DEVELOPMENTAL LOANS AND DEVELOPMENT OF RURAL

AGRICULTURAL SECTOR, A CASE STUDY OF DEVELOPMENT

BANK OF RWANDA (BRD)

KARANGWA FRANCIS

MBA/3404/12

A Research Project Submitted in Partial Fulfillment for the Award of a

Degree in Master of Business Administration (Finance and Accounting

Option) of Mount Kenya University

JUNE 2015

ii

DECLARATION

This research project is my original work and has not been presented to any other

Institution. No part of this research is reproduced without the authors’ consent or that of

Mount Kenya University.

Students Name: KARANGWA FRANCIS

Sign ____________________ Date: _____________

Declaration by the supervisor (s)

This research project has been submitted with our approval as the Mt. Kenya University

Supervisor(s).

Name: Dr. TOM MULEGI

Sign ____________________ Date _____________

Name: PURITY THUO

Sign ____________________ Date _____________

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DEDICATION

To my wife SANYU N. Florence, Father Mr. BWIRUKA John, family members for your

tireless support and advise that acted as a foundation to start the first step of this journey.

I also take this opportunity to express my sincere heartfelt thanks to the following

families of Prof Dr BUTERA M. Alex, Mr. ZIMULINDA Celestin and Mr. Emmanuel

Bull for your appreciated and recognised support, prayers and guidance towards

achieving this intended goal and beyond.

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ACKNOWLEDGEMENT

This research project is built from the work, advices, prayers and passion that so many

people shared with the researcher so generously. This list is so long that one could not

possibly capture every name, but the following deserves a special vote of thanks.

First of all, my deep gratitude goes to the heavenly father, the creator of heaven and earth

for the gift of life and the protection.

I also express my sincere thanks to my supervisor lecturer Mrs. Purity Thuo for the

guidance and the effort you rendered to make this work successful.

I feel much indebted to my entire family members for your moral, financial support;

encouragements and prayers you really did a great job. Your prayers gave me courage

and helped me stay faithful in all my endeavors

My profound appreciation goes to the entire academic staff and lecturers of MKU for

your regular intellectual guidance.

Finally heartfelt appreciation goes to my colleagues at MKU for intellectual

encouragement and learning experience we shared along the entire course.

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ABSTRACT

This research project is for the topic “Developmental loans and development of rural

agricultural sector, a case study of BRD”. The purpose of this study was to find the

impact of developmental loan and the development of rural agricultural sector. The

objectives of this study were: to examine what BRD considers while extending

developmental loan to rural agricultural sector, to identify types of developmental loans

issued by BRD to rural agricultural sector and to determine the relationship between

developmental loans and rural agricultural sector development. The research may add

fresh knowledge on the existing literature in the field of developmental loan, development

of rural agricultural sector and this research can stimulate other researchers to conduct

researches in the same field or related fields. This research is to be put in the library of

Mount Kenya University for reference purposes. The literature review on developmental

loan and development of rural agricultural sector and other related field undertaken

helped the researcher to explicitly understand the independent and dependent variables

and finally create a link between these variables. As a methodology, the research design

was an analytical whereby it was conducted by use of both qualitative and quantitative

approaches to attain the quality and quantity aspects of the research topic. The qualitative

aspects targeted included the feelings, attitude, and perception and understanding of

developmental loans, this was attained by use of the interview guide. The quantitative

aspect was the amount of developmental loan issued annually, number of people who get

agricultural developmental loans annually and average duration for its repayment. This

was got by use of the questionnaire. The target population in this research was 285

farmers and 5 employees who work in the credit unit of BRD. A sample of 102 was

selected out of 290 respondents by use Solvins formula. Respondents in the sample was

selected by the use of stratified sampling technique as the five strata was represented

basing on their number in the population. This research was a case study research since a

case study excels at bringing an understanding of a complex issue to extend experience or

add strength to knowledge which is already known to the research topic and to emphasize

detailed contextual analysis. Data was collected from both primary and secondary

sources. Questionnaire and interview guide was used as the major data collection

instruments complementing each other for more reliability of the research findings. Data

