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focused on the assessment of the role of commercial banks in promoting trade in rural
areas in. The study had the general objective and three specific objectives.
The related literature was reviewed to identify the gaps that this study tried to fill. The
population under the study was composed of the traders who got the bank loan to run
their commercial activities. Primary data and secondary data were collected to achieve
the stated objectives. Questionnaire was the technique used to obtain the primary data.
The data were analyzed using quantitative methods (Analytical and synthetic
methods). Frequency tables showing the frequency of response to particular questions
were calculated. Interpretation and summary of the findings were based on
percentages of responses to the questions.
The research findings proved that in rural areas there are trading activities supported
by commercial banks; trade of agricultural and industrial products is more financed
than the trade of food processed products and services. It was found out that banks
contribute largely to the promotion of these activities. The study found out the
importance of trading activities sustained by the bank loan to the traders, to the
neighboring population and to the State. After financing their activities by the bank
loan, traders increase their capital, expand and progress their businesses and services
leading to the increase of economic growth and development of their households.
Moreover there is an improvement of their living standards. People in rural areas are
greatly helped by the financed business activities in terms of employment and
increased wages and salaries. Furthermore, they get more and better products and
services hence a reduction of the cost of acquiring them from the towns. Local
governments also benefit from the trading activities financed by the loan; this
increases the taxable capacity of the traders thus the government entities finance their
budgeting programmes from the funds collected.
The researcher recommended the commercial banks to improve the credit services
they offer to the customers, to reduce the interest rate calculated to the trade activities
and to engage a project officer who could help the traders and other customers to
prepare and implement their projects.
Commercial banks play an important role in extending credit to people through the
mobilization of savings and financing the economic activities such as agriculture,
commerce, manufacturing and trade. They normally play this role by accepting
deposits from the public and extend credits to the business firms and individuals in an
economy. It is therefore well known that those financial institutions are the backbone
of all economic activities (Rose et al, 1993:196).
Commercial Banks in Rwanda are: BPR S.A, Rwanda Commercial Bank (BCR),
FINA Bank, ECOBANK, Compagnie Gnrale des Banques (COGEBANK), Housing
Bank of Rwanda, Kenya Commercial Bank (KCB, Urwego Opportunity bank (UOB),
Access Bank Rwanda and Bank of Kigali. Most of them serve a limited number of
people because they are located in cities especially in Kigali, except BPR S.A which
opens branches and sub-branches in rural areas and whose main goal is to offer a full
range of financial services in the urban and rural areas in a market driven and
financially sustainable way, based on cooperative characteristics. Special attention is
given to farmers, agribusiness enterprises, private individuals and micro as well as
small and medium enterprises.
Rwanda recently re-assessed its position with regard to different regional economic
groupings. In June 2007, Rwanda became a full member of the East African
Community (EAC) and will also remain a member of the Common Market for Eastern
and Southern Africa (COMESA) and the Economic Community of the Great Lakes
Countries (CEPGL). Full EAC membership should allow Rwanda to exploit its
comparative advantage in regional markets, as well as benefiting from ongoing global
trade liberalization which offers improved access to European, American and Asian
markets. By further opening up to international trade, exports should rise and inward
foreign direct investment will be encouraged, thereby reducing the share of imported
capital goods which are financed by external grants and loans (EDPRS 2007: 52-53).
For our country to achieve these goals, commercial banks can play a vital and
formidable role in increasing the GDP through promoting all the productive sectors of
the economy, most especially to the internal rural trade, which comprises wholesale
and retail trade whose average growth decreased considerably from 19.8% in 2008 to
3.8 % in 2009 because of the international financial crisis which affected almost all
less developed countries (BNR; 2010:11). As trade can, and indeed must, play a key
role in achieving the ambitious targets that Rwanda has set for growth and poverty
reduction and it is known that the internal trade is the one of the factors influencing
the external trade, some trade policies adopted by the Government include
development of the internal trade in making available goods and services on markets;
make trade professional and domestic market supply improvement.
Therefore, to achieve the poverty reduction targets will require greater involvement of
the poor, who overwhelmingly reside in rural areas, in commercial activities. This in
turn requires the alleviation of a range of barriers that limit their participation in
markets, both national and international. For trade to be the major vehicle for poverty
reduction will require structural transformation of the rural sector and sustained efforts
to reduce a wide range of constraints to supply (Rwanda; 2005:9).
1. 2. Problem statement
Rwanda is a landlocked country in which most of population lives in rural areas where
the economic activities are largely dominated by agriculture of subsistence. The
Government has adopted strategies of making the agricultural domain professional
and encouraging people who are not able to perform well in it to carry out other
economic activities which can give them more benefits. Among those activities trade
is included.
In rural areas, trade is less developed than it is in cities. One can find retailers of
agricultural products, industrial products and those who sell some services. Because
their capital is small, they can not provide all goods and service that people need;
some articles are not available in rural areas and people acquire them from towns; this
creates disadvantages to both sides: to traders whose profits decrease because of the
limitation of their commerce, and to the customers who pay transport, accommodation
fees and other charges in spending time which would be allocated to other activities
for obtaining those goods from cities. As one of major roles of commercial banks is
lending money by overdraft, installment loan, or other means, the study seeks to find
out how those financial institutions can help the low income rural merchants expand
their transactions by facilitating them to access to credit and advising them how to use
those credits efficiently so as to uplift their standards of living and to develop the rural
areas in general through commercial activities.
The general objective of the research is to assess the role of commercial banks in
promoting trade in rural areas.
2. To identify the trade activities sponsored by the commercial banks in rural areas
The research will help the government to adopt strategies of developing trade in rural
areas. Commercial activities will be developed in rural areas and the income of people
will increase. The study will help government collect money from rural taxpayers.
Commercial banks by granting loans will raise their capital. After the research, the
researcher got sufficient knowledge about the rural trade and the functioning of
commercial banks. The research will contribute to the promotion of investment by
entrepreneurs who wish to invest in rural sector, notably in trade. This study is helpful
to the academic researchers and other interested people who will carry out their
researches in related domains.
Given the limitation of financial means of the researcher and the constraint of time
allocated to this research, the study was restricted to the role of commercial banks in
promoting trade in rural areas specifically in sectors covered by BPR S.a Kaduha sub-
branch. Those sectors are Kaduha, Musange, Mugano, Mushubi and Kibumbwe.
This study was organized into five chapters: Chapter one was the general introduction
comprising the background to the study, problem statement, objectives of the research,
and hypotheses of the research, significance of the research and scope of the research.
Chapter two covered the literature review which reviewed in brief the ideas of
preceding authors about the topic. Chapter three dealt with the methodological aspects
of how data were collected, processed and analyzed. Chapter four discussed the
research findings and interpreted data of the study based on the stated objectives.
Chapter five was the summary of the major findings; conclusion and
recommendations were also given in this chapter.
Introduction
This chapter was detailed with the review of the available literature related to the
research under study. The review of the relevant literature considered various sources
of information like text books, journals, magazines and internet. Thus, this chapter
traces the literatures on the way Commercial Banks can contribute in promoting trade
in rural areas.
According to BLACK C., (2006:32) Commercial Bank is a bank that offers banking
services to the public and to businesses. Commercial banks are the most common type
of banks today. They provide a very wide range of services to customers. Because of
the wide range of services they provide, they are useful to business people.
Commercial banks are financial institutions that accept demand deposits and make
commercial loans to the government and private individuals. Commercial banks are
the most important financial intermediaries serving the public today. The general idea
behind commercial banks is that, they are private, profit seeking depositor institutions
serving business and non-business customers with deposits, current account and
credits. They normally perform this duty by accepting deposits from customers and
allowing writing cheques and lending money to individuals, business, non-profit
making organizations, government and other organizations Peter, S. Rose (1993:23).
HASLEM (1985:4) argues that commercial banks lie at the heart of financial system.
