With interest rates remaining high coupled with rigidity of banks to lend, many Rwandans have resorted to collective investment schemes to raise capital to finance their businesses.
Latest data shows business leaders have pooled Rwf155 billion in capital, which has been invested in different projects in Kigali.
With the high ratio of non-performing loans and increasingly costs of provisioning, banks are lending against collateral, locking out hundreds of small businesses.
A baseline survey carried out by the Private Sector Federation (PSF) to map out collective investment scheme shows 86 collectives exited in the country by 2015.
The collectives have invested in all sectors of the economy including agriculture, agro-processing, energy, mining, tourism and real estate.
Kigali alone, according to PSF has attracted investments worth Rwf80 billion, a sign the city offers more business opportunities during the implementation of its development master plan.
According to experts, the pool of resources that the private sector has marshalled over time, positions them to finance mega projects.
“The growing number of collective investment schemes shows the potential they have to transform the investment landscape in Rwanda,” said Faustin Karasira, director of capacity building and entrepreneurship at PSF.
In an investment forum organised by Kigali city authorities on May 31, the meeting aimed at forging partnerships with business leaders would see the city and PSF jointly implement the master plan.
The burgeoning collective investment schemes, according to the private sector have shown potential to finance private-public partnerships in energy, housing and other infrastructure projects.
High cost of credit
The high cost of credit, which ranges between 17 per cent and 24 per cent depending on the perceived credit risk, has locked out many would-be borrowers.
According to lenders, the few who accessed credit are struggling to service the loans, citing a slowdown in economic growth to 5.9 per cent in 2016, compromising consumption as disposable incomes shrunk.
Market players allude increased provisioning for bad debt to be the main driver of the drop in lending, which has made banks more risk-averse.
Data from National Bank of Rwanda Credit to the private sector has plunged from double-digit growth to single-digit growth.
The slowdown in credit is blamed on a sluggish economic growth due to low global commodity prices, high inflation, which pushed up the cost of living and depreciation of the Rwandan franc.
Data from the Ministry of Finance and Economic Planning shows fewer loans were disbursed in 2016 compared with the previous year. Credit to the private sector slowed down in 2016, growing at only 7.8 per cent compared to the highest recorded rate of 30 per cent in 2015. Loans grew marginally from Rwf1178.1 billion in 2015 to Rwf1269.6 billion.
Mr Karasira said collective investments in the country are still dogged by poor fund management, which is locking out many members as corporate governance issues continue to drag down its growth.
Champion Investment Corporation Complex, a commercial complex with 1,500 rooms is one of the signature projects developed through the scheme. The complex valued at $30 million (Rwf25 billion), followed in the footsteps of Nyarugenge market and Gisozi mixed-use building.