collected was presented and analyzed by use of statistical tables. The relationship

between developmental loan and development of rural agricultural sector was derived at

by the use Pearson correlation. The major findings were, BRD considers a feasibility

study of the project, proven technical capacity in the field of the project for which finance

is sought, managerial capacity of the project, sufficient market share to ensure good

turnover and project profitability in extending developmental loans, beekeeping, piggery,

cropping, green house, poultry and dairy farming are the main developmental rural

agricultural loan extended to clients by BRD and the performance of the business

increases in terms of quality, developmental loan helped in financing agricultural

activities, the standards of living increased following an attainment and using of a

developmental loan and the respondents are appreciating developmental loan services

offered by BRD. The recommendations among others are BRD should use ratio analysis

as a supplemental check for evaluating risks, borrowers should be given all the clauses in

relation to loan attainment and developmental banks should provide technical assistance

to rural agricultural sector to put them in position of using developmental loan as it is in

urban.

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TABLE OF CONTENTS

DECLARATION ................................................................................................................. ii

DEDICATION ................................................................................................................... iii

ACKNOWLEDGEMENT .................................................................................................. iv

ABSTRACT ......................................................................................................................... v

TABLE OF CONTENTS .................................................................................................... vi

LIST OF TABLES ............................................................................................................... x

LIST OF FIGURES ............................................................................................................ xi

LIST OF ACRONMYS AND ABBREVIATIONS .......................................................... xii

DEFINITION OF KEY TERMS ..................................................................................... xiii

CHAPTER ONE: INTRODUCTION .................................................................................. 1

1.0 Introduction .................................................................................................................... 1

1.1 Background of the study ................................................................................................ 1

1.2 Statement of the problem ............................................................................................... 3

1.3 Objectives of study ........................................................................................................ 3

1.3.1 Specific objectives ...................................................................................................... 4

1.4 Research questions ......................................................................................................... 4

1.5 Significance of the study ................................................................................................ 4

1.6 Limitations of the study ................................................................................................. 5

1.7 Scope of the study .......................................................................................................... 5

1.8 Organization of the study ............................................................................................... 6

CHAPTER TWO: REVIEW OF RELATED LITERATURE ............................................. 7

2.0 Introduction .................................................................................................................... 7

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2.1 Theoretical literature ...................................................................................................... 7

2.1.1 Baking in global perspective ....................................................................................... 7

2.1.2 Banking in Africa ........................................................................................................ 7

2.1.3 Banking in Rwanda ..................................................................................................... 9

2.1.4 Types of Bank Loans ................................................................................................ 11

2.1.4.1 Personal Bank Loans.............................................................................................. 12

2.1.4.2 Auto Loans ............................................................................................................. 13

2.1.4.3 Mortgage Loans ..................................................................................................... 13

2.1.4.4 Investment Bank Loan ........................................................................................... 13

2.2 Empirical literature ...................................................................................................... 13

2.2.1 Relationship between bank loan and rural agricultural sector .................................. 17

2.2.2 The relationship between bank loan and development ............................................. 20

2.3 Critical review and research gap identification. .......................................................... 21

2.4 Theoretical frame work ................................................................................................ 22

2.4.1Theories of loan based on credit creation .................................................................. 22

2.4.1.1 Chartalism theory ................................................................................................... 22

2.4.1.2 Circuitist money theory.......................................................................................... 23

2.4.1.3 Credit theory of money .......................................................................................... 24

2.4.2 Theories of Agricultural Origins ............................................................................... 25

2.4.2.1 Oasis theory ........................................................................................................... 25

2.4.2.2 The evolutionary and intentionality theory ............................................................ 26

2.4.2.3 The quality theory .................................................................................................. 26

2.5 Conceptual frame work ................................................................................................ 29

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2.6 Summary ...................................................................................................................... 30

CHAPTER THREE: RESEARCH METHODOLOGY .................................................... 31

3.0 Introduction .................................................................................................................. 31

