of finance institutions on export-related financing instruments and related business appraisal.
The beneficiaries should meet the principle requirements such as;
Be a registered Rwandan SME (with a turnover ranging between 50,000 to 1M $) operating, owned and controlled in Rwanda operating in horticulture, agro-processing or manufacturing sectors.
The expected impact and financial implications
- The Export Growth Facility will initially be launched as a limited pilot program targeting firms in the horticulture, agro-processing, artisanal mining and manufacturing sectors.
- To implement this facility, BRD has agreed that, this facility will be made available to identified export oriented SMEs via a selected number of “partner financial institutions” (PFIs) such as BPR, I&M Bank, ECOBANK and URWEGO Opportunity Bank.
- The main focus is to encourage private sector investments in exports through subsidized loans at 10% interest per annum (this is a reduction on the market average interest rate of 16.5% since EGF will pay the extra 6.5%).
- BRD will also provide technical assistance to improve partnering financing institutions capacity to develop tailor made products to export oriented SMEs.