Denmark triples state guarantee to Rwandan bank after significant success

Impact Fund Denmark extends its state guarantee to the Rwandan bank BPR to USD 15 million following a trial scheme that has shown clear results.

The guarantee is provided directly by the Danish State and allows the bank to grant loans to companies and entrepreneurs who are otherwise excluded because they cannot provide the necessary security.

Across Africa, there are many sound banks with capital, but lending is often held back by high risk, tight credit policies and collateral requirements. This means that especially women, young entrepreneurs and small and medium-sized enterprises find it difficult to access loans, even when money is available. They cannot provide security.

Denmark has therefore adopted a new economic tool in development policy, which is State guarantees. With the guarantees, the rock-solid Danish public finances share part of the risk with the bank. This allows the bank to lend to customers who otherwise fall outside the traditional credit requirements. The bank pays Denmark for the guarantee, but can on the other hand increase its lending significantly.

Impact Fund Denmark has entered into a portfolio guarantee with the Rwandan bank BPR, which is part of the KCB Group and has a strategic focus on small and medium-sized enterprises. After ten months, 93% of the guarantee framework had been used. In total, 180 loans was granted in local currency, equivalent to USD 12.4 million. Only seven loans are in arrears, and the guarantee has not yet been claimed.

A large part of the loans have gone to groups that traditionally have the most difficulty in accessing finance. 41% of borrowers are women and 19% are young.

Against this background, the guarantee is now extended from USD 5.6 million to USD 15 million.

Experience from Rwanda shows why state guarantees are a breakthrough tool in development policy. When banks get collateral from the Danish government, they can use their capital to reach new customer groups, create jobs and local growth. At the same time, it is a responsible way to bring Denmark’s robust economy into play internationally.

Theo Ib Larsen, Managing Director, Head of Impact Partnerships at Impact Fund Denmark

The experience from Rwanda is part of the reason why Impact Fund Denmark will make up to DKK 12 billion in state guarantees available for investments in the Global South by 2030 as part of the extended Danish guarantee scheme.