3.1 Research design ........................................................................................................... 31

3.2 Target population ......................................................................................................... 31

3.3 Sample Design. ............................................................................................................ 32

3.3.1 Sample Size ............................................................................................................... 32

3.3.2 Sampling Techniques ................................................................................................ 32

3.4 Data Collection Methods ............................................................................................. 33

3.4.1 Data Collection Instruments ..................................................................................... 33

3.4.1.1 Questionnaire ......................................................................................................... 34

3.4.1.2 Interview guide ...................................................................................................... 34

3.4.2 Administration of Data Collection Instruments ........................................................ 34

3.4.3 Reliability and Validity ............................................................................................. 34

3.5 Data Analysis Procedure .............................................................................................. 35

3.5.1 Editing ....................................................................................................................... 35

3.5.2 Coding ....................................................................................................................... 36

3.5.3 Tabulation ................................................................................................................. 36

3.6 Ethical consideration .................................................................................................... 36

CHAPTER FOUR: RESEARCH FINDINGS AND DISCUSSION ................................. 37

4.0 Introduction .................................................................................................................. 37

4.1 Demographic characteristics of the respondents.......................................................... 37

4.2 Presentation of the findings ......................................................................................... 40

ix

4.2.1 BRD considers a number of factors to extend development loan ............................. 41

4.2.2 Types of developmental loans issued to rural agricultural sector by BRD. .............. 49

4.2.3 Relationship between developmental loan and development of rural agricultural

sector. ........................................................................................................................ 49

CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATION. ........... 51

5.0 Introduction .................................................................................................................. 51

5.1 Summary of findings.................................................................................................... 51

5.1.1 Factors considered by BRD while extending a developmental loan ........................ 51

5.1.2 Types of developmental loan issued by BRD to rural agricultural sector ................ 52

5.1.3 Relationship between developmental loans and rural agricultural sector

development. ............................................................................................................. 52

5.2 Conclusions .................................................................................................................. 53

5.3 Recommendations ........................................................................................................ 54

5.4 Suggestions for further study ....................................................................................... 55

REFERENCES .................................................................................................................. 56

APPENDICES ................................................................................................................... 59

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LIST OF TABLES

Table 2.1. Foreign banks as a percentage of total banks by region. .................................... 8

Table 3. 1: Different lines of agricultural investments ...................................................... 33

Table 4. 1. Gender of the respondents ............................................................................... 37

Table 4. 2. Age of the respondents .................................................................................... 38

Table 4. 3. Education level of the respondents .................................................................. 39

Table 4. 4. Duration of being a client to BRD ................................................................... 40

Table 4. 5. Response about attainment of developmental loan .......................................... 41

Table 4. 6.Amount of money requested as a developmental loan ..................................... 41

Table 4. 7 Duration of receiving the developmental loan from the time of application .... 42

Table 4. 8. Agreed loan repayment period ......................................................................... 42

Table 4. 9. Factors that favored loan repayment ................................................................ 43

Table 4. 10. Performance of the business .......................................................................... 44

Table 4. 11. Cash flow of the project ................................................................................. 44

Table 4. 12. Agricultural changes after getting a developmental loan .............................. 45

Table 4. 13. Response on request for another loan ............................................................ 45

Table 4. 14. The amount of requesting another loan ......................................................... 46

Table 4. 15. Developmental loan helped in financing agricultural activities .................... 46

Table 4. 16.Improvements of standards of living .............................................................. 47

Table 4. 17. Appreciation of developmental loan services offered by BRD ..................... 47

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LIST OF FIGURES

Figure 2.1. Conceptual frame work ................................................................................... 29

xii

LIST OF ACRONMYS AND ABBREVIATIONS

BNR : Banque Nationale du Rwanda

BRD : Banque Rwandaise de Development

EDPRS : Economic Development and Poverty Reduction Strategy

FSDP : Financial Sector Development Program

GDP : Gross Domestic Product

IMF : International Monetary Fund

KCB : Kenya Commercial Bank

LDCS : Low Developing Countries

MBA : Master of Business Administration

MIFOTRA : Ministry of Public Service and Labour

MINAGRI : Ministry of Agriculture

MINALOC : Ministry of Local Government

NAPPYE : National Action Plan for Promoting Youth Employment

REM : Rational Economic Man

SPAT : Strategic Plan for Agriculture Transformation

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DEFINITION OF KEY TERMS

A bank is a financial institution which accepts deposits and makes money in form of

receiving and lending money.

