AFR plays a pivotal role in new Agriculture Insurance Scheme

The National Agriculture Insurance Scheme is the result of a successful public-private partnership with the Ministry of Agriculture Animal Resources, AFR and three private insurance firms – Radiant Insurance Company, Prime Insurance Company and SONARWA. The scheme was nationally launched on 23^rd, April, 2019, in Nyanza District, southern Rwanda.

AFR believes that agriculture insurance has great potential for reducing vulnerability among low-income farmers and their communities, both by protecting farmers from natural disasters and by encouraging greater investment in crops and livestock. The insurance product will also attract much needed credit from banks into the agricultural sector.

At the beginning of 2020, a cheque of USD 13,000 was issued to a rice farmers’ cooperative operating in the marshlands of Gisagara District, one of the least urbanised districts of Rwanda. The cooperative had insured 357 hectares of rice field at the beginning of the rice-growing season. A few months before harvesting, 133 hectares of their rice field were destroyed by floods and landslides as a result of heavy rainfall. The USD 13,000 fully compensated their loss and the farmers were still able to harvest from the remaining 244 hectares.

The cooperative president, Mr. Everest Nshimiyimana, commented: “The National Agriculture Insurance Scheme got introduced just at the right time when the market really needed it. Previously rice farmers suffered huge losses due to floods in 2015 and 2016. We requested the Ministry of Agriculture and Animal Resources that there should be insurance policies to mitigate risks in the agricultural sector. As soon as the Agriculture Insurance Scheme was introduced in 2019, we purchased insurance cover for 357 hectares of rice fields. It was a smart decision, as we were fully compensated when parts of our rice fields were destroyed, we have been encouraged to now invest more and expand our farming.”

AFR believes that low-income farmers will see first-hand how having the insurance product protects against uncertainty and this will allow farmers to take advantage of other products such as loans leading to more lucrative farm activities such as cultivating crops on larger fields, hence heftier yields.

The Head of Crop Insurance Division at Radiant Insurance Company, Ms. Laetitia Mahoro said: “The market has shown a great appetite for agriculture insurance and we are happy to mention that 16 rice farmers cooperatives in Gisagara District have applied for crop insurance policies to cover 2,000 hectares of rice fields for the new farming season.”

The crop insurance scheme is unique and this is reflected in the shape of subsidies provided by the government of Rwanda through the Ministry of Agriculture and Animal Resources. The scheme is subsidised up to 40% as a way of boosting the landscape of agriculture financing and to appeal to new financiers. Currently, a farmer pays 60% of the premium and government covers 40%.

The scheme has started with covering rice and maize but the insurers will extend their insurance policies to other crops in the future when farmers demand inclusion for other products for insurance cover. AFR will continue to work with the insurance industry to encourage more adoption and expansion of insurance products designed for farmers, who are often the poorest and the most marginalised.

Unlocking potential in agriculture financing to boost financial inclusiveness in Rwanda

Financing is a major barrier to growth in Africa’s agriculture sector, particularly when it comes to smallholder farmers. Interest rates in several countries are extremely high up to 47% according to AGRA data.

Farmers and business often lack collateral and financial service providers struggle to price the risk of loans to smallholder farmers and small-medium sized agribusinesses.

Mr. Akinwumi Adesina, President of the African Development Bank (ADB), once observed that less than 3% of total bank lending in Africa goes to a sector that accounts for approximately 70% of all employment and over 40% of the GDP.

AFR is driven by a strong conviction that effective agriculture financing contributes to a deeper and more inclusive financial sector that supports the livelihoods and well-being of low-income Rwandans. This sits at the core of AFR’s strategy.

During the last two years, AFR has partnered with Umutanguha Finance Company to reach the most marginalised members of society such as farmers.

Under this partnership, AFR is developing and strengthening its institutional capacity to effectively finance agriculture. In doing so, the partnership has been steered in the direction to address the inherent internal institutional challenges curtailing lending to the agriculture sector. These challenges are being tackled through providing multi-dimension and institutional-specific support on establishing agricultural units dedicated to understanding and serving farmers’ financial needs. In addition, AFR has continued to strengthen staff capacity and enhance human-centered product development and marketing to reach out to farmers across rural Rwanda.

“We used to target farmers inappropriately. We simply had an agricultural loan product that we had copied and pasted from other banks. This was rather inappropriate because it was not aligned with the farmers’ cash flow, which should be ideally aligned with the farm production cycle,” says Mr. Jules Theoneste Ndahayo, CEO of Umutanguha Finance Company.

