Executive summary:
Progress in financial inclusion and shift toward non-bank providers
Financial inclusion has significantly improved among farmers, with only 4% of farmers being financially excluded in 2024. There has been significant progress in terms of use of formal financial services with more farmers turning to formal financial services for both saving and borrowing. The 2024 results show a decrease in the use informal financial services across both saving and credit. The findings demonstrate that Rwandan farmers are increasingly turning to non-banking financial institutions (NBFI) across all product markets for their financial needs. This signifies the huge potential of this sector in supporting agricultural transformation by closing the gap between farmers and access to formal financial services. However, the potential of this sector is largely undermined by exorbitant interest rates charged by non-banks when they extend services to farmers. This is supported by a large segment of farmers who do not borrow because they fear they cannot pay back their loans. While non-banks play a key role in extending access, more work must be done to ensure that their products do not drive farmers into indebtedness.
Persistent financing gap for farming activities
There is a clear gap in agricultural financing instruments with close to a third of farmers indicating that they don’t have money for their farming activities. The findings showed that farmers are not saving enough for farming activities, and less than 15% of farmers accessed credit for farming activities. The 2024 findings also showed that the proportion of farmers who are not borrowing increased from 24% to 36% suggesting a constrained credit market.
High exposure to climate risks and limited risk protection
The findings also show high levels of vulnerability to shocks among farmers. Nationally close to three quarters of farmers experienced shocks while the prevalence of shocks is more than 90% in four districts in Rwanda (Nyamagabe, Ruhango, Nyanza and Rutsiro). Despite these high levels of incidence, only 1% of farmers in Rwanda have agricultural insurance. The majority of the farmers who experience a shock did not do anything to deal with the shock while may turn to credit, selling assets or cutting back on expenses. Affected farmers are likely to default on loans as a result, discouraging financial institutions from extending credit. There is need to support broader agricultural insurance market development to ensure the risk protection gap does not fuel financial exclusion among farmers.
Supply-side product mismatch and barriers to accessing bank services
The supply-side findings showed that most banks in Rwanda have specialised products for the agricultural sector including individuals and agribusinesses. However, the farmer profiles in Rwanda suggest that they will still be unable to access such services despite the availability of financial services. Eligibility requirements at commercial banks require fully literate farmers, which contrasts to farming segments in Rwanda. The products available in the market are tailored for commercial farmers while close to 80% of Rwandan farmers are subsistence farmers. To address this mismatch, there is a need to implement agricultural transformation policies to shift farmers to commercial farming.