A loan is a sum of money that is given by one party to another for a limited amount of

time. It is to be repaid according to terms of the loan agreement which includes any

interest to be charged and a time frame for repayment.

A bank loan is the loan given by bank to the various people depending on the category of

the loan that is secured and unsecured. The bank loan is attached to various conditions

which range from one bank to another.

Development is the going from one levels to another more especially the preferred one.

Agricultural sector is the farming and keeping of animals.

Rural sectors are those places in the country side where the major activity of people is

farming and keeping of animals with less developed infrastructures.

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CHAPTER ONE: INTRODUCTION

1.0 Introduction

This chapter focused on the general background of the study that is history of bank loans,

the impact they have on rural agricultural sector in the world narrowing to Rwanda,

problem statement, objectives of the study, significance of the study, scope of the study

and finally the limitations of the study.

1.1 Background of the study

Banks have been around since the first currencies were issued, perhaps even before that,

in some form or another. Currency, particularly the use of coins, grew out of taxation. In

the early days of ancient empires, a healthy tax per year might be reasonable, but as

empires expanded, this type of payment became less desirable. Additionally, empires

began to need a way to pay for foreign goods and services, with something that could be

exchanged more easily, Coins of varying sizes and metals, (Berger, 2010)

The first modern bank originated from Romans whereby the Romans great builders and

administrators in their own right, took banking out of the temples and formalized it within

distinct buildings. During this time money lenders still profited, as loans sharks do today,

but most legitimate commerce, and almost all governmental spending, involved the use of

an institutional bank. Julius Caesar, in one of the edicts changing Roman law after his

takeover, gives the first example of allowing bankers to confiscate land in lieu of loan

payments. This was a monumental shift of power in the relationship of creditor and

debtors as landed noblemen were untouchable through most of history, passing debts off

to descendants until either the creditor's or debtor's lineage died out. The Roman Empire

eventually collapsed, but some of its banking institutions lived on in the form of the papal

bankers that emerged in the Holy Roman Empire and with the military servants of the

2

temple during the Crusades. Small-time money lenders that competed with the church

were often denounced for usury, (Berger, 2010)

England was one of the countries where banks first developed. The Bank of England was

founded in 1694 to act as the Government's banker and debt-manager. Since then its role

has developed and evolved, centered on the management of the nation's currency and its

position at the centre of the UK's financial system. The history of the Bank is naturally

one of interest, but also of continuing relevance to the Bank today. Events and

circumstances over the past three hundred or so many years have shaped and influenced

the role and responsibilities of the Bank, (Richard, 2005)

In Africa the first banks in many African countries were central banks and eventually the

commerce banks emerged later after when the central bank were established and

customized in a number of African countries. The central banks of different countries

acted as government tools in implementing macroeconomic policies. Due to the

development and civilization in Africa which was brought by the whites, commercial

banks started out from a number of African counties. (Karlan, 2009)

Rwanda like any other African country, the banking industry started many years ago. The

first bank in Rwanda was the central bank known as BNR (Banque Nationale du Rwanda

/ National bank of Rwanda). Presently the central bank is still in existence in Rwanda plus

many other commercial banks both local and foreign.

Rwanda's economy is mainly based on agriculture. Over 80% of Rwanda's population live

in rural areas and a large part of the farmers have an average size of their land less than 1

hectare per household. The agricultural sector has contributed on average to about 42% of

the GDP in 2008 and has enjoyed an average growth rate of 11.2% in 2008. The

agricultural sector plays a crucial role with regard to exports because it generates 70% of

3

export earnings (coffee, tea, pyrethrum is the most important) in 2008. The trade balance

of Rwanda was characterized by a large deficit amounted to 3.5% of GDP in 2009. The

government is pushing the diversification of exports, by promoting products such as

flowers, fruits and handicrafts such as basketry (Richard, 2011).