Until recently, they have unique in the issuance of deposit liabilities which are payable
upon demand, usually by cheque. These checking accounts deposits have traditionally
constituted the major portion of the country's money supply. The profit seeking
activities of banks and central bank interact to determine the supply of loanable and
investable funds in banking system. Commercial banks may create money through
their lending activities.
Commercial bank can be public when it belongs to the State or private when it
belongs to individuals.
Organization of a bank depends on the services carried in. Of course every bank is
organized differently, reflecting a somewhat different mix of services and varying
management philosophies. Size also greatly affects the organizational structure of
banks and other financial institutions, with larger intermediaries typically having more
complex organizational charts and more departments and divisions. Nevertheless, the
following are areas and functions within the modern commercial bank:
2.1.1.1. The owners and policymakers
At the apex of the bank's organizational chart are its owners; the stockholders. A bank
issues mainly common stock, which gives its holders the power to vote on all matters
affecting the organization as a whole. At the annual stockholders' meeting a board of
directors is elected by majority vote. It is the bank's board of directors that lays down
the institution's operating policies, select and appoints management to carry out those
policies, and monitors the institution's performance.
The board of directors delegate authority for the day-to-day management and the
control of the bank to the president (or chief executive officer) or other members of
senior management. Included among the senior executives of the bank are one or
more executive vice-presidents, each of whom oversees one or more divisions of the
bank.
The central focus of the credit division is making loans. In a large bank each major
type of loan will be handled in a separate department.
The finance division is responsible for rising funds that, in the main, flow to the credit
division for making loans. Most incoming funds are received through the deposit
services department, which oversees checking, time, and savings accounts. Funds are
also taken in from correspondent banks in return for the services they render (such as
clearing checks or providing investment advice). The finance division also may house
a bond or investment department, which trades in both long-term and short-term
securities. This division may also including a planning and marketing department,
which sells existing services, develop new services, and plans for the bank's future
growth and expansion.
2.1.1.5. Operations division
It is responsible for managing and protecting the physical facilities owned by the bank
and for the daily routine of bookkeeping, posting and proofing, for thousands of
customer credit and deposit accounts.
It provides the many personal and business trust services. Bank trust departments are
playing a key role today in managing retirement (pension) accounts for the bank itself
and for corporations, proprietorship, partnership and individuals. (
Minimization of risk exposure to the institution's net earning's, asset quality, and
long-run viability (Rose et al, 1993:182).
Commercial banks today offer more services from one location than the majority of
other financial institutions. The most important of these services are the following:
Sale, distribution or brokerage, with or without advice, of insurance, unit trusts and
similar financial products as a financial supermarket
Traditionally, large commercial banks also underwrite bonds, and make markets in
currency, interest rates, and credit-related securities, but today large commercial banks
usually have an investment bank arm that is involved in the mentioned activities.
a. Secured loan
A secured loan is a loan in which the borrower pledges some asset (e.g., a car or
property) as collateral (i.e., security) for the loan. A secured loan is a loan in which the
borrower pledges some asset (e.g. a car or property) as collateral for the loan, which
then becomes a secured debt owed to the creditor who gives the loan. The debt is thus
secured against the collateral in the event that the borrower defaults, the creditor takes
possession of the asset used as collateral and may sell it to regain some or the entire
amount originally lent to the borrower for example, foreclosure of a home. From the
creditor's perspective this is a category of debt in which a lender has been granted a
portion of the bundle of rights to specified property. If the sale of the collateral does
not raise enough money to pay off the debt, the creditor can often obtain a deficiency
judgment against the borrower for the remaining amount.
b. Unsecured loan
The opposite of secured debt/loan is unsecured debt, which is not connected to any
specific piece of property and instead the creditor may only satisfy the debt against the
borrower rather than the borrower's collateral. Unsecured loans are monetary loans
that are not secured against the borrowers assets (i.e., no collateral is involved). These
may be available from financial institutions under many different guises or marketing
packages. Bank overdrafts are classified in this category. An overdraft occurs when
money is withdrawn from a bank account and the available balance goes below zero.
In this situation the account is said to be "overdrawn". If there is a prior agreement
with the account provider for an overdraft, and the amount overdrawn is within the
authorized overdraft limit, then interest is normally charged at the agreed rate. If the
negative balance exceeds the agreed terms, then additional fees may be charged and
higher interest rates may apply.
c. Mortgage loan
A mortgage loan is a very common type of debt instrument, used to purchase real
estate. Under this arrangement, the money is used to purchase the property.
Commercial banks, however, are given security; a lien on the title to the house, until
the mortgage is paid off in full. If the borrower defaults on the loan, the bank would
have the legal right to repossess the house and sell it, to recover sums owing to it.
In the past, commercial banks have not been greatly interested in real estate loans and
have placed only a relatively small percentage of assets in mortgages. As their name
implies, such financial institutions secured their earning primarily from commercial
and consumer loans and left the major task of home financing to others. However, due
to changes in banking laws and policies, commercial banks are increasingly active in
home financing.
Changes in banking laws now allow commercial banks to make home mortgage loans
on a more liberal basis than ever before. In acquiring mortgages on real estate, these
institutions follow two main practices. First, some of the banks maintain active and
well-organized departments whose primary function is to compete actively for real
estate loans. In areas lacking specialized real estate financial institutions, these banks
become the source for residential and farm mortgage loans. Second, the banks acquire
mortgages by simply purchasing them from mortgage bankers or dealers.
In addition, dealer service companies, which were originally used to obtain car loans
for permanent lenders such as commercial banks, wanted to broaden their activity
beyond their local area. In recent years, however, such companies have concentrated
on acquiring mobile home loans in volume for both commercial banks and savings
and loan associations. Service companies obtain these loans from retail dealers,
usually on a nonrecourse basis. Almost all bank/service company agreements contain
a credit insurance policy that protects the lender if the consumer defaults.
The deposit and loan services provided by commercial banks benefit an economy in
many ways. First, checking accounts, because they act like cash, make it is much
easier to buy goods and services and therefore help both consumers and businesses,
who would find it inconvenient to carry or send through the mail huge amounts of
cash. Second, loans enable consumers to improve their standard of living by
borrowing money to purchase cars, houses, and other expensive consumer goods that
they otherwise could not afford. Third, loans help businesses finance plant expansion
and production of new goods, and therefore increase employment and economic
growth. Finally, since commercial banks want loans repaid, they choose borrowers
carefully and monitor performance of a company's managers very closely. This helps
ensure that only the best projects get financed and that companies are run efficiently.
This creates a healthy, efficient economy. In addition, since the owners (stockholders)
of a company receiving a loan want their company to be profitable and managed
efficiently, bankers act as surrogate monitors for stockholders who cannot be present
on a regular basis to watch the company's managers.
Because commercial banks attract large amounts of savings from depositors, they can
make many loans to many different customers in various amounts and for various
maturities (dates when loans are due). Banks can thereby diversify their loans, and
this in turn means that a bank is at less risk if one of its customers fails to repay a
loan. The lowering of risk makes bank deposits safer for depositors. Safety
encourages more bank deposits and therefore more loans. This flow of money from
savers through banks to the ultimate borrower is called financial intermediation
because money flows through an intermediary that is, the bank (James, M. J., 2009:6).
2.1.7. Commercial banks in Developing Countries
The type of national economic system that characterizes developing countries plays a
crucial role in determining the nature of the commercial banking system in those
countries. In capitalist countries a system of private enterprise in banking prevails. In
state-managed economies, banks have been nationalized. Other countries have
patterned themselves after the social-democracies of Europe; in Egypt, Peru, and
Kenya, for instance, government-owned and privately owned commercial banks
coexist. In many countries, the banking system developed under colonialism, with
banks owned by institutions in the parent country. In some, such as Zambia and
Cameroon, this heritage continued, although modified, after decolonization. In other
nations, such as Nigeria and Saudi Arabia, the rise of nationalism led to mandates for
majority ownership by the indigenous population.
