This study was carried out in Banque Populaire du Rwanda SA Kaduha sub-branch

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.

CHAPTER ONE: GENERAL

INTRODUCTION
1.1. Background to the study

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.

1.3. Objectives of the study

1.3.1. General objective

The general objective of the research is to assess the role of commercial banks in
promoting trade in rural areas.

1.3.2. Specific objectives

1. To find out 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

3. To find out the performance of supported commercial activities.

1.4. Hypothesis of the study

The study tested this hypothesis:

Commercial banks can contribute to the development of trade in rural areas.

1.5. Significance of the study

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.

1.6. Scope of the study

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.

1.7. Organization of the study

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.

CHAPTER TWO: LITERATURE

REVIEW

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.

2.1. Commercial Banks

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.

According to Frederic S. (2004:34), Commercial Banks are financial intermediaries

raise funds primarily by issuing checkable deposits (deposits on which checks can be
written), savings deposits (deposits that are payable on demand but do not allow their
owner to write checks), and time deposits (deposits with fixed terms to maturity).
They then use these funds to make commercial, consumer, and mortgage loans and to
buy U.S. government securities and municipal bonds. There are slightly fewer than
8,000 commercial banks in the United States, and as a group, they are the largest
financial intermediary and have the most diversified portfolios (collections) of assets.

By almost any measures commercial bank is the most important financial

intermediary serving the public today. For example, commercial banks hold more
assets than any other financial institution. Banks also represent a vital link in the
transmission of government economic policies (particularly monetary policy) to the
remainder of the economy. When bank credit is scarce and expensive, spending in the
economy slows and unemployment usually rises. Fluctuations in the availability and
cost of bank credits also have profound implication for inflation. This is not surprising
because bank deposits represent the most significant component of the money supply
used by the public, and changes in money growth are highly correlated with changes
in the prices of goods and services in the economy (Rose et al; 1993:147).

Commercial bank can be public when it belongs to the State or private when it
belongs to individuals.

2.1.1. Organization of a commercial bank

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.

2.1.1.2. Senor management

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.

2.1.1.3. The credit division

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.

2.1.1.4. Finance division

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.

2.1.1.6. Trust division

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. (

2.1.2. The goals of commercial banks

Key goals of commercial banks are:

Satisfactory or maximum profitability

Increased growth rate in assets, sales, fund sources, or credit accounts

Better service to the community

Maintenance of adequate capital

Larger share of target market

Greater efficiency and productivity in the use of resources

Greater diversification in services offered and in market areas served

Minimization of risk exposure to the institution's net earning's, asset quality, and
long-run viability (Rose et al, 1993:182).

2.1.3. Internal and external factors affecting the earning of

commercial banks

2.1.3.1. External factors

The rate of return earned by commercial banks is affected by numerous factors. These
factors include elements internal to each commercial bank and several important
external shaping earnings performance. These factors are: changes in the technology
of service delivery, competition from banks and non bank institutions, laws and
regulations applying to financial institutions, government policies affecting the
economy and financial system. Management cannot control these external factors. The
most it can do is anticipate future changes in these outside influences and try to
position the institution carefully choosing the optimal composition of its assets and
liabilities in order to take advantages of expected developments.

2.1.3.2. Internal factors

Although management of commercial banks may have difficult to external pressures

on the institution's earnings, it can change many internal factors to move the
organization closer to its goals. Such factors are: efficiency in use of resources,
control of expenses, tax management policies, liquidity position and risk position.

2.1.4. Activities of Commercial Banks

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:

Processing of payments by way of telegraphic transfer, internet banking, or other

means

Issuing bank drafts and bank cheques

Accepting money on term deposit

Lending money by overdraft, installment loan, or other means

Providing documentary and standby letter of credit, guarantees, performance bonds,

securities underwriting commitments and other forms of off balance sheet exposures

Safekeeping of documents and other items in safe deposit boxes

Sale, distribution or brokerage, with or without advice, of insurance, unit trusts and
similar financial products as a financial supermarket

Cash Management and treasury services

 Merchant Banking and private equity financing

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.