1.2 Statement of the problem

The rural incomes come mainly from the sale of food crops, livestock and cash crops.

Unfortunately, it is clear that these last two decades, agricultural production remained

insufficient to meet the needs of the growing population and inducing food insecurity

hence increasing poverty levels especially in rural areas where it is hard to find non-

agricultural work. (Richard, 2011)

Financial institutions, banks inclusive have been credited of providing loans to various

people in Rwanda more especially those in cooperatives. Rwanda’s banking sector has

substantially increased its short and medium term lending to small scale farmers since

2004. However, banks placed most or if not all of the loans under guarantee facilities.

This in turn just favor one part that posses the guarantee leaving a side those without it,

(Alison, 2001)

Considering this, the researcher found it necessary to conduct a research on

developmental bank loan and the development of agricultural Sector using BRD as a case

study.

1.3 Objectives of study

The General objective of the study is to find the impact of developmental loan to the

development of rural agricultural sector.

4

1.3.1 Specific objectives

i. To examine what BRD considers while extending developmental loan to rural

agricultural sector.

ii. To identify types of developmental loans issued by BRD to rural agricultural

sector.

iii. To determine the relationship between developmental loans and rural

agricultural sector development.

1.4 Research questions

i. What does BRD considers while extending developmental loans to rural

agricultural sector?

ii. What are the types of developmental loans issued by BRD to rural agricultural

sector?

iii. Does the increase of developmental loans on rural agricultural sector improve the

output of farmers?

1.5 Significance of the study

To the general public, this research is of significant to the general public as it extends

the knowledge base that currently exists in the field. The findings from this research

together with the existing literature on loans may be based on to make informed judgment

in regard to giving loans and receiving loans.

To the researcher, the research is of significant to the researcher as it is one of the

requirements for the award of a Master’s degree in Business Administration (MBA). The

research widened the researcher’s understanding on the research topic.

5

To Academia, the research put in the academic library of the University and be used as

reference for other students, it can as well stimulate other researchers to conduct a

research in the same field or related fields.

1.6 Limitations of the study

Few researches do exist in Rwanda in the field of loans in relation to rural agricultural

sector making it difficult to get comparison. Some respondents had deliberately refused to

answer the questionnaire and failure to meet the appointments for the interview as the

researcher used both the questionnaire and interview guide as the main collection tools.

These identified drawbacks were mitigated through re-ensuring the respondents that the

information needed was purely academics and their personal address was not important

apart from the information which they provided. Timetable was made in advance

capturing all the projected failures in abiding with the appointments. Quiet often, the

researcher referred to other countries where there are variety of researches in the field of

loan and rural agricultural sector.

1.7 Scope of the study

Content, the study focused on agriculture and livestock farming under the rural

agricultural sector, how the loans are acquired and the conditions attached too.

Geographical scope, the study was carried out using the BRD Kigali city clients under

the rural agricultural sector.

Time bound, the study focused on a period of five years that is from 2009 up 2013 that is

both primary and secondary data collected was limited to this time period.

6

1.8 Organization of the study

Chapter one introduction is composed of overview of the chapter content, background of

the study, problem statement, objectives the study (General and specific objectives),

research questions, significance of the study, limitations of the study and scope of the

study.

Chapter two is composed of overview of the chapter content, theoretical literature

(concepts of the study), empirical literature (review of the past studies from global

perspective narrowing down to Rwanda), critical review and research gap identification,

theoretical framework (theories relevant to research topic), conceptual framework

(explaining the relationship between dependent and independent variables) and summary

highlighting issues raised, facts and reviewed issues that have been raised.

Chapter three research methodology which is composed of overview of chapter content,

research design, target population, sample design, sample size, sampling technique, data

collection methods, administration of data collection instrument, reliability and validity,

data analysis procedure and ethical consideration.