Rwandan Commercial banks face many constraints due to the existence of many poor
customers who are scattered. So there are problems of savings mobilization. There are
few creditworthy customers and lending is limited by lack of collateral security by
most people. Most of the customers are illiterate other do not keep books of accounts
and therefore it is difficult to asses their creditworthiness.
Inflation discourages lending and leads to loss of real value of money. Commercial
banks are concentrated in urban areas and hence they compete for business. They are
also hindered by the shortage of communication facilities, of trained manpower and
funds to finance manpower development and staff training. The rate of interest used to
be fixed by the government and it was sometimes high; this discourages people from
borrowing money from banks. Foreign commercial banks are sometimes faced with
the problem of unfavorable government policies e.g. taxation, nationalization
(TAYEBWA B., 2007:220).
The engagement of commercial banks in rural areas is very little; this reflects, in part,
the absence of standard elements upon which lending decisions are made. Individuals,
enterprises and cooperatives lack formally registered assets which a bank can accept
as collateral. There is a lack of organization and capacity to develop and define
standard business plans and there are severe difficulties of communication. In
response to this environment for lending certain specialized institutions have been
created or strengthened to help channel financial resources towards rural activities and
the financing of SMEs. These institutions include BRD, BPR S.A and its networks,
the CDF and the microfinance institutions (REPUBLIC OF RWANDA, 2005:47).
BRD is responsible for increasing the flow of funds to rural areas. Given the
reluctance of commercial banks to finance rural activities and the lack of a specialized
bank to finance agriculture, the Government of Rwanda has revamped BRD to
provide long-term financing of productive investments that create employment and
value added. BRD is mandated to provide credits to agriculture, agro-industrial
activities and long-term credits to viable firms. BRD finances cooperatives and
associations for loans that are more than $10,000. The Government has recently
injected BRD with RWF 3 billions to finance long-term development and address the
lack of infrastructure in the rural sector.
The approach of BRD to lending is not commensurate with conditions in the rural
area. BRD as well as commercial banks are cautious in lending to the rural sector
because during the period 1996-2000, most banks issued loans without corresponding
collaterals and against poorly evaluated projects. This contributed to the high level of
non-performing loans. As a result of this experience, banks including BRD are tending
to lend to borrowers who can demonstrate creditworthiness according to standard
banking measures and to those who possess documented collateral. Experience
elsewhere suggests that approaches to lending have to be adjusted when dealing with
small farmers in rural areas who lack formally registered assets that can be used as
collateral. At present, bankers including staff from BRD have limited capacity to
conduct project appraisal and financial evaluation relevant to the context of poor
farmers in rural areas.
MFIs which work as commercial banks can play an important role in providing
financial products to the poor but cannot by themselves fill the gap in financial
services provision. Rwanda has recently seen a flowering of decentralized financial
institutions, which appear to have had some success in fostering microenterprise
development. A number of these institutions have received assistance from donors in
financing start-up costs. The main advantages of the MFIs include that they accept
certain risks associated with informal activities in rural sectors that other financial
institutions do not contemplate, they offer services that are more appropriate to the
poorest members of society who do not have access to the formal financial system and
they provide assistance to newly established enterprises that have difficulty to access
credit from the formal financial sector.
The BPR S.A and its networks have had some success in mobilizing rural savings but
these funds are not all reinvested in rural activities. BPR S.A has networks that
operate as commercial banks across Rwanda and finance rural activities. This network
is still inadequate to meet the financial needs of rural inhabitants and will continue to
expand its activities. BPR S.A accepts deposits and makes loans to members. One of
the key features of the BPR S.A is that they provide loans to cooperatives without
requiring any collateral, although collateral is required for lending to an individual
borrower. A loan recipient is required to fulfill the following 3 criteria: be a member
for at least 3 months, present a bankable project and show the capacity to pay back the
loan.
BPR S.A lends some of its funds to the banking system at a rate of 10-12 percent.
Thus, BPR S.A is a net lender to the rest of the financial sector, whilst at the same
time the rural sector is still constrained in access to finance. The low level of rural
financing undertaken by UBPR is more a reflection of the limited absorptive capacity
of the real sector, due to the lack of bankable projects, and the lack of organized
cooperatives (REPUBLIC OF RWANDA, 2005: 50).
2.2. The concept of Trade
According to BLACK, C., (2006:202), trade is defined as the business of buying and
selling goods and services.
Trade is the exchange of goods and services for money. Once money is obtained, it
may b e used to buy other goods that are needed (Nathan, K. 2010:142).
Trade is the transfer of ownership of goods and services from one person to another.
Trade is sometimes loosely called commerce or financial transaction or barter. A
network that allows trade is called a market. The original form of trade was barter, the
direct exchange of goods and services. Later one side of the barter were the metals,
precious metals (poles, coins), bill, paper money. Modern traders instead generally
negotiate through a medium of exchange, such as money. As a result, buying can be
separated from selling, or earning. The invention of money (and later credit, paper
money and non-physical money) greatly simplified and promoted trade. Trade
between two traders is called bilateral trade, while trade between more than two
traders is called multilateral trade.
Trade exists for man due to specialization and division of labor, most people
concentrate on a small aspect of production, trading for other products. Trade exists
between regions because different regions have a comparative advantage in the
production of some tradable commodity, or because different regions' size allows for
the benefits of mass production. As such, trade at market prices between locations
benefits both locations.
Retail consists of the sale of goods or merchandise from a fixed location, such as a
department store, boutique or kiosk, or by mail, in small or individual lots for direct
consumption by the purchaser. Retailing may include subordinated services, such as
delivery. Purchasers may be individuals or businesses. In commerce, a "retailer" buys
goods or products in large quantities from manufacturers or importers, either directly
or through a wholesaler, and then sells smaller quantities to the end-user. Retail
establishments are often called shops or stores. Retailers are at the end of the supply
chain. Manufacturing marketers see the process of retailing as a necessary part of their
overall distribution strategy.
According to the United Nations Statistics Division, "wholesale" is the resale (sale
without transformation) of new and used goods to retailers, to industrial, commercial,
institutional or professional users, or to other wholesalers, or involves acting as an
agent or broker in buying merchandise for, or selling merchandise to, such persons or
companies. Wholesalers frequently physically assemble sort and grade goods in large
lots, break bulk, repack and redistribute in smaller lots. While wholesalers of most
products usually operate from independent premises, wholesale marketing for
foodstuffs can take place at specific wholesale markets where all traders are
congregated.
Traditionally wholesalers were closer to the markets they supplied than the source
they got the products.
However, with the advent of the internet and E-procurement there are an increasing
number of wholesalers located nearer manufacturing bases in Mainland China, Taiwan
and South East Asia like Chinavasion, Ownta, Salehoo and Modbom, many of which
offer drop shipping services to companies and individuals.
It is commonly called international trade and it refers to the buying and selling of
commodities between or among the nations. It can be carried out by individuals,
private companies or governments. The purchase of commodities from another
country is called import trade and the selling of goods to another country is called
export trade. The trade in goods is called visible trade while trade in services is called
invisible trade. When two countries trade together, it is called bilateral trade and when
trade takes place among more than two countries, it is called multilateral trade
(TAYEBWA B., 2007:231).
The major constraints to the rapid growth and to expanding trade are often also
constraints that stem from the geographical and historical situation of the country. For
example, being landlocked and without cheap air or rail links greatly hinders
Rwanda's current export capabilities. The trade sector suffers from two major
problems, the production constraints on one hand and the international markets access
on the other hand.
Our country is characterized by a weak export structure due to low quality products
originating from weak industrial sector that use undeveloped technology. Rwanda
being a land locked country and without cheap air or railway links to regional or
international markets, transport costs are high and this makes difficult for trade
development in the country. There is a poor infrastructure such as road network,
especially in the rural areas which pose a serious transport problem to rural produced
products, from areas of production to market. Trade in Rwanda is hindered by high
production costs which have direct impact on prices, when imported product prices
are lower than locally produced products prices then automatically imports are
preferred to locally produced products hence being a problem to local producers who
could not sell their products. Most of the business laws that are currently being used
do not suite the current business situation.