2.1.5. Commercial bank credit

Credit is individual's or business' borrowing capacity, his debt potential. Debt is an

obligation to pay in the future. Because money is normally used as a standard of
deferred payment, debt is usually an obligation to pay a fixed sum of money. Debt
comes into existence through the granting of a credit. Credit serves as a type of
money; it is an exchange of goods, services or money based on faith in borrower's
promise to repay with some form in security held by the lender.

Serrano C. (2001:39) argues that bank lending is directly constrained by monetary

policy actions. He continues saying that monetary policy works through bank credit,
in this view, monetary policy directly constrains the ability of banks to make new
loans, making credit less available to borrowers who are dependent on bank financing.
Thus, in the credit channel, restrictive monetary policy works not only by altering
interest rates, but also by directly restricting bank credit. Restrictive monetary policy
would cause banks to directly reduce the supply of loans, forcing business to cut back
their investment and lending.

2.1.5.1. Types of credit secured by commercial banks

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.

2.1.6. Benefits of commercial bank activities for the economy

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.

The checking account services offered by commercial banks provide an additional

benefit to the economy. Because checks are widely accepted as payment for goods and
services, the checking accounts offered by commercial banks are functionally
equivalent to real money, that is, currency and coin. When they issue checking
accounts they, in effect, create money without the federal government having to print
more currency. Under government regulations in many countries, commercial and
other banks must hold a reserve of paper currency and coin equal to at least 10 percent
of their checking account deposits.

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.

Commercial Banks in developing countries are similar to their counterparts in

developed nations. They accept and transfer deposits and are active lenders, especially
for short-term purposes. Other financial intermediaries, particularly government-
owned development banks, arrange long-term loans. Commercial banks are often used
to finance government expenditures. The banking system may also play a major role
in financing exports (James, M. J., 2009:12).

2.1.8. Problems faced by commercial banks in Rwanda

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).

2.1.9. Financial intermediation in rural areas in Rwanda

Commercial banking system in Rwanda is composed of the following banks: 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.

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.

The Community Development Fund is playing an important role in financing rural

infrastructure and cooperatives. CDF is funded from the government's annual budget
(5 percent). This scheme is also supported by donors. The main activity of CDF is to
finance through grants local government units on the basis of the presentation of
project proposals. The projects are of two categories: Public infrastructure projects:
These include rural roads, water networks, communal grain storage facilities,
administration infrastructure, health centers, and development of Marshlands
(drainage) for communal use; and projects submitted by local government units
(Districts) but utilized exclusively by local based cooperatives.

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.

2.2.1. Types of trade

2.2.1.1. Electronic trade

Electronic trade operates in major market segments like business to business,

consumer to business and consumer to consumer. In this type of trade, practitioners
utilize the internet to product information, take orders, generate leads, and make
customer databases. Electronic commerce or trade may be adopted more rapidly by
the buyers of services and products such as information, photos or software.

2.2.1.2. Commodity trade

In commodity trade, commodities were things of value of uniform quality produced in
large quantities by different producers and commodities price are determined as a
function of their market as a whole. Basically, these are general resources and
agricultural products such as crude oil, coal, sugar, soybeans, rice, wheat, silver and
gold.

2.2.1.3. Barter trade

It is a method of exchange by which goods or services are directly exchanged for

other goods or services without using a medium of exchange, such as money. It is
usually bilateral, but may be multilateral, and usually exists parallel to monetary
systems in most developed countries, though to a very limited extent. Barter usually
replaces money as the method of exchange in times of monetary crisis, such as when
the currency may be either unstable (e.g., hyperinflation or deflationary spiral) or
simply unavailable for conducting commerce.

2.2.1.4. Retail trade

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.

2.2.1.5. Wholesale trade

Wholesaling, jobbing, or distributing is defined as the sale of goods or merchandise to

retailers, to industrial, commercial, institutional, or other professional business users,
or to other wholesalers and related subordinated services. In general, it is the sale of
goods to anyone other than a standard consumer.

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.

2.2.1.6. External trade

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).

2.2.2. Trade and Rwandan development

Rwanda needs to improve trade dramatically if it is to meet its development

objectives. Domestic investment and trade provide a crucial basis for economic
development, helping producers move from subsistence farming to access local and
international markets and providing a core of employment by generating income
within domestic industrial production and services delivery. The vision of the trade
sector is to support the Government's vision for rapid economic growth and poverty
alleviation by creating an environment that is conducive to the rapid growth of
industrial and service sectors for the sustainable improvement of Rwanda's welfare. Its
mission is to facilitate and promote the growth and development of trade so as to
achieve a sustainable socio-economic transformation of Rwanda.
 2.2.2.1. Constraints of the Trade Sector

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).