Chapter four research findings and discussion, is composed of demographic

characteristics of the respondents, presentation of the findings in line with the research

objectives.

Chapter five summary conclusion and recommendation, is composed of chapter

overview, summary of the findings in line with the research objectives, conclusion,

recommendation and finally suggestions for further research.

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CHAPTER TWO: REVIEW OF RELATED LITERATURE

2.0 Introduction

This chapter review the existing literature about bank loan and rural agricultural sector,

the review compose of the definition of the concepts and theories, review of the past

studies, and the critical review for research gap identifications.

2.1 Theoretical literature

2.1.1 Baking in global perspective

Globally banks have existed since the first issuance of currencies. Banks started during

the era of empires as a result of the need to pay for foreign goods and services. The

modern banks are notably are notably to have originated from Romans great builders and

administrators. (Berger, 2010)

Eventually, the various monarchs that reigned over Europe noted the strengths of banking

institutions. As banks existed by the grace, and occasionally explicit charters and

contracts, of the ruling sovereign, the royal powers began to take loans to make up for

hard times at the royal treasury, often on the king's terms. This easy finance led kings into

unnecessary extravagances, costly wars and an arms race with neighboring kingdoms that

led to crushing debt. In 1557, Phillip II of Spain managed to burden his kingdom with so

much debt, as the result of several pointless wars, that he caused the world's first national

bankruptcy, as well as the second, third and fourth, in rapid succession. (Karlan, 2009)

2.1.2 Banking in Africa

The banking system in Africa consists of the Central Banks and deposit taking

institutions. The Central Banks are technically independent of government control, but in

practice they work closely with the Ministries of Finance of their States and help

8

formulate and implement macroeconomic policies of the various governments. The

deposit taking institutions are made up of local banks and branches or subsidiaries of

foreign banks. Foreign banks have played an important role in banking development in

Africa; their share of total African banking has increased significantly.

Table 2.1. Foreign banks as a percentage of total banks by region.

1998 1999 2000 2001 2002 2003 2004 2005 2006

Eastern

Africa

40 44 44 44 43 48 54 56 56

Northern

Africa

22 22 26 29 29 29 34 34 37

Southern

Africa

48 51 50 51 50 50 51 56 56

Western

Africa

43 48 50 51 52 54 54 54 54

Source: (Richard, 2005)

The increase can be attributed to the financial sector reforms that these countries have

embarked upon, which in turn have led to the opening up of the markets in Africa and the

attendant entry of foreign banks. The banking sector in most of the countries is either

dominated by state-owned banks or by a few large commercial banks, sometimes foreign

banks. For example, in Algeria state-owned banks control over 90% of total banking

deposits and assets.

However, as part of the restructuring program that has been embarked on by the African

countries, the banking industry in Africa is undergoing reforms focused on privatization

and other forms of restructuring of state-owned banks with the view of improving the

quality of the banks.

9

One common feature of the banking system in Africa is that a large number of banks

invest in government securities, primarily treasury bills. This is troublesome since it is

reflective of a highly dysfunctional banking intermediation that shuns provision of private

credit in favor of safer government securities. The low level financial development in

terms of private credit provision that is observed earlier is attributable to this

phenomenon. This disfunctionality in financial intermediation is being increasingly

recognized in African policy circles, and various efforts are under way to provide an

environment for banks to serve as informed agents and build information capital that is

vital for the efficient allocation of resources. Nevertheless, the banking system in Nigeria

and the Southern African countries of Malawi, Botswana, South Africa and the

Seychelles is relatively well capitalized and dynamic and the banks pursue innovative

banking practices. The Seychelles has a highly sophisticated banking system similar to

that found in most developed countries, (Partrick, 2013).

2.1.3 Banking in Rwanda

Rwanda Financial Service has six (6) main commercial banks regulated by an

independent Central Bank known as BNR (Banque Nationale du Rwanda / National bank

of Rwanda). However, with Rwanda now part of the East African Community, some

major banks in the region have joined the market and are operating in Rwanda. The main

foreign bank with major activities in Rwanda is KCB (Kenya Commercial Bank).