Production is still low due to various constraints and this leads to trade that always
targets internal markets or subsistence hence trade imbalance. Shortage of power
supply cause most industries to work under capacity, leading to limited production
and increased production cost. There are many factors that cause low quality
production in Rwanda, these include, poor infrastructure, power shortages, unskilled
labor, low production technology etc all these lead to lack of capacity to compete on
international markets. Lack of modern technology in production that is always done at
a higher cost as compared to the neighboring countries and the small size of the local
production units do not allow exploiting the economies of scales.
Low standards and inability to reach international standards, lack of quality parking
materials, inadequate conditions of stock control and high costs of transport passed on
to the price of products reduce competitiveness. There are heavy requirements for
loans emanating from out dated laws. This makes it hard for business men to access
loans in the due time. Furthermore, weak financial institutions for example banks,
insurance companies etc limit smooth functioning of business entities retarding trade
development.
Marketing constraints such as lack of clear information on Rwanda's potentials, low
purchasing power, lack of a professional business community and aggressive
mechanism to promote the positive image of Rwanda, absence of the market
information system and lack of skills in commercial techniques and international
market hinder both internal and external trade (MINICOM, 2006:12).
Large traders have relatively easy access to finance for trade activities but access of
SMEs to credit to finance trade is constrained. Large enterprises tend to have strong
capacity to promptly repay loans and can present tangible assets for collateral. Banks
in turn consider export/import activities to be favorable short-term activities yielding
large, low-risk and quick turnovers. Local traders finance their activities using
ownership' equity and commercial loans, while foreign-owned export/import firms
can access not only commercial lending, but also can often obtain advances from their
overseas suppliers. These large firms have access to short-term bank loans with
negotiable interest rates around 12.5 percent. Well-established SMEs tend to finance
trade activities using either owners' personal equity or bank loans. Newer SMEs have
difficulties in financing their trade activities for the following reasons: high nominal
interest rates, lack of training of entrepreneurs, difficulties in the search process of
getting a loan, poor registry system, absence of adequate creditassessment tools and
lack of information and awareness of available schemes (REPUBLIC OF RWANDA,
2006:17).
The mainstreaming of trade in national development plans, among other measures for
stimulating economic growth and development, remains weak. The limited scope, lack
of specificity and detail, content and depth of coverage of trade in national
development plans like Vision 2020 and the EDPRS clearly demonstrates the point.
There has not been a strong justification to put trade amongst other government sector
policies, despite the fact that clear objectives, policy measures, negotiating strategies
and clear links between trade and other important trade-related activities can help in
boosting trade to spur development and reduce poverty. Some trade objectives are
loosely referred to in some cases but this is limited and not done systematically. Clear
trade policy objectives rich in both quantity and quality need to be present in the
national plan. The ongoing exercise of mainstreaming trade in national plans through
the Enhanced Integrated Framework continues to reveal substantial gaps between
intentions and actual implementation (UNITED NATIONS; 2010:3).
Opportunities in the trade and investment are numerous with strong potential for
Rwanda to become a regional trade hub; Rwanda has a strategic central location and
tremendous asset of both a common language and multilingualism with both
international languages. Integrated Framework in its diagnostic trade integration study
identified the barriers to trade of which are to be solved by a number of projects to be
formed to overcome these barriers so as to attain the economic growth. Rwanda shows
its commitment to trade in the action of integrating trade into poverty reduction
strategies and enabling it to be an engine for economic growth.
Rwanda's fertile soils and good climate favor the growth of various types of crops
throughout the year and this enables the development of commerce of agricultural
products. Availability of marshlands, these too favor growth of various crops and
assist in irrigation of dry places. Rwanda has numerous water bodies (lakes, rivers)
which need to be fully exploited in order to develop fishing industry. The fish market
prospection in the neighbouring countries show market opportunity for our fish
products.
The opportunity of having research institutions e.g. ISAR, KIST, IRST which have
done a number of researches in agriculture and scientific technology; many of these
researches are market oriented and enables us to access new clients and overcome
supply constraints.
Availability of skilled and semi-skilled labour in the country allows different types of
people to be employed in many of the existing sectors and then lead to economic
development. Prevailing peace and security in the country presents a strong
opportunity for trade development as the business men carry out their activities
without fear of robbery or any other security risk. Trade also is favoured by the
existence of good governance especially the establishment of ombudsman that helps
in fight against corruption in all sectors.
Rwanda is already a member to Common Market for Eastern and Southern Africa
(COMESA) and its free trade area and able to access the whole market without any
barriers to trade. Rwanda is also ready to benefit from various blocks like Economic
Community for Central African States (ECCAS), African Growth Opportunity Act
(AGOA), African Union (AU), World Trade Organisation (WTO), European Union
(EU), bilateral trade arrangements, etc offers Rwandan internal traders an opportunity
for easy access to foreign markets.
Internal trade is carried out within a country. It is known as domestic trade. The
selling of food to towns by rural areas is an important part of Rwandan internal trade.
Meat, maize, fruit, and milk are produced in rural areas and sold in towns. Bananas,
beans, maize and other crops are bought from rural farmers in areas and transported to
be sold in Kigali. Similarly, manufactured goods are bought from factories and shops
in towns and sold to rural areas in Rwanda. Internal trade is made of retailers who sell
individual items directly to consumers. Retailers include open air market traders,
roadside traders, hawkers and shopkeepers (NATHAN, K., 2010:142).
Rwanda has adopted the strategies of development of the internal trade to make
available goods and services on markets, creating a favorable environment for
integrating the informal sector into the formal private sector, organization and
management of the professionalism in businessmen and improvement of distribution
networks and optimization of the supply of the domestic market.
The Government entered into working partnerships with private sector operators to
solve the problems that are limiting better functioning of the private sector. Given
current private sector weakness, the country has laid strategies of encouraging
professionalism in the private sector. In order for this policy to have impact on trade,
there will be workshops and meetings oriented towards explaining it to the business
community. It will be organized in such away that all traders in their decentralized
entities are trained.
The government will protect consumers of all categories through supervision and
ensuring quality products on the market, ensure the country's supply in oil products
through establishment of petroleum industry policy, create a conducive environment
for trade i.e. legal, institutional, etc, build capacity, coordinate the action of training
business people so as to increase professionalism in their business and coordinate the
program of installing and running strategic stocks (food and oil products).
The country wishes to strengthen these activities: controlling quality packaging,
parking materials that suit international standards; funding business community to
participate in national, international trade fairs, study tours etc, establishment of
business development centers (BDC) which will facilitate easy coordination of
business activities in rural areas; strengthening institutional framework, where there
will be easy access to finances by private sector operators; entrepreneurship
development through establishment of the new fund for young entrepreneurs;
organizing regular meetings with bankers and bank's associations in finding
appropriate measures of reducing bank interest rate and training of women and youth
on professional business (MINICOM 2006:14-15).
Poverty in Rwanda is a rural phenomenon, as 99 per cent of the poor live in rural
areas. Among household characteristics, occupation appears to be the single most
important variable affecting the probability of being poor. Typically someone who
earns a wage in the non-farm sector has a substantially higher chance of not being
poor. A self employed non-farm worker is also much more likely to be non-poor. On
the other hand, being an agricultural worker implies a higher probability of being poor
and about 76 percent of household heads are farmers. That is why the government
encourages people who are not performing well in agriculture to shift in other sectors
of production including trade.
Of particular importance to poverty reduction are factors that constrain the ability of
farmers to move into commercial and non-farm activities. Reducing trade costs
increases incentives to move into new activities but there are substantial barriers that
limit farmers' responses.
The lack of effective organization of the rural sector is a substantial barrier to the
emergence of market oriented activities. The highly fragmented nature of the rural
economy limits the scope for financial intermediation in rural areas and constrains the
emergence of effective supply chains linking rural producers to local, regional,
national and international markets. A key initiative must be to strengthen the role of
cooperatives, first, by clarifying their legal standing and then by raising capacities to
organize members, to develop business plans and to attract and manage credit.