2.2.2.2. Opportunities of trade sector

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.

The Government's commitment to private sector development makes it an opportunity

for trade development, as there are initiatives of creating conducive environment for
trade. Establishment of the trade point which will provide all trade related
information; this becomes an opportunity as trade information will be easily obtained
in one place. Permanent national trade fair ground creates an opportunity for trade
development as it will give business men a chance of regular expositions which will
help them in sell and advertisements of their products.
Establishment of business development centres (BDC) which will facilitate easy
coordination of business activities in rural areas is one of the major factors of trade.
Government's initiative in cooperatives development creates an opportunity for trade
development for from a strong cooperative movement trade is improved.

2.2.3. Rural areas towards internal trade

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).

2.2.4. Strategies of promoting internal trade

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).

2.2.5. Rural trade and development in Rwanda

2.2.5.1. Poverty in rural areas

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.

2.2.5.2. Financing trade and rural development

Lack of financial intermediation is a major constraint to rural development. In

Rwanda, as in many other developing countries, the role of the finance sector in
channeling resources to small firms and to finance productive opportunities in the
rural sector has been considerably stifled. Financial institutions in developing
countries tend to concentrate on short-term trade and related activities in cities.
Providing financial services to commercial SMEs and particularly in rural areas
remains a considerable challenge. This reflects significant constraints on access
finance: lack of collateral, borrowers' inability to provide financial information of the
standard required by banks, small size of loans requested which increases the unit cost
of lending; and higher transaction costs inherent in administrative and risk-related
costs.
 2.2.6. Barriers that restrict the ability of households to move into
commercial activities

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.

2.2.6.1. Lack of access to credit

Shifting from subsistence agriculture into commercial activities requires financial

resources to purchase new plants or materials. These financial resources are simply
not available to most households in rural areas. Without an increase in the activities of
formal financial institutions in rural areas there will be little success from raising
incentives to commercial activities and in stimulating monetization and the
development of rural markets.

2.2.6.2. Lack of organization of the rural sector

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.

2.2.6.3. Lack of access to energy

Access to modern energy (electricity and petrol) is crucial to export diversification,

non-farm growth and poverty reduction. Attempts to add value to exportable products
are often dependant on the availability and reliability of modern energy supplies.
Access to electricity is a strongly significant determinant of the probability of being
poor. Widespread extension of the electricity grid in rural areas is not feasible in the
timeframe of achieving the objectives of the government's growth strategy. However,
there does appear to be scope for the effective targeting of local micro-hydro based
independent grids. What is required initially is the development of a strategy to
maximize the returns to the available opportunities for bringing modern energy to
rural communities (REPUBLIC OF RWANDA, 2006:12).

CHAPTER THREE: RESEARCH

METHODOLOGY

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. Population, sample, and the sample determination

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

From the information provided by the office of commercial officer of BPR SA

KADUHA Sub-Branch relating to loan application and granting, 1495 customers
received the loan to support their economic activities from January 2006 to December
2010. Among these people who got the loan, 480 are traders or requested the loan to
finance commercial activities. The researcher considered this number of loan granted
for commercial transactions (480 people) as the population of the study.

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.

3.3. Source of data

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.

3.3.1. Primary data

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.

3.3.2. Secondary data

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.

3.4. Data processing

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

Tables with corresponding calculations were used to indicate the frequency of

particular answers. Percentages also were used to express the data in a ratio form. For
making the data easily and clearly understood, each table was followed by small
explanation of the nature of relationship indicated in the table.

3.5. Data analysis

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.

3.6. Hypothesis testing

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.

CHAPTER FOUR: DATA ANALYSIS AND

INTERPRETATION

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.

4.2. Description of the area under the study

4.2.1. The history of the Banque Populaire du Rwanda S.A

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.

Nowadays, Banque Populaire du Rwanda S.A maintains a network of 18 branches,

over 109 sub-branches and 61 outlets in all provinces of the country. It employs 1460
staff number and has a capital of 5,800,000,000 Rwf. BPR Motto is BANKI YACU,
HAFI YACU; English meaning: Our neighborhood bank.