Banking service operations in Rwanda date back in early 1960, originating from the

oldest banks of BCR and Bank of Kigali respectively more recently and most commercial

banks in Rwanda have centered their operations on trade finance as opposed to long-term

debt financing. This change in banking services in Rwanda has triggered off to lack of

productive investment activity, though there is urgent need to focus attention on the

reform and strengthening of the financial sector in this fast developing nation.

10

This appeal for introduction of more banks, financial products and capital market in

Rwanda banking sector has therefore several opportunities for investment into mortgage

banks to enhance access to property, agricultural banks to offer much needed agricultural

credit to farmers and introduction of new financial products including leasing and venture

capital to minimize hardships of opening business as well as its continued successful

operations (Murgatroyd, 2007)

Like most countries in sub Saharan Africa, Rwanda has followed the economic

liberalization program. It has privatized the financial sector to reduce financial repression;

encouraged market determined prices of financial services and enhanced market

competition. The Government of Rwanda launched the Financial Sector Development

Program (FSDP) in 2006; this program envisions the development of a stable and broad

financial sector that is capable of sufficiently mobilizing and allocating resources to

address the development needs of the economy, (Dushimemukiza, 2010)

Banking loans constitutes different types of banking loans offered by banks. Banking

loans may be availed for various purposes. Banking loans are governed by banking laws

and banking regulations depending on the need of an individual and the banking loan is

applied for.

The banking loans are provided by different banking institutions after an individual

satisfies certain criteria. The banking laws and the banking regulations may be either at

the state level or at the federal level. Banking loans are availed for paying a particular rate

of interest. The rate of interest of the banking loans may be either fixed or the rate of

interest may be variable or adjustable, (Gambacorta, 2004).

11

Rate of interest of banking loans usually vary due to few reasons. The reasons affecting

banking loan rate of interest may include: Inflation is one reason due to which the rate of

interest of banking loans get influenced. If there is a modest or moderate rise in inflation

the rate of interest increases by a lower margin. On the other hand if inflation is high, the

rate of interest also rises markedly. The other reason for the increase in rate of interest is

the prevailing economic condition of the market. The rate of economic growth also

influences the rate of interest. Banking loans are influenced by the term period of banking

loans. If an individual operate for banking loans for a long term, the rate of interest may

be less depending on the type of rate of interest opted for. Banking loans are also

subjected to a certain term period. Term period refers to the duration of the banking loans.

The duration of banking loans may vary depending on the type of banking loans availed

to individuals, (Borio, 2009)

Banks borrow money by accepting funds deposited on current accounts, by accepting

term deposits, and by issuing debt securities such as bank notes and bonds. Banks lend

money by making advances to customers on current accounts, by making installment

loans, and by investing in marketable debt securities and other forms of money lending.

Banks provide almost all payment services, and a bank account is considered

indispensable by most businesses, individuals and governments, (Philips, 2004).

2.1.4 Types of Bank Loans

These days’ banks offer various types of bank loans to loan seekers, especially those

having a good track record of repaying their bills and a stable job get these loans passed

easily. You need to have proof of your identity and income to get bank loans and certain

bank loan types may also require collateral (security) such as a car or home equity loan.

12

The important thing one should do is to make sure of knowing what the different types of

bank loans are. There is a difference between any two kinds of bank loans. For example,

there is a difference between secured and unsecured bank loan types.

2.1.4.1 Personal Bank Loans

These are the kinds of bank loans which are provided to an individual, rather than to a

group or business. The personal bank loans are further divided into many different

categories like secured and unsecured loans.