3.1. Introduction
This chapter showed various methods used in data collection, research design i.e. how
data were collected, population, sample selection, research instruments, methods of
data analysis, and limitation to the study.
3.2.1. Population
The population of our study was composed of 480 traders who used a bank loan from
BPR S.A KADUHA Sub-Branch to carry out and develop their businesses working in
five sectors: KIBUMBWE, MUGANO, MUSANGE, MUSHUBI and KADUHA; the
area in which this bank extends its activities. Because the study is aiming at `assessing
the role of commercial banks in promoting trade in rural areas' the research was
carried out referring to the data of period from 2006 to 2010.
Due to the time and resource constraints, and the nature and size of the population, it
would not be possible to make a study of the whole population but rather to select a
sample representative of the entire study population. The sample was picked among
the retailers of food crops not requiring industrial transformation such as beans,
sorghum, potatoes, etc., food processed products in which are classified rice,
vegetable oil, and cereals flour. Also participated the traders of animal products such
as milk, skin and flesh meat. The merchants of tree derivative products such as
charcoal and boards were not let aside. The study finally involved the traders of
industrial products and those who sell services such as bar and restaurant, transport
and commercialization of airtimes.
3.2.2. Sample and sample selection
As their names are written in computer by software of Excel, to determine the sample,
the researcher selected among the electronic list of loan granted to finance trade
during the stated period 48 people (1/10 of the whole population) randomly, by ticking
the names corresponding to the number which is multiple of 10 (10, 20, 30,
40,............, 480 and the total was 48 people), hoping that they could give the
information relating to the whole group. To reach their residence, the researcher
followed their identification recorded in the book of granted loans. Therefore the
researcher used to visit them and distributed the questionnaires in order to collect the
relevant information.
In conducting the research study the required data were gathered from both primary
and secondary data sources. The information required helped the research to achieve
the set objectives.
During the research, primary data were used to obtain from the sample elements
relevant information concerning the whole people under the study. The technique used
was questionnaire. The questionnaire was addressed to the selected traders under the
study and contained both close-ended and open ended questions.
The sources of secondary data for this study were the main library of the National
University of Rwanda and the documents from Rwandan financial institutions mainly
BPR S.A KADUHA Sub-Branch. Extensive study and review of published and
unpublished documents, reports, journals, magazines and policy reports relevant to the
study was done.
After the process of data collection, the data were analyzed by arranging and
organizing them properly so as to be easily interpreted. To analyze data the researcher
used editing, coding and tabulation.
3.4.1. Editing
The ultimate purpose of editing was to discover or to monitor the accuracy and to
detect gaps and other weaknesses in the data and collection methods. Here the
researcher will make sure that all the questionnaires were fully answered and returned
to him. Maximum care will be taken in the process of sorting out the unnecessary
information so as not to distort the message from the respondents.
3.4.2. Tabulation
Data were analyzed after editing, coding and tabulation. This analysis was based on
percentages that were obtained to show the relationship between the study variables.
The information was summarized according to the objectives of the study.
The hypothesis of the study stated that, `Commercial Banks can contribute to the
development of trade in rural areas'. The aim of this hypothesis was to show the role
played by BPR S.A KADUHA Sub-Branch in promoting trade in the area under the
study. The hypothesis was tested basing on respondents views. Testing the hypothesis
means that the analysis of data either supports or rejects the hypothesis. The
researcher tested the hypothesis quantitatively basing on the opinions of several
respondents to whom questionnaires were distributed.
4.1. Introduction
This chapter analyzes data collected for the study and interprets it to enable the
researcher to draw conclusions in light of the study objectives. It deals with elements
that proved relevant in assessing the role of commercial banks toward trade in rural
areas. Findings of the study are based on both primary and secondary data analysis,
and are presented in the form of tables, percentages and descriptions.
The project of Banque Populaire du Rwanda is one of the fruits of the co-operation
between the Swiss confederation and the Republic of .Rwanda. Then the principal
idea was centered on the installation of a network of the co-operatives of saving and
credit in order to contribute to the collection of the deposits especially in rural area
and to reinvest them in projects of development.
Thus, in June-July 1971, a Swiss commission made feasibility studies which proved to
be conclusive and at the end of which an agreement would be signed in Bern (in
Switzerland) the 7th December 1972. However, the operational phase did start that
with the creation of BP de NKAMBA in ex-Commune of KABARONDO, in the ex-
Prefecture of KIBUNGO on August 04th, 1975. The periods which followed were
characterized by the creation of the new Popular Banks. In 1986, the Union des
Banques Populaires du Rwanda (UBPR) was born thus replacing the office of
direction (of orientation).
Before 1994 the UBPR joined together 131 Popular Banks. The members were
counted with 356779 people, with 455020291 Rwandan francs of deposits. The
genocide and the war of 1994 put an end to this evolution, much of members were
assassinated, others fled, and the Popular Banks were plundered. However, the period
post genocide was characterized by activities of rehabilitation which made that the
Popular Banks of Rwanda retake their activities. Thereafter, the Popular Banks were
spread everywhere in the country.
BPR's mission is still wholly in line with the original strategy of its founding banks.
The main difference being the national approach and the extension of its products. In
short: To be the leading retail bank of Rwanda BPR will provide a full range of
financial services in the urban and the rural areas in a market-driven and financially
sustainable way, historically based on cooperative characteristics. Special emphasis
will be on providing a wide range of financial services to farmers, agribusiness
enterprises, private individuals and micro- as well as SME types of businesses. BPR
vision is to be the leading retail bank of Rwanda.
The Banques Populaires were created with the objectives of developing people's
savings and credit, promoting cooperation through social and economic welfare of
their members and serving the community. They aimed at attaining above-mentioned
objectives by:
1. Extending credit facilities to their members. This enabled members to cover their
economic needs.
1. To BPR S.A, KADUHA Sub-Branch sensitizes and mobilizes its members on the
culture of saving and proper management of incomes.
2. To sensitize and mobilize its members to carry out different income generating
project, for their development and for the country in general. To support the National
policy of provision of employment opportunities to qualify people, to fight against
poverty, to carry out capacity building, mobilizing and encouraging the local
community to use credits.
3. In particular, this bank aims at the development of local individual from isolation,
train him/her the culture of working and become job creator other than job seeker.
They consist of voluntary savings. The member who wants to save money deposits
any amount on the current account during one, three, six or twelve months. The
account is remunerated by the interest rate which varies from 4 to 5.25% depending
on the saved amount and the duration of this saving. The saved amount can neither be
increased nor decreased before the period agreed upon between depositor and the
bank.
Apart from savings activities there is also the current account which assures safety
and access to customer's money all day long at the sub-branch. The BPR current
account is meant for the customer's daily transactions. This type of account is
important because it gives the customer possibility to apply for a loan, it doesn't
require the minimum operating balance; no account maintenance fees, instant access
to your cash. You personally control what goes in and out of the account; possibility
of money transfer: account to account, bank to bank, etc.
Personal loan
Consumer loan
Overdraft facilities
Retail loans
Commercial loan
Housing loan
Investment loans
Salary advance loan, etc.
Credits are given to individual person, group of people and an association. To get the
loan, an individual, group of people or association must have spent a month working
with the bank, be trust worthy, have profitable project or venture, have good
transactions with the bank and filling other requirements like: an application letter for
credit, explaining the purpose of credit and showing where the repayment will be
generated.
The kinds of collateral security accepted by the bank are mutual security for the
associations and house, land, forest, movable assets and lastly deposit like monthly
salary for an individual.
Table 4. 1: Commercial activities that the traders got bank loan to finance
As shown in table 4.1 the research revealed that out of respondents questioned 35.4%
requested loan to finance agricultural activities followed by the traders of industrial
products and services (which count respectively 27.1% and 22.9%) at the last place
come the traders of food processed products with a percentage of 14.6% of all
respondents.