4.2.2. Mission and vision of Rwanda People's Bank

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.

4.2.3. Objectives of Banques Populaires in 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.

2. Promoting savings by giving members economic interest on fixed accounts

according to the time limited and on agreement terms.

3. Creating an environment for expansion of agricultural and art-craft production and

other income and job creating activities particularly in rural areas.

4. Creating an environment for economic and social progress of the population

through training members about project formulation.
5. Creating mutual confidence between the members.

4.2.4. Historical background of BPR SA Kaduha sub-branch

BANQUE POPULAIRE DU RWANDA S.A KADUHA Sub-Branch is located in

KADUHA Sector, NYAMAGABE District, Southern Province. This Sub-Branch
started its activities in 1990. It had to interrupt them in 1994 due to the Tutsi Genocide
that ravaged the country. The bank reopened its doors in January 1996.

KADUHA Sub-Branch started as an association with a limited number of members.

As everyone in the region was appreciating the advantages of this association, the
number of associates increased significantly, hence members requesting the Umbrella
Union of Rwanda People's Bank to recognize their association as a People's Bank
(Banque Populaire). The bank counts 4852 members classified in different categories:
agriculturalists, businessmen, State employees, companies' employees and others.
These customers are from five sectors: KADUHA, MUGANO, MUSANGE,
KIBUMBWE and MUSHUBI.

4.2.5. Objectives of BPR S.A, KADUHA SUB-BRANCH

It has the following objectives;

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.

4.2.6. Vision of the BPR S.A KADUHA Sub- Branch

The Sub-branch of KADUHA aims to be a profitable financial institution,

competitive, durable and autonomous rendering services of quality meeting the socio-
economic needs for the members in particular and the community in general.
 4.2.7. Principal activities of BPR S.A KADUHA Sub-Branch

4.2.7. 1. Activities of Savings

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.

4.2.7.2. Activities of the credit

The operation of granting of credit is a fundamental operation of any bank. This

operation consists of action of credit starting from the collection of funds collected
through deposits of the customers. The bank is given these appropriations; interests
which are added to the refunded principal and of commission. The sub-branch offers
the following types of loan:

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.

4.3. Analysis of data from the respondents

4.3.1. Analysis of information relating to the commercial activities

financed by BPR S.A Kaduha sub-branch

The researcher endeavored to know rural trading activities supported by commercial

banks mainly BPR S.A Kaduha sub-branch and information from the respondents was
summarized in the table below:

Table 4. 1: Commercial activities that the traders got bank loan to finance

Commercial activities Number of respondents Percentage

Trading of agricultural products 17 35.4

Trading of food processed products 7 14.6

Trading of industrial products 13 27.1

Trading of service 11 22.9

Total 48 100.0

Source: Primary data.

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.

4.3.2. Respondents' view on credit services offered by BPR SA

Kaduha sub-branch

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.

4.3.2.1. Amount received as credit

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

Between 100 000 and 500 000 16 33.3

Between 500 000 and 1 000 000 24 50

Over 1 000 000 6 12.5

Total 48 100.0

Source: Primary data.

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

Less than one month 11 22.9

Between one month and two months 29 60.4

Between two months and three months 7 14.6

Over three months 1 2.1

Total 48 100

Source: Primary data.

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.

4.3.2.3. The agreed period of loan repayment and its respect

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

Agreed period of loan repayment Number of respondents Percentage

Less than one year 2 4.2

Between 1 and five year 38 79.2

Over 5 years 8 16.6

Total 48 100.0

Source: Primary data.

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

Period of loan repayment Number of respondents Percentage

Within the agreed period 42 87.5

Beyond the agreed period 6 12.5

Total 48 100.0

Source: Primary data.

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

Factors Number of respondents Percentage

Low interst rate 1 2.4

Profitability of the business 38 90.5

Good management of the loan 3 7.1

Total 42 100.0

Source: Primary data.

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.

4.3.2.4. Respondents' opinion on the extent to which the bank loan

is helpful in financing trade

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

Answers Number of respondents Percentage

Strongly agree 27 56.3

Agree 21 43.7

Disagree 0 0.0

Strongly disagree 0 0.0

Total 48 100.0

Source: Primary data.

