The East Africa Exchange (EAX), a regional commodities exchange warehouse receipt system, is expected to advance over $70 million in credit to smallholder grain farmers who have been starved of funding.

The EAX is a subsidiary of Africa Exchange Holdings, Ltd (AFEX), which comprises Heirs Holdings, Berggruen Holdings, 50 Ventures, and Ngali Holdings, a local investment company in Rwanda. It links farmers in East Africa to markets and financing sources.

This year, the Kigali-based exchange launched the agricultural commodity financing scheme in Rwanda, based on a collateral management model, where full protection is provided for financial institutions who in turn lend on favourable terms, including accepting the farmer’s grain as the sole collateral for advancing loans.

The warehouse receipt system guarantees quality and security of stored grain. This has brought the banks on board.

“Some of the financial institutions, that would traditionally not finance farmers are ready to commit as much as $500,000 per group. We are determined to ensure that this fund reaches out to the sector,” said Dr Alfah Kadri, country manager EAX Rwanda.

Lenders including Urwego Opportunity Bank, Bank Populaire du Rwanda, Guaranty Trust Bank Rwanda, Equity Bank and Ecobank are lending farmers against the stored grains.

KCB Rwanda, Atlantic Bank and AB Bank also signed agreements with EAX to fund the farmers and dealers.

The EAX has 144 registered farmers’ groups — co-operatives in Rwanda — which could translate into a combined $72 million in funding to grain dealers and farmers.
The number of co-operatives is expected to grow when coffee, rice and wheat trading starts next year.

Despite the increasing willingness to lend to farmers and dealers of grains, in general financial lending institutions have not fully opened up to lend to the entire supply chain, especially at crop production and harvesting levels, crucial to increase productivity.

“EAX is playing an important role to mitigate risks in the middle of the supply chain of the grain. What the sector now needs is mitigation of risks associated with weather,” said Maurice Toroitich, managing director KCB Rwanda.

Analysts from the United Nations Development Programme and International Finance Corporation believe that increasing private sector funding of Rwanda’s agriculture coupled with good weather will boost growth in the sector.

The Rwandan economy has weathered the shocks of depressed commodity prices.

Both the International Monetary Fund and the Rwandan government have revised the country’s growth projection upwards from 6.5 per cent to 7 per cent after the completion of the fourth Policy Support Instrument (PSI) review.

“Economic performance in 2015 has been stronger than expected, with growth in the first half of the year averaging 7.3 per cent. Construction and other services performed particularly strongly, while agriculture and manufacturing grew roughly in line with expectations,” Minister of Finance and Economic Planning Claver Gatete said in a statement after the review.

But the IMF warns that Rwanda’s risks have increased, citing lower global commodity prices and weaker growth prospects in the country’s main export markets.