From this information, the research found that in rural areas the most trading activities
supported by commercial banks are trading of agricultural and industrial products.
The commerce of services and food processed products are less supported. This shows
clearly that the banks play an important role in financing trade in rural areas.
The researcher attempted to know if the bank neither delays its credit services nor
creates barriers to its customers to obtain the loan. He therefore asked them the
amount that they got from BPR S.A Kaduha sub-branch, the period after which they
got the loan from the date of application and other related questions. The responses
are summarized in the next tables.
The researcher was eager to know the amount of credit that the loan applicants got
from BPR S.A Kaduha sub-branch in order to finance their commercial activities and
the information given is indicated in the table below:
Table 4. 2: The amount of credit that traders got from BPR S.A Kaduha sub-
branch
Amount of credit got from the bank (in Rwandan Number of Percentage
francs) respondents
Less than 100 000 2 4.2
Total 48 100.0
As revealed by the table 4.2, a half of respondents got the amount which is between
500,000 and 1,000,000Rwf; the second place is occupied by the merchants who
requested the amount which is between 100,000 and 500,000Rwf with a percentage of
33.3%; the class of less than100,000Rwf and more than 1,000,000Rwf have lower
percentages (4.2% and 12.5% respectively).
This implies that trade in rural areas is in medium category; once the requested
amount is lower, the project could not exhaustively be financed and if the requested
amount is higher it would lead the customer to insolvency and mismanagement of
loan, and the loan is given according to various factors including the type of business,
business plan and the collateral security.
4.3.2.2. The period after which the customer gets loan from the
date of application
In order to know the period of getting the loan from the date of requesting, the
researcher asked it to the respondents and they gave the information summarized in
the following table.
Table 4. 3: The period after which the customer gets loan from the date of
application
The period of getting loan from the date of Number of Percentage
application respondents
Total 48 100
Referring to the table 4.3, 60.4% of respondents revealed that they got the credit after
the period between one and two months, 22.9% received the credit in the period less
than one month, 14.6% got it between two and three months while 2.1% got it after
the period beyond three months.
From the above information, the research found out that the majority of merchants got
the loan in period extending between one and two months. The portion of applicants
who fulfilled the requirements earlier obtained the loan before one month and those
who delayed in accomplishing the conditions such as the clear and understandable
business project, filling of some documents proving the capacity of loan repayment
including the collateral security and the signatures of some witnesses got the loan in
the period which is between or beyond two and three months.
The researcher wanted to know the period of loan repayment and the information
from the respondents are given in the table below.
Table 4. 4: The agreed period of loan repayment
Total 48 100.0
According to the above table, 79.2% of the respondents questioned agreed to repay
the loan in the period extends to one and five years, 16.7% of respondents agreed to
repay in the period beyond five years. Only 4.2% agreed to repay in the period less
than one year.
This information clearly shows that the majority of traders requested for the small and
medium term credits. The proportion of 16.7% received the long term credit.
The researcher also wanted to know if the customers were able to repay the loan in
agreed period, and their views were shown in the table below:
Table 4.5 : The period in which the traders repaid the loan
From the above table, the majority of traders questioned (87.5%) confirmed that they
repaid in the agreed period 12.5% said that they repaid the loan beyond the agreed
period; they were not able to respect the period of loan repayment. This implies that
the business of those who paid within the agreed period was successful whereas others
might meet some hardships in implementing their businesses after getting the loan.
Asking the factors that helped those who proved the capacity of repaying in the agreed
period succeed, the responses that they gave are shown in the table below.
Table 4.6: The factors that help customers respect the agreed period of loan
repayment
Total 42 100.0
The profitability of the business is the main factor helped the traders to respect the
period of loan repayment as asserted by 90.5% of the respondents. Normally, the
interest rate calculated for commercial projects is higher comparatively to other
projects such as agricultural loan and good management itself without profitability of
the business for a great deal of respondents (90.5%) cannot help them to repay the
loan within the stated period.
The researcher also investigated whether the bank loan is supportive in financing
trading activities in rural areas and the information given is summarized in the in the
table below:
Table 4.7: Respondents' opinion on the extent to which the bank loan is helpful in
financing trade
Agree 21 43.7
Disagree 0 0.0
Total 48 100.0
As indicated in the table above, all of the respondents (56.3% + 43.7%) agreed that
the bank loan is helpful in financing trade in rural areas.
From the above table, none of the respondents ignored the importance of bank loan to
finance the commercial activities, the researcher then concluded by affirming that
bank loan is helpful in financing trade.
The researcher went further to know how the respondents appreciate the credit
services offered by BPR S.A Kaduha sub-branch and their responses are shown in the
table 4.7.
Table 4.8: Respondents' opinion on credit services offered by of BPR S.A Kaduha
sub-branch
Good 34 70.8
Bad 5 10.4
Total 48 100.0
From the table above, 89.6% of respondents (18.8% + 70.8%) appreciated the credit
services offered by the bank, 10.4% did not agree with the services delivered by their
bank.
The information given above shows that the credit services offered by BPR S.A
Kaduha sub-branch are relatively good; the bank doesn't create hardships that can
prevent the traders from benefiting the credit advantages. Because a small percentage
of the respondents (10.4%) don't agree with the credit services offered by their bank,
improvement should be made.
The study intended to examine the performance of rural trading activities financed by
BPR S.A Kaduha sub-branch by asking various questions related the profitability of
the business, its impact in the area after being financed by the loan, the impact on cash
flow and employment and other related questions. All the information provided by the
respondents was summarized in the subsequent tables.
Asked if the bank loan permitted them to increase the stock of the product they sell,
cash inflow of the business and the sales volume of products, all of the respondents
agreed there was increase. For the sales volume they gave the different reasons of this
escalation which are mentioned in the table below:
Table 4.9: The reasons of increase of the sales volume after getting the loan
Total 48 100.0
Source: Primary data.
As highlighted in the table 4.9, most of the traders (85.4%) accepted that after they got
the loan, they raised their capital and there was the availability of the new product in
the area of the activities this caused the presence of the new and more customers for
their products.
Basing on this information, bank loan is important in increasing the capital and the
consumers can buy more and new products from the traders who obtained the credit.
The researcher sought to know if the government collected more amount of the tax
from the traders after getting the loan, all of respondents agreed that the tax they paid
to the government increased at different rate depending on the amount of credit
received, and the size of the business. Their views were shown in the table below:
Table 4.10: The rate in which the tax paid increased after getting the loan
Total 48 100.0
As indicated in the above table, a big number of traders increased the tax that they
paid to the government between 25 and 50% (89.5% of the respondents), 10.5%
increased the tax more than 50%.
This implies that the bank loan is not only important for the traders but also for the
government, because it collects more amount of tax from the tax payers hence
allowing it to increase capital to support and expand its budgeting activities.
The researcher also wanted to know if after getting the loan the business has changed
favorably to the consumers who live in the area in which the traders extend their
activities and the answers were summarized in the following table.
Table 4.11: The novelty of the business in the area after getting the loan
Total 48 100.0
After the bank granted loan to traders, more existing products were available on the
market as it was shown by 35.4% of the respondents; 29.2% purchased the new
products, 20.8% offered the new services, and 14.6% availed the high quality products
to the customers.
This implies that people benefit from the credit gained by the neighboring traders as
there is improvement and development in the areas of activities, they get more and
better products and there is reduction of costs because they don't pay the transport fees
for acquiring goods away from their residence.
The researcher was willing to know what happened to the business itself when the
traders got the credit from BPR S.A Kaduha sub-branch. Here, he really wanted to
know if there was improvement or expansion of the business caused by the loan
granting. The information that they gave was summarized in the table below:
Table 4.12: The performance of the business after getting the loan
Total 48 100.0
As it is shown in the table 4.12 there was improvement and expansion of the business
when the traders received the loan (as it is shown by 18.8% and 70.8% respectively).
10.4% confirmed that their commercial activities remained unchanged. None of them
said that his/her activities slowed down after being financed by the loan.