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.

4.3.2.5. Respondents' opinion on credit services offered by BPR

S.A Kaduha sub-branch

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

Respondents' appreciation of credit services offered by Number of Percentage

the bank respondents

Very good 9 18.8

Good 34 70.8

Bad 5 10.4

Very bad 0 0.0

Total 48 100.0

Source: Primary data.

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.

4.3.3. The performance of commercial activities supported by

BPR S.A Kaduha sub-branch

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.

4.3.3.1. The impact of loan on the business

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

Reason of increase Number of respondents Percentage

Raising of capital 5 10.4

Availability of new various products 2 4.2

All above 41 85.4

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.

4.3.3.2. The impact of loan on the tax paid to the Government

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

The rate Number of respondents Percentage

Between 25% and 50% 43 89.5

More than 50% 5 10.5

Total 48 100.0

Source: Primary data

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.

4.3.3.3. Respondents' opinions on the novelty of the business in

the area after getting the loan

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

Answers Number of respondents Percentage

Availability of new products 14 29.2

Availability of high quality products 7 14.6

Availability of more existing products 17 35.4

Availability of new services 10 20.8

Total 48 100.0

Source: Primary data.

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.

4.3.3.4. The performance of the business after getting the loan

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

Answers Number of respondents Percentage

Improvement of the business 9 18.8

Expansion of the business 34 70.8

Stagnation of the business 5 10.4

Slowing down of the business 0 0.0

Total 48 100.0

Source: Primary data

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.

4.3.3.5. The impact of the bank loan on the employment

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.

Table 4. 13: Impact on the bank loan on the employment

Impact Number of Percentage

respondents

Recruitment of new employees 13 27.1

Augmentation of wages and salaries for the existing 17 35.4

employees

All above 11 22.9

None above 7 14.6

Total 48 100.0

Source: Primary data

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.

4.3.3.7. Respondents views on the future loan application

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

Amount Number of respondents Percentage

Greater than the previous amount 33 91.7

Equal to the previous amount 3 8.3

Less than the previous amount 0 0.0

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.

CHAPTER FIVE: SUMMARY,

CONCLUSION AND
RECOMMENDATIONS

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.

It was found out that there is performance of trading activities supported by

commercial banks in terms of increasing of capital, sales volume, cash inflow and
stock of products. The government also gets benefits from taxpayers because when
their commercial transactions are financed by the bank loan their taxable capacity
rises; and the government collects higher amount; this was affirmed by all of the
respondents questioned. Also, there are changes in the areas covered by the
commercial activities supported by banks such as availability of new products, high
quality products, more existing products and new services. 89.6% of the respondents
agreed that after getting the loan, there was expansion and improvement of their
business. This means that the bank loan helps them to develop their activities.

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

- As it is government policy to develop the rural areas the government of Rwanda

should put in place a guarantee fund to enable the rural poor who cannot provide
collateral securities. This will enable them to have access to credit since majority of
rural people lack collateral securities in order to be accorded a loan from BPR SA.

5.5. Suggestion for further research

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.

- The contribution of banks in poverty reduction in rural areas

- The contribution of financial institutions in money supply in rural areas.

- The contribution of Rwandan financial institutions in achieving vision 2020.

BIBLIOGRAPHY
BLACK, C., (2006). Dictionary of Economics, London.

BPR, (2008), Annual Report of BPR S.A, Kigali.

BPR, (2008), Manual and procedures of BPR, Kigali.

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.

GOVERNMENT OF RWANDA, (2002), Poverty reduction strategy paper, National

Poverty Reduction programme, Kigali.

KENNETH D. BAILEY (1980), Methods of social research, 2end ed., a revision of Mc

Milliam publishing Inc, New York.

KOLARI,. (1993). Financial institutions: understanding and managing financial

services. 4th edition, Cornell University, New York.

MINECOFIN, (2007). Economic Development and Poverty Reduction Strategy 2008

- 2012. Kigali

MINICOM., (2006). Trade policy and strategies, Kigali.

MUTSINZI C, (2010). Research methods for economic sciences. Course notes,

Butare.

NATHAN, K., (2010). Geography of Rwanda, Kigali, Fountain.

PETER. S. ROSE. (1993). Financial institutions. Cornell University. New York.