This microfinance institution, like many other financial institutions in Rwanda used to apply provisos on agricultural loans synonymous with loans sanctioned to salaried individuals in which it is much easier to price risk and a repayment plan if needed. However, AFR found that it is not appropriate for a farmer, whose income is usually generated after a harvest to be subjected to a loan term appraisal for a salaried employee.

AFR, published a call for proposal requesting financial institutions to express interest in serving smallholder farmers. Umutanguha Finance Company was one of the financial institutions that responded and received a grant worth RWF 121,232,858 (USD 131,489) to spur a systemic change that would lead to upscaling and replication on the market.

As a result of the partnership, a number of achievements have been recorded to-date

An agriculture finance unit has been established, and it is fully functioning with a dedicated team
An agriculture loan portfolio has grown from 16% in 2016 to 38 % of the total loan portfolio in 2019
More than 45 bank staff have acquired agricultural lending skills and expertise
Strategies, policies and procedures tailored to the farmers’ needs have been put in place to guide agriculture lending at the microfinance institution
4 agricultural loan products have been developed. These include; farm production loan (labor, land renting and preparation), Agriculture Asset loan, Input loan (pests and fertilizers), and a post-harvest loan
About 30,000 smallholder farmers have received loans from Umutanguha Finance Company and about 60 % are female farmers
The total agriculture loans disbursed to smallholder farmers and other segments of the value chain is 4.5 billion Rwandan francs (4.8 million USD)

Whilst looking through the lenses of adoption, adaption, expansion, and response as prescribed in an effective market systems approach, this project has registered a significant contribution to Rwanda’s market system changes. In the last two years, the total asset of the Microfinance Institutions (MFI) sub-sector has increased from RWF 279 billion (USD 308.3 million) in June 2018 to RWF 313 billion (USD 345.8 million) in June 2019.

As indicated by the Monetary Policy and Financial Stability Statement, the stock of MFI loans to agriculture sector increased by 224% higher than 3.3% growth registered in June 2018. The volume of loans increased from 21.5 billion (US$ 23.8 million) in June 2018 to RWF 73.8 billion (USD 81.5 million) in June 2019.

The overall share of agriculture lending increased to 44.2% in June 2019 from 14.1% in June 2018, making the agriculture sector the most financed sector by MFIs. This improved lending to agriculture reflects improved asset quality. From our analysis, this shows AFR’s significant contribution to unlocking financing to the agriculture sector in Rwanda.

Access to Finance Rwanda welcomes £6m commitment from UK aid to initiate a new phase of financial sector development

Commitment comes as part of ambitious £320m UK aid package for strengthening Africa’s financial markets, to boost economic growth and reduce poverty at scale.

AFR welcomes a £6m commitment from UK Aid, part of a £320m package that will initiate an ambitious new phase of financial sector development across the continent. Announced ahead of the UK-Africa Investment Summit London, the package includes additional funding for nine existing Financial Sector Deepening Programmes [FSDs] and to set up and scale new FSDs in high-priority markets, including Ethiopia, Ghana, Sierra Leone and the West African Monetary Union.

The new commitment, announced by Secretary of State Alok Sharma, represents the start of an important new approach to financial sector development in sub-Saharan Africa. The package from UK Aid recognises that a comprehensive, integrated approach to financial market development in Africa is required to realise the continent’s potential and help meet the United Nation’s global goals. The £320m commitment provides funding for ambitious programmes that create financing solutions for the opportunities and challenges faced across Africa’s economies, from individual households and micro-enterprises to business and infrastructure investment. This means addressing the entire system of finance from savings groups to capital market development and operating more closely to the interface between finance and the real world.

“Africa’s substantial investment potential is clear, with many African countries outstripping global economic growth in recent decades. The UK is already the top financial exchange for Africa's businesses and we want investors to seize the exciting opportunities that Africa offers. These new initiatives, announced ahead of the UK-Africa Investment Summit, will make it easier, greener and more secure to invest in Africa, mobilising billions of pounds of sustainable investment to help end poverty.”

Alok Sharma, UK International Development Secretary

On behalf of UK Aid, the Government of Rwanda and other development partners, AFR has supported the development of an inclusive financial sector since 2010 in collaboration with financial service providers, regulators and policymakers. To date, AFR has facilitated access to finance for more than two million Rwandans working hand in hand with key market players. The country has seen more than 89% of its adult population financially included and aims to reach lower middle-income status by 2024. This will require increased investment, growth and output in job-rich sectors. AFR realises that this goal relies in part on the financial sector becoming an effective facilitator of capital to different parts of the Rwandan economy. To that end, AFR will increasingly focus on initiatives that will unlock finance and investment in agriculture and manufacturing, in order to create more and better jobs for most Rwandans. Apart from supporting a better market offer and uptake in these sectors, AFR will continue to incentivize the strategic use of technology for meaningful financial inclusion of the marginalised to ensure that no one is left behind while supporting financial stability and integrity.

