This summer I have had the pleasure of working at Inkomoko, a business accelerator for Rwandan SMEs, which operates under the umbrella of AEC (African Entrepreneur Collective). As part of their core set of business services, Inkomoko supplies SMEs with a mentor, usually a graduate student or young professional, to help the business grow. So, when I arrived on the 25th of June, all I knew was that I was going to be embedded with a pork processor and a rice miller. Being a central part of Inkomo’s package has been both an honor and a responsibility that has given me unrivaled access to the bustling and sometimes troubled world of Rwandan entrepreneurs in the agriculture sector.
It is hard to distil 7 weeks (so far) into one blog post, so instead I will stick to one main observation. Rwanda has a funding gap. Simply put, interest rates are too high for most businesses to take out loans, which leaves the government, non-profits and foundations trying to pick up the slack. Though my time here has been limited, I have now seen this system function and sometimes fail. Below is a slice from one client this summer.
The Rice Mill
HPS&B is a medium sized rice mill located in the Ruhango district of Rwanda about one and a half hours from Kigali. They process paddy rice from the countryside into white rice for mass consumption across the district and the capital alike. Started with personal funds and small loans from Inkomoko they grew tremendously in the first two years of operation. But at the end of the 2014 season they realized that without a large injection of working capital they were doomed to small profits and slow growth, producing rice well above the international market price.
Unfortunately at 18% interest with hidden fees, conventional bank loans were simply not an option. Worse yet, rice is produced throughout the season, with continuous purchases necessary to keep sufficient stocks of raw material. So, paying back a loan month by month is a difficult prospect, rather they would need a loan they could repay at the end of the season at a reasonable rate.
Different financing, different metrics
As luck would have it, just before I arrived, HPS&B was able to secure patient debt financing from two non-conventional sources. The first was AEC, which offered its first mid-sized loan ever to HPS&B. Though USD 50,000 may seem like a lot for a beginning rice mill, this was still only enough to buy and process less than a quarter of their desired seasonal output. Though a seemingly tall order, they eventually secured a loan to fulfill most of their needs from the RaboBank foundation at 8% interest for 5 months, which was disbursed in May.
AEC’s loan was only available because of HPS&B’s ongoing involvement in Inkomoko. As a result of this long and fruitful multi-year arrangement AEC felt comfortable offering a large slice of working capital at a relatively low rate. Only very few companies have the privilege of accessing such financing. As for RaboBank foundation, even fewer for-profit enterprises have such opportunities.
As a foundation, RaboBank wants to see that their money is put to good use—and income to entrepreneurs is just not enough. So in addition to running a business, the foundation expected the company to track a set of social indicators from its participating cooperatives. Short on staff, I took on the project to help devise and administer a survey to all of their cooperatives to demonstrate the social benefit of their business on the communities with which they work.
In order to access this sort of patient and cheap debt, HPS&B had to be more than good business people with a profitable prospect. They had to cast themselves as a social and financial benefit to their constituencies. They had to prove it to funders. They had to create long relationships with Inkomoko. And ultimately, they had to devote resources and time to collect data and give me access to their every functioning. This is no doubt a high bar for an 8% loan.