REED W. EDUARD (1989). Commercial Banking. 4th edition. Englewood cliffs, New
Jersey.

REPUBLIC OF RWANDA (2005), Diagnostic Trade Integration Study. Kigali

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.

TAYEBWA, B., (2007). Basic Economics, 4th Edition, Makerere University.

U.B.P.R (2003), Statute of the Union des Banques Populaires in Rwanda, Kigali.

UNITED NATIONS (2010). Rwanda's development-driven trade policy framework.

New York and Geneva.

WORLD BANK (1994), Annual report, the World Bank Washington D.C USA.

World Bank, (1998); Rwanda poverty update, Kigali.

Electronic sources

www.wikipedia.org.

APPENDICES
Appendix I: an introduction letter to the respondents

Dear Sir/Madam

I am a finalist student at the National University of Rwanda in the Faculty of

Economics and Management Department of Economics. I am carrying out the
research project entitled: An assessment of the role commercial banks in
promoting trade in rural areas. A case study of BPR SA Kaduha sub-branch.

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.

Thank you for sincerity and cooperation

Silas HABARUREMA

IBARUWA YO GUSUBIZA IBIBAZO

Bwana/Madamu,

Ndi umunyeshuri mu mwaka wa nyuma mu ishami ry'Ubukungu muri Kaminuza

Nkuru y'u Rwanda. Ndakora ubushakashatsi bujyanye no kureba akamaro ka banki
z'ubucuruzi mu guteza imbere ubucuruzi mu cyaro hifashishijwe Banki
y'Abaturage y'u Rwanda, Agashami ka Kaduha.

Murasabwa rero gutanga amakuru ya ngombwa musubiza ibibazo byabajijwe.

Murasabwa kandi gutanga ibisubizo by'ukuri, kandi mbijeje ko ibisubizo byanyu

bizakoreshwa gusa mu kwandika igitabo.

Tubaye tubashimiye ubufatanye bwanyu.

Silas HABARUREMA

QUESTIONNAIRE ADDRESSED TO THE TRADERS WHO RECEIVED

LOAN FROM BPR S.A KADUHA SUB-BRANCH /Ibibazo bigenewe abacuruzi
babonye inguzanyo muri Banki y'Abaturage Agashami ka Kaduha

I. Identification/Umwirondoro

Sector/Umurenge:..........................

District/Akarere:........................

Province/Intara:......................

II. Questions related to the credit received from the bank

Ibibazo byerekeye ku nguzanyo yatswe muri banki

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.

a. Trading of agricultural product

Ubucuruzi bw' ibikomoka ku buhinzi n'ubworozi

b. Trading of food processed products

Ubucuruzi bw' ibiribwa byatunganyirijwe mu nganda

c. Trading of industrial products

Ubucuruzi bw'ibikoresho bikomoka mu nganda

d. Trading of service

Ubucuruzi bwa serivisi

e. Other trading (give it)

Ubundi bucuruzi (Buvuge):....................................

2. How much credit did you obtain from the BPR S.A KADUHA Sub-Branch?

Wabonye inguzanyo ingana n'amafaranga angahe muri Banki y'Abaturage y'u

Rwanda Agashami ka Kaduha?

a. Less than 100 000 Rwf

Mu nsi y'amafaranga 100 000

b. Between 100 000 and 500 000 Rwf/

Hagati y'amafaranga 100 000 na 500 000

c. Between 500 000 Rwf and 1 000 000 Rwf

Hagati y'amafaranga 500 000 na 1 000 000

d. Over 1 000 000 Rwf

Hejuru y'amafaranga 1 000 000

3. When you requested the credit, how long did it take you to obtain?

Wabonye inguzanyo hashize igihe kingana iki uyatse?

a. Less than one month

Munsi y'ukwezi kumwe

b. Between 1 and 2 months

Hagati y'ukwezi kumwe n'amezi abiri

c. Between 2 and 3 months

Hagati y'amezi abiri n'amezi atatu

d. Over 3 months

Hejuru y'amezi atatu

4. What was the agreed period of loan repayment?

Wemeye kuzishyura inguzanyo mu gihe kingana iki?