As affirmed by the respondents, there was the improvement and expansion of their
businesses because of the raising of capital. The traders whose business stagnated
after getting the loan, it was due to the fact that the rate of tax that the government
collected from them increased more proportionately to the improvement or the
expansion of their activities or due to the mismanagement of the amount received as
credit or to other unexpected event.
The research wanted to know if the bank loan had positive impact on the employment
in recruiting the new workers or in increasing the wages and salaries for the existing
workers. The respondents supplied the information summarized in the table below.
Total 48 100.0
It is revealed in the above table that after getting the loan 35.4% of the respondents
increased the wages for its employees, 27.1% recruited new workers, 22.9% recruited
new workers and augmented the wages and salaries for the existing workers while
14.6% were not able to do any of the above mentioned activities.
With the extension, improvement and increase of the businesses after the traders
obtained the bank loan, the traders engaged new workers and increased the wages and
salaries of the existing employees on account of the augmentation of working hours.
For the respondents who did none of above activities, either their businesses stagnated
or the increase of the services and activities was not at the level of employing more
workers.
From this information, the researcher can conclude that the loan given to traders is
favorable to the employment in the area; there is availability of more jobs and increase
of money supply from the increase of salaries. The loan helps to reduce the rate of
unemployment.
4.3.3.6. The bank loan towards the standards of living for the
traders
Normally when there is improvement and expansion in the business, it would be the
same for the living standards of the people who implement this activity. The
researcher sought to know if really after getting loan the traders improved their ways
of living in terms of health, food, education for their children, infrastructure and so on.
The answers that they gave are exposed in the following table.
Table 4.14: The bank loan and the improvement of standards of living
Did the bank loan allow you to improve the standards Number of Percentage
of living respondents
Yes 43 89.6
No 5 10.4
Total 48 100.0
Source: Primary data
The majority of respondents (89.6%) said that their standards of living have
ameliorated, 10.4% held that their ways of living remained unchanged.
From this information, the researcher agrees that the bank loan given to the traders is
positive towards their standards of living.
Asking if after the loan repayment, the applicants could request for another loan, 36
over 48 (75%) answered positively, while 12 (25%) said that they would not request
for another loan. The researcher discovered that those who would request for another
loan want further to expand their business whereas for the others either the business
was not profitable after getting the loan or they have got the sufficient capital to run
their commercial activities without being helped by other external funds.
Finally, for those who would solicit the further loan in the future, the researcher was
interested to know which amount comparatively to the previous one. They gave the
answers summarized in the table below:
Table 4. 15: The amount that the customers could request for after the loan
repayment
Total 36 100.0
Source: Primary data
As shown in the table above, 91.7% of the respondents wish to request from the bank
the amount which is greater than one requested previously and 8.3% would request
the same amount. This means that the traders have known the role of bank loan in
promoting their trading activities.
5.1. Introduction
All the previous chapters have been dealing with theoretical and scientific part of the
study mostly looking at different variables and drawing the relationship between bank
loan and the promotion of trade. This chapter presents the summary of major findings,
conclusion and recommendations provided by the researcher about the assessment of
commercial banks in promoting trade in rural areas and suggestions for further
research.
5.2. Summary
The study was carried out in the area covered by the activities of BPR S.A Kaduha
sub-branch in order to assess the contribution of commercial banks in promoting trade
in rural areas. The targeted population under the study was the selected traders who
got the bank loan to finance their trading activities. Data was collected by the use of
questionnaire and documentary technique. This study is organized in five chapters and
sub chapters as it was seen from the beginning.
Referring to the objectives of the study, the results from questionnaire and
documentary technique were analyzed and proved that there are trading activities
supported by commercial banks in rural areas mainly BPR S.A. Those activities are
trading of agricultural products, industrial products, food processed products and
services.
The study indicated that commercial banks play an important role in promoting trade
in rural areas as confirmed by the respondents questioned. Banks grant different
amount of credit to traders depending on the nature and the size of trade; this
increases their capital and more and better product become available to the
consumers. From the date of the loan application, the research revealed that banks
don't delay their credit activities; the period of loan granting depends on the
customer's will and rapidity to fulfill the loan requirements. The study also found out
that most of traders finance their activities by small and medium term credit as is was
shown by 83.4% of the respondents. The findings of the research proved that bank
loan is helpful in promoting trade; this was confirmed by all of the respondents
questioned. About the credit services offered by BPR S.A Kaduha sub-branch, most
but not all of the respondents (89.6%) appreciated them.
Some neighboring people are recruited by the traders who expand their activities after
they get the bank loan and they increase the salaries of the existing permanent or
temporary workers; this was declared by 85.4% of the respondents questioned. Thus,
the study revealed that this has favorable impact on the employment in the area
because there is reduction of unemployment rate and living conditions of the workers
become ameliorated.
During the research, it was found that 89.6% of the respondents improved their
standards of living in terms of health, food, education and the fundamental equipment
have been enhanced after they god bank support. However, there is a small portion of
respondents (10.4%) whose conditions remained unchanged once they got the loan;
this was due to different factors such as mismanagement, the heavy tax imposed by
the authorities and working conditions.
After recognizing the importance of bank loan in financing trade projects, 75% of the
respondents would request for another credit once they finish repaying the existing
loan in order to enlarge and get better their activities.
5.3. Conclusion
The research aimed at assessing the role of commercial banks in promoting trade in
rural areas and its hypothesis stated that Commercial banks can contribute to the
development of trade in rural areas. From the results of the research in chapter four
which presented the activities financed by BPR S.A Kaduha sub-branch, their
performance and contribution to the improvement of standards of living for the
traders, innovation and development of rural areas, we conclude by accepting the
research hypothesis and we strongly agree that commercial banks can contribute to the
development of trade in rural areas.
5.4. Recommendations
Considering the above mentioned findings and results of data analysis, a number of
recommendations are in order.
- Even if the credit services offered by commercial banks mainly BPR.SA are
relatively good, they should be improved so as to facilitate traders easy and rapid
access to loan.
- The bank should have a project officer who could help the traders and other
customers to prepare and implement their projects
- The interest rate calculated to commercial activities are so high; they should then be
decreased so as to help all categories of traders access to loan
After carrying out this study, learning some problems in this field and considering
some limiting factors to it, the researcher came up with the following field for further
research.
BIBLIOGRAPHY
BLACK, C., (2006). Dictionary of Economics, London.
FREDERIC, S,. Mishkin (2004). The Economics of money, Banking and Financial
markets, seventh edition. Columbia University.
Gill K., EDUARD,. (1989). Commercial Banking, Prentice hall, Englewood cliffs,
New Jersey.
ROSS, L., NORMAN, L., AND THORSTEN B., (1993), Financial intermediation
and growth: causality and causes, the World bank, Washington D.C.
SERRANO, C., (2001). The role of commercial banks in the provision of credits to
small and medium enterprises in Mexico, IMF working paper.
U.B.P.R (2003), Statute of the Union des Banques Populaires in Rwanda, Kigali.
WORLD BANK (1994), Annual report, the World Bank Washington D.C USA.
Electronic sources
www.wikipedia.org.
APPENDICES
Appendix I: an introduction letter to the respondents
Dear Sir/Madam
You are kindly requested to provide the necessary information about your bank as
regard this research by answering these questions.
You are requested to be sincere, as confidentiality of information will be highly
respected as this research is only for academic purposes.
Silas HABARUREMA
Bwana/Madamu,
Silas HABARUREMA
I. Identification/Umwirondoro
Sector/Umurenge:..........................
District/Akarere:........................
Province/Intara:......................
1. Tick the letter corresponding to the trading activity you got the loan to support from
BPR S.A KADUHA Sub-Branch
Hitamo inyuguti ijyanye n'igikorwa cy'ubucuruzi wakiye inguzanyo muri Banki
y'Abaturage y' u Rwanda Agashami ka Kaduha.
d. Trading of service
2. How much credit did you obtain from the BPR S.A KADUHA Sub-Branch?
d. Over 3 months
c. Over 5 years
6. If you repaid the loan within the agreed period, what were the factors helped you
succeed?
