An increase in the cost of borrowing under the Ubudehe credit scheme has reduced uptake of loans, undermining government efforts to eradicate poverty. The scheme was designed to improve social protection for citizens.
While the Ubudehe credit scheme is meant to serve as a pro-poor credit channel by lowering costs, the recent hike in the cost of borrowing from two per cent to 11 per cent has increased the financial burden for vulnerable communities.
There are also concerns about the Rwf100,000 ($118) maximum amount that is currently offered, which is considered insufficient and there are calls for it to increase to Rwf200,000 ($236).
Data by the Rwanda Governance Board under its flagship programme “Nk’uwikorera” shows that at least Rwf1.2 billion ($1.4 million) earmarked for community development projects in districts like Rutsiro, Karongi, Gakenke, Nyamagabe, Nyaruguru, Ngoma and Nyabihu was not utilised as of May 2017.
However, the government said the adjustments were made to support the programme, though it has not ruled out revisiting the issue.
“The increase in interest rates was done to strengthen the programme. But people refrained from borrowing and this resulted in dormant funds increasing,” Laetitia Nkunda, the director of Local Administrative Entities Development Agency, told Rwanda Today, adding that an assessment is underway to establish appropriate interventions.
While the government has been allocating approximately Rwf3 billion ($3.5 million) to the social protection programme — Vision 2020 Umurenge Programme — it is considering cutting back on the funding due to low absorption.
Research done by Pax Press, an umbrella non-profit organisation for independent journalists also shows the credit fund has remained dormant under the Savings and Credit Co-operative, as potential clients have shied away not only due to fear of defaulting but also due to financial illiteracy.
“Many potential beneficiaries are fearful of taking up this opportunity because they are still trapped in poverty and have limited financial literacy,” said Solange Ayanone, media co-ordinator for Pax Press.
She added that there is a need to lower the cost of borrowing.