a. Less than one year

Munsi y'umwaka umwe

b. Between 1 and five year

Hagati y'umwaka umwe n'imyaka itanu

c. Over 5 years

Hejuru y'imyaka itanu

5. How long did it take you to repay the loan?

Wishyuye inguzanyo mu gihe kingana iki?

a. Within the agreed period

Mu gihe nari nemeye

b. Beyond the agreed period

Mu gihe kirenze icyo nari nemeye

6. If you repaid the loan within the agreed period, what were the factors helped you
succeed?

Niba warishyuye inguzanyo mu gihe wari wiyemereye ni iki cyagufashije kubigeraho?

a. Low interst rate

Inyungu ziri hasi

b. Profitability of the business

Ubucuruzi bwunguka

c. Good management of the loan

Inguzanyo yacunzwe neza

d. Other (give it).................................................................

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

- If yes, what are the reasons of this increase?

Niba ari yego, ni iki cyatumye byiyongera?

a. Raising of capital

Igishoro cyariyongereye

b. Availability of new various products

Kuboneka kw'ibicuruzwa bishya binyuranye

c. All above
Ibyo byose bivuzwe hejuru

d. Other (give it) ikindi (kivuge)

.......................................................................................

..........................................................................................

.........................................................................................

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

- If yes at which rate?

Niba ari yego, ku kihe kigero?

a. Between 25% and 50%

Hagati ya 25% na 50%

b. More than 50%

Hejuru ya 50%

9. What was the performance of your business after getting the loan?

Ni iki cyiza cyabaye ku bucuruzi bwawe nyuma yo kubona inguzanyo?

a. Availability of new products

Naranguye ibicuruzwa bishya

b. Availability of high quality product

Naranguye ibicuruzwa byiza cyane

c. Availability of more products

Naranguye ibicuruzwa byinshi

d. Availability of new services

Natanze serivisi nshya

e. Other (give it)/ ibindi (bivuge)..................................... .............................

10. What was the impact of the bank loan on the employment in your enterprise?

Ni izihe ngaruka inguzanyo watse yagize ku bakozi ukoresha?

a. Recruitment of new employees

Nongereye abakozi

b. Augmentation of the wages and salaries of existing employees

Nongereye imishahara y'abakozi nari nsanzwe nkoresha

c. All above

Nakoze ibyo byose

d. None above

Nta nakimwe nakoze muri ibyo

11. Did your cash inflow increase when you got the loan? Yes No

Ese amafaranga winjizaga yariyongereye umaze kubona inguzanyo? Yego Oya

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?

Umaze kubona inguzanyo ubucuruzi bwawe bwagenze gute?

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

Ese nyuma yo kwishyura urumva wakwaka indi nguzanyo? Yego Oya

- If yes of which amount?

Niba ari yego wakwaka inguzanyo ingana iki?

a. Greater than the previous amount

Iruta iyo natse mbere

b. Equal to the previous amount

Ingana n'iyo natse mbere

c. Less than the previous amount.

Ntoya kuyo natse mbere

15. Is the bank loan helpful in financing your trading activities?

Ese inguzanyo ya banki yaba ifasha guteza imbere ubucuruzi?

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

First Published: Sun, Mar 17 2013. 11 21 PM IST

A file photo of a rural branch of a bank in Uttar Pradesh. RBI is insisting

that at least one-fourth of the branches of the new banks that will be
given a licence must be located in rural India. Photo: Mint

Updated: Mon, Mar 18 2013. 01 10 AM IST

Mumbai: Most private banks in India have not been able to meet the
needs of farmers although they are expanding their rural and semi-urban
branch network. This is why the Reserve Bank of India (RBI) is insisting
that at least one-fourth of the branches of the new banks that will be
given a licence must be located in rural India.

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.

Innovative financial inclusion plans of banking licence aspirants will be an

important criterion to decide on granting new bank licences, RBI
governor D. Subbarao said on 4 March at a conference in Delhi. Experts are
sceptical on how RBI could promote financial inclusion through new
banks, after failing to do so through the existing infrastructure of large
private banks in the last two decades. The new banks should be asked to
operate mostly in these districts, where the banking services are not
available yet adequately, instead of focusing on the already crowded
urban markets, Thingalaya said.

No priority for priority sector

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.

This has negated the benefit of compulsory priority sector lending

reaching the intended borrowers, experts said.

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.