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To help youth become successful agri-entrepreneurs (and evolving them from land renters to landowners in the long run!), ICCO’s STARS program works with microfinance institutions in the Northern Province in Rwanda to develop loan products that are tailor-made to youth and their financial situation. How? STARS introduced A-CAT, a loan assessment tool, helping loan officers to better understand the seasonal needs of farmers as well as to better assess the risk of the loan.
With more than 60% of young people in Rwanda working in agriculture and its sub-sectors as their main job, agriculture has the potential to create jobs and income for this large group. This is why the Rwanda government in its Vision 2020, has prioritized agriculture as ‘one of the key economic sectors in the country’s transition into a middle-income country and has emphasized the importance of value addition, commercialization, and resilience to climate change.’
And the Rwandan youth seems on board. Research done by FAO in 2019 showed that youth indeed see agriculture as a career, with most youth working frequently as independent farmers rather than as wage farmers.
However, small plot size and limited land availability act as constraints on productivity and profitability for most of these young farmers. “We are enthusiastic about farming but challenges like having no access to land whereby most of us were farming on our parents small given land and when we approach financial institutions for loan to be able to rent a reliable plot and buy appropriate inputs, they request collateral which we do not have and we end up doing our subsistence agriculture,” Justine Asiimwe, a youth farmer in Musanze youth group explains.
In its 2019 report, FAO mentions other constraints related to issues of low value chain development, market connectivity and low farmer professionalization, as well as challenges in accessing credit due to risk perception. According to the FINSCOPE Rwanda 2020 survey report (in this link), youth are the most financially excluded at 18%, significantly higher compared to the national average of 7% exclusion. This is mainly because youth lack collateral, lack of experience in the work they do, especially agriculture, with no credit history and their mobility whereby they keep moving from city to city and it looks unsafe and risky for financial institutions to finance them. So youth rely the informal saving groups as their source of finance to invest in their small businesses and agricultural activities.
The results? A stunningly high youth unemployment rate; 18,7 percent, while around 60 percent of youth in the labour market are underemployed. (UN DESA, 2019).
To help youth become successful agri-entrepreneurs (and evolving them from land renters to landowners in the long run!), ICCO Cooperation’s STARS program works with microfinance institutions in the Northern Province in Rwanda to develop loan products that are tailor-made to youth and their financial situation. How? STARS introduced A-CAT, a loan assessment tool, helping loan officers to better understand the seasonal needs of farmers as well as to better assess the risk of the loan.
STARS, in partnership with farmers association Imbaraga in Northern province and Duterimbere IMF, selected 60 youth (4 groups, 33 women) growers of irish potatoes and horticulture.
Al 60 young farmers opened their accounts in Duterimbere and submitted a loan application for their agricultural activities. The MFI processed their application using A-CAT and decided to serve them, also because producer organization Imbaraga was ready to guarantee 10% of the total requested loan size on behalf of the young loan applicant.
To make sure these young clients were able to do their agricultural activities successfully, STARS trained them on Best Agricultural Practices through their cooperative. The STARS team also made sure that they were trained through the MFI in properly calculating the costs and benefits of their production as well as loan management. And most importantly, the youth was required to also commit to savings, which helped them to become more resilient financially. The aim is that savings will replace the need for collateral in the long term.
“Developing a loan product in combination with a saving product is the wisest decision that any MFI should take,” Rita Ngarambe, the AMIR (Association of Microfinance Institutions in Rwanda) product development consultant explain.
“We never did savings before, but STARS encouraged us to think about it. Our group started saving 1 or 2 USD per person per month. As of August, we will start saving 8 USD per person per month. Savings can not only assist us in agricultural activities but also in the social activities like supporting each other during sickness, weddings etc. Moreover we keep aside 0.2$ per person per month for any emergency,” said Adeline UMUKUNZI, the president of Musanze youth group.
“There is a great business opportunity with youth in agriculture since they are eager to increase their farming activities and we do not want to miss the chance of having them as our clients too. Being sure that they are well trained by STARS and that they are grouped per location whereby they guarantee each other; and having Imbaraga association to follow them regularly, makes us ready and interested to serve them,” Damien RUTEGERANYA, Duterimbere IMF, Musanze Branch Manager said.
“I used to farm but unprofessionally, I did not know how much inputs to put on one acre, I used to estimate. I applied the skills taught to us in the training and got the right quantity of the right seeds, planted them and followed up my field as instructed. On the same land size, I used to get 700-800kg now I get 1450kg. As I had planted on time, the harvest came on time and sold it for a better price. My income increased,” Jean Damascene ABIYINGOMA, youth farmer in Burera youth group
During 2020, STARS will continue to work with Duterimbere MFI to refine its youth loan product, making sure that loans are being disbursed in time and that the repayment time really suits the financial capabilities of the youth. STARS also hopes that these youth group loans will become available for individual young clients too. By introducing savings behaviours, this could happen sooner rather than later. By making sure that youth build financial track records within their savings groups, they will become more bankable and ready for their loan, boosting their agricultural activities.