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Category: Collateral Financing

ECOBANK extends loans to Rwandan farmers through EAX Electronic Warehouse Receipt

Kigali, Rwanda – Ecobank Rwanda has commenced the issuance of loans to Rwanda cooperatives cultivating Maize and Beans through the East Africa Commodity Exchange (EAX) warehouse receipts program. The banks disbursed funds up to 70% of the value of the grains deposited at EAX certified warehouses to cooperatives that signed on as members of the EAX and have received training on warehouse receipts and warehouse receipts financing. The cooperative has at least four months to repay the loan to the bank, and do not require any extra collateral apart from the collateralized grain. The EAX deployed a collateral manager who ensures that all products pledged for loans are standardized and stored with quality and quantity guarantees provided by the collateral manager, offering the banks extra incentives to accept only the product as sole collateral.

Last year, the EAX launched its warehouse receipts program which included providing short term credit facility through commercial banks to farmers using their harvest. A number of financial institutions subsequently bought into the idea and signed agreements with EAX to provide finance.  Four commercial banks: Ecobank Rwanda, Guaranty Trust Bank, Banque Populaire du Rwanda (BPR) and Urwego Opportunity Bank (UOB) expressed the interest to work with EAX and signed the agreement. However, two banks Ecobank and UOB have started financing Rwandan farmers.   These banks have agreed to provide financing to EAX members because of its unique warehousing model that offers a guarantee of both quality and quantity of deposits through its globally recognized and respected Collateral Manager.

Rwanda’s agricultural sectors employs approximately 70% of its population, accounts for one-third of the nation’s gross domestic product (GDP), yet less than 10% of total loan lending is allocated from commercial banking sector to Agriculture. In order to achieve true development of the agricultural value chain and improve the lives of rural communities, greater access to financing and a diverse set of credit facilities is critical. At the same time, the banks wants to minimize their risk exposure and this is where EAX comes in to provide the system which will minimize counter party risk as well as helping the banks to build their loan portfolios, particularly for riskier customers who can use their products secured in EAX warehouse as collateral for a loan. EAX also provides the platform to trade the products and settle the trade. This is a win-win situation for the banks.

With this new credit facility, farmers will get the working capital they need to sustain their business activities in between each harvesting season as well as give them greater purchasing power for seeds, fertilizers, equipment and other inputs.

With the bank’s risks essentially reduced to zero, EAX anticipates that lending for agricultural borrowers will increase to 20% by 2016.