The Development Guarantee Facility’s guarantee to BPR Bank Rwanda targets loan financing for small and medium-sized (SME) companies in Rwanda to grow their business, create jobs and make green investments.
SME companies are imperative for growth, jobs and economic development in Rwanda. But the country’s SME sector suffers from a significant funding gap of more than USD one billion. High collateral requirements of up to 120 per cent is a main barrier for SMEs to obtain bank loans despite banks in Rwanda being highly liquid and adequately capitalised.
The guarantee from Impact Fund Denmark will substitute part of the collateral required by the bank with a Danish government guarantee. This will allow BPR Bank Rwanda to increase their lending to SME companies due to lower risk on their portfolio.
“In many African countries, SME companies are the backbone of the economy and the most significant job creators. But often these companies don’t have access to loan financing even though capital is available. With this guarantee we are unlocking more risk capital to these smaller companies and thereby improving their ability to prosper,” said Magnus Cedergren, Head of Guarantee Facility in Impact Fund Denmark.
BPR Bank Rwanda is the second largest bank in Rwanda and has strong focus on SME lending with a network of close to 40,000 depositing SME clients. But less than 10 per cent of these SMEs are also borrowing clients, indicating a high potential for additional lending under a guarantee.
Unlocking USD 8 million in additional capital
The guarantee covers 70 per cent of the bank’s risk on its SME lending. It is expected that the guarantee will unlock USD 8 million in additional capital for the SME sector in Rwanda. The guarantee covers lending to a broad range of sectors with a focus on lending for green and renewable investments as well as women and youth-led companies.