‘We at AFR have an increasing recognition that financial systems are important not for their own ends, but rather to facilitate opportunity, growth and shared prosperity. We will, therefore, mobilise investment into sectors that can fuel economic transformation, reduce barriers for enterprises and strengthen mechanisms to ensure household resilience as well as meaningful financial inclusion for marginalised and vulnerable groups mainly poorer rural women, youth, refugees and people with disabilities. This new and continued investment by UK Aid alongside other existing partners such as SWEDEN, Mastercard Foundation and U.S. Agency for International Development will support AFR to deliver on its mandate.’

Waringa Kibe, AFR Country Director

The £320m package also marks an important step forward for the FSD Network. After nearly twenty years of operation and UK aid support, the FSD Network today comprises nine active FSD programmes, with a strong track record of impact, unparalleled local insight with applied research, and a powerful network of relationships with local regulators, policymakers, industry bodies, and low-income households. The new FSDs will join the Network, enabling them to benefit from, and contribute to, continent-wide knowledge sharing and cross-border collaboration.

"On behalf of the nine existing members of the FSD Network and those new FSDs in formation, our sincere gratitude to the UK Government for this generous, constructive, and thoughtful five-year commitment. We pledge to broaden and deepen our innovative work across Africa to make money work for low-income families, women, youth, the excluded, and those who need financial services the most. This new package will enable us to apply finance - in all its forms - to the challenge of the Sustainable Development Goals. The FSD Network will enhance livelihoods for poor people; improve access to basic human services where finance is a barrier; and enable a sustainable future, particularly addressing the financial aspects of climate change and illicit capital flows."

Betty Wilkinson, Chair of the FSD Network Council

Reaching the unbanked

Over the last three years, the remotely located Gatare Tea Farmers Savings and Credit Cooperation (SACCO) in Nyamasheke District has transformed from being a low-performing organisation shunned by its members to becoming a widely popular and successful SACCO known and respected far beyond the community it serves.

With the support of AFR, the SACCO has implemented a number of initiatives to improve its performance. This includes the implementation of a new IT platform and the provision of new credit and savings products tailormade to low-income people as well as both management and staff have been trained in good governance, core banking processes and product marketing to enhance the institutional capacity.

The results speak for themselves:

”I have been a member of the Gatare Tea farmers SACCO since 2009, and the changes we have seen during the last three years are incredible. The SACCO now offers simple and quick loans, the service is better, the staff is more professional, and most importantly, we no longer have to wait for days to get our salary. As a tea picker, I get paid for the amount of tea I pick in a day, so if I have to wait in line at the SACCO for many hours, I lose valuable income.”

Fidele, Gatare Tea Farmers SACCO member, Gatare

SACCOs, like the Gatare Tea Farmers SACCO, are critical for the realisation of financial inclusion in Rwanda. Not only do the SACCOs offer affordable savings and credit opportunities to low-income people and other population groups that are otherwise unattractive to the commercial banks – they also aim at raising the social welfare of their members. This is done by conducting sensitizing on proper money management and sound investment practices, and by mobilizing savings and encouraging cooperation among the members.

“SACCOs are different from commercial banks. The SACCOs are integrated in the local communities and they understand our living conditions and the financial challenges we encounter. The management, staff and members know and trust each other, which makes the SACCO more than just a financial institution.”

Jean, Gatare Tea Farmers SACCO member, Gatare

By serving more than three million people across the country, the SACCOs have proven to be one of the most effective instruments in promoting financial inclusion and reducing vulnerability among poor people in Rwanda. However, poor management, unskilled staff, insufficient refinancing mechanisms and weak internal control systems are severely threatening to diminish the SACCOs’ role as an accelerator of financial inclusion.

To improve the SACCOs service provision and delivery, AFR, in partnership with the Association of Microfinance Institutions in Rwanda (AMIR), is promoting the automation of SACCOs through the implementation of a shared IT platform. The new electronic system is first and foremost replacing the old manual record-keeping practices but it also facilitates integration with e-payment channels such as mobile money services, point of sales and credit/debit cards. Furthermore, AFR provides technical assistance in the development and marketing of new credit and savings products for low-income people as well as the SACCO staff and management are trained to enhance capacity. The project is aligned with the Central Bank of Rwanda’s automation strategy.