Ubucuruzi bwunguka
Ibindi (bivuge)
7. Did your sales volume increase after getting the loan? Yes No
Ese ingano y'ibyo wacuruje yariyongere umaze kubona inguzanyo? Yego Oya
a. Raising of capital
Igishoro cyariyongereye
c. All above
Ibyo byose bivuzwe hejuru
.......................................................................................
..........................................................................................
.........................................................................................
8. Did the tax you pay to the government increase after getting the bank loan? Yes No
Ese imisoro wishyuraga Leta yariyongereye umaze kubona inguzanyo? Yego Oya
Hejuru ya 50%
9. What was the performance of your business after getting the loan?
10. What was the impact of the bank loan on the employment in your enterprise?
Nongereye abakozi
c. All above
d. None above
11. Did your cash inflow increase when you got the loan? Yes No
12. Did the bank loan allow you to increase stock of your product? Yes No
Ese inguzanyo watse yagufashije kongera sitoke y'ibicuruzwa byawe? Yego Oya
13. What was happened to your business after you got the loan?
a. Improvement
Bwaranogejwe
b. Expansion
Bwariyongereye
c. Stagnation
Ntibwahindutse
d. Slowing down
Bwasubiye inyuma
14. After the loan repayment, would you like to request for another one? Yes No
a. Strongly agree
Nibyo cyane
b. Agree
Nibyo
c. Disagree
Sibyo
d. Strongly disagree
Sibyo cyane
16. After getting the loan were your standards of living improved? Yes No
Ese nyuma y'uko ubonye inguzanyo imibereho yawe yabaye myiza kurushaho? Yego
Oya
17. How do you appreciate the credit service offered by BPR S.A KADUHA Sub-
Branch?
Ubona ute ibikorwa bijyanye no gutanga inguzanyo bya banki y'abaturage y'u
Rwanda agashami ka Kaduha?
a. Very good
Ni byiza cyane
b. Good
Ni byiza
c. Bad
Ni bibi
d. Very bad
Ni bibi cyane
18. What suggestions could you give to the BPR S.A KADUHA Sub-Branch in order
to improve its credit services?
Ni izihe nama wagira banki y'abaturage y'u Rwanda agashami ka Kaduha ngo
itunganye neza ibikorwa byayo byo kuguriza?
Private banks reluctant about
rural lending
Experts say private banks achieve lending obligations by buying out loans
from non-banking entities
Dinesh Unnikrishnan
Share
In the past three years, even when RBI was increasingly forcing banks to
spread services to the unbanked rural markets, there has not been much
progress in money flow to rural customers. In fact, growth in lending to a
significant chunk of the so-called priority sector, which includes
economically weaker sections, has come down. Under priority sector
norms, banks need to lend 40% of their loans to agriculture, education
and other economically weaker sections.
The agriculture loan books of Indias large private lenders ICICI Bank
Ltd, HDFC Bank Ltd and Axis Bank Ltdthree among the 10 private banks
that were given licences in 1994-95, have not made any significant
growth. Most of the rural lending continues to be done by state-run banks.
ICICI Banks rural loan book, in fact, declined by a little over Rs.2,000 crore
in the last three years to Rs.19,789.2 crore in December 2012, whereas
the farm loan book of HDFCBank, the second largest private bank,
was Rs.4,622.83 crore in March 2012, compared with Rs.3,263 crore in
March 2009. Axis Banks farm loan book grew by Rs.3,344 crore
to Rs.11,561 crore in three years to Rs.11,561 crore in December 2012.
The nations largest lender, State Bank of India (SBI), more than doubled its
farm loan book to Rs.1.15 trillion in December 2012 from Rs.54,678 crore
in March 2009. Punjab National Bank (PNB), too, has almost doubled its
farm exposure. PNBs agricultural credit grew to Rs.41,750 crore
from Rs.24,057 crore in three years.
The private banks have by and large stayed away from directly lending to
small farmers and weaker sections in Indias far-flung areas. They achieve
their priority lending obligations by buying out loans from non-banking
institutions or by investing in rural infrastructure development fund (RIDF)
of the National Bank for Agriculture and Rural Development (Nabard),
experts said.
Since the launch of RIDF in 1995, Nabard has loaned around Rs.1.2 trillion
from RIDF to state governments. This simply means that commercial
banks have not disbursed this amount to farmers and other economically
weaker sections since 1995.
When new generation private sector banks were given licences in 1992,
none of them went to small places for at least the next 10 years. They did
not even to go to their state headquarters of backward states and
confined themselves to urban centres. They didnt have their heart in this
business, said N.K. Thingalaya, former chairman and managing director
of Syndicate Bank Ltd and an expert on rural banking.
RBI gave permits to 10 private banks in 1994-95 and another two in 2003-
04.
They didnt have their heart in this business as they thought rural
branches are less remunerative and employees hired in the urban centres
were unwilling to serve in rural sectors. But for the regulatory compulsion
and permission to avail new branch licences, no single bank would have
gone to the rural areas, Thingalaya said.
RBI, which released guidelines for the entry of new private banks on 22
February, wants new banks to have at least 25% of their branches in the
rural areas and have a business plan that will address how the bank
proposes to achieve financial inclusion.
RBI norms stipulate that 40% of bank loans should be made to the priority
sector to increase the fund flow to segments such as agriculture, micro
credit and economically weaker sections. Most private sector banks and
some public sector banks have been seeking to meet this target indirectly
by buying securitized portfolios of non-banking finance companies
(NBFCs) that qualify for priority sector lending and investing in RIDF to
meet the regulatory obligations. Total securitization deals in 2011-12
stood at Rs.26,000 crore, of which those involving microfinance firms
stood at around Rs.3,000 crore, according to rating agency, Icra Ltd.
Also, mounting bad loans from the priority sector loans have discouraged
banks from going to the rural markets, said Vaibhav Agrawal, vice-president
research, at Angel Broking Ltd. Non-performing assets (NPAs) are
disproportionately high in the priority sector for many banks. Banks
ultimately consider the asset quality and rely more on RIDF investments
and securitization (to meet the priority sector target). On lending side,
rural business is a pain for banks even now, Agrawal said.
If you put the same effort in a rural market and an urban centre, the
former is much less remunerative. The staff is not willing to go to rural
branches and there is a shortage of infrastructure in these areas. How do
you expect banks to do more direct lending with these constraints?
asked the chairman of a state-run bank. He did not want to be named.
Emails sent on Thursday to ICICI Bank and HDFC Bank seeking their
experience on rural lending were not answered.
According to Agrawal, while about 40% of loans of the industry form the
priority sector, the segment contributes about 60% of the NPAs. State
Bank of India is the worst hit. In the December quarter, over 8% of SBIs
farm loan book turned bad, accounting for 18.5% of total NPAs. Indian
banks priority sector lending had grown 12.84% in fiscal 2012, and 5.4%
in the nine months of fiscal 2013 till December. Traditionally, banks rush
to lend to this sector to achieve their target in the last quarter of any
fiscal year. Banks lack of enthusiasm for farm loans, among other factors,
has contributed to the shrinkage of agricultures share in the gross
domestic product (GDP) of the nation, which fell to 16.75% in December
2012 from 37.5% in March 1980, according to official data. According to
experts, RBIs agenda to promote financial inclusion by using only the
commercial banks and excluding NBFCs from the mainstream, will not
help in spreading banking services to unbanked villages. Nearly 40% of
Indias population does not have access to banking services.
Banks have never really prioritized the so-called priority sectors willingly
or approached them with a wholehearted mind, had it not been for the
regulatory obligations. The original idea of priority sector lending was
making loans available to small and marginal farmers and landless
labourers, village artisans at lower rate of interest, Thingalaya said. But
most of the banks did not do direct lending to these farmers and
economically weaker sections. This never actually served the purpose of
priority sector lending to the extent it was required.