Under secured personal loans the bank issues cash or a cheque to the loan seeker. The

loan seeker has to provide the bank with interest in collateral such as a savings account or

a property in case the loan doesn’t get repaid. These kinds of bank loans are the most

common personal bank loan types which are offered by the banks. These are the types of

bank loan types which have some sort of possession put up as security for the loan. In

other words, if you are not able to pay back your loan according to the set agreement, the

bank has a right to repossess whatever you put up for the loan. Borrowing against the

equity in your home is an example of a secured loan. Your home becomes the security for

the loan amount, and if you do not pay back your loan on time, the bank could repossess

your home, (Walllorry, 2000)

Unsecured Personal Loans, These types of bank loans allow a borrower to get a cheque or

cash and pay it back in fixed installments over a certain fixed period of time. In unsecured

personal loans, no specific loan purpose is required. However, it is far less common for a

bank to provide an individual an unsecured bank loan types. The unsecured personal

loans are like a credit card, nothing is placed as a security for the loan. The borrower

simply gives his word to the bank that he will pay the loan back in the terms agreed upon.

In case the loan is not paid back, the bank gets nothing.

13

The rate of interest of unsecured loans is usually quite a bit higher than secured loans, so

the bank ensures they get their money early, (Walllorry, 2000)

2.1.4.2 Auto Loans

In general, almost all kinds of banks provide these auto loans for purchasing new and

used vehicles and for repair of older ones. The consumer has to pay back for it on the

basis of monthly installments otherwise the vehicle or the car is repossessed by the banks

(Walllorry, 2000)

2.1.4.3 Mortgage Loans

These types of bank loans allow the loan recipients to live in a home while paying it off

over time. Usually, a down payment of five percent to twenty percent is required to get

the loan approved and the house is seized in foreclosure if payments are not made,

(Walllorry, 2000)

2.1.4.4 Investment Bank Loan

These kinds of bank loans are usually taken to make a comparatively bigger major

purchase, such as your mortgage. These kinds of bank loans need credit cheques which

are rigorous because of the large amount of money involved. These are also considered as

secured loans because if you do not pay them back, the offshore bank accounts can sell

off your investment to earn the money you owe them, Wall, (Walllorry, 2000)

2.2 Empirical literature

A research conducted by Okoi, (2002) on the Effects of Institutional and Policy Changes

on Bank Lending to Agriculture in Canada found out that a characteristic feature of

agricultural development banks in many parts of the world were severe inefficiencies due

14

to administrative costs sky-rocketed due to large staff numbers and the maintenance costs

of expanded branch networks.

Also inflation often substantially exceeded the nominal interest rates charged on loans,

turning the loan portfolio itself into a major cost factor. In addition, many development

banks are highly politicized.

A research conducted by Ibadan, (2010) in Nigeria on the bank loan and rural agricultural

sector using data from a survey of loan applicants and bank officials from Union Bank of

Nigeria and first Bank of Nigeria in South-western Nigeria found out that the role of

agricultural credit in agricultural development of the country cannot be overemphasized

reason being that their contribution of agriculture is affected by national credit policy and

scarcity of credit institutions which assist farmers. He also found out that provision of

agricultural credit has become one of the most important activities of the Nigeria

government. His study also found out that in order to modernize agriculture requires large

infusion of credit to finance the use of purchased inputs such as fertilizer, improved seeds,

insecticides, additional labor and others. The amount of loans and advances given by the

banking sector to economic agents constitute bank credit. Bank credit is often accompanied with

some collateral that helps to ensure the repayment of the loan in the event of default. Credit

channels savings into productive investment thereby encouraging economic growth. Thus, the

availability of credit allows the role of intermediation to be carried out, which is important for the

growth of the economy. The total domestic bank credit can be divided in to two: credit to

the private sector and credit to the public sector

In Nigeria on the agricultural support and bank found out that agricultural sector is a risky

business. Crops may fail, weather influences the productivity and sale prices fluctuate and

are difficult to predict when the crops are planted. If productivity is lower than expected,

farmers may not be able to repay loans.

15

These risks and many other aspects of agricultural risk need to be identified, measured

and actively managed in order to avoid that lending institutions turn away from this

clientele (Okoi, 2002)

A research conducted on bank loan and agricultural sector in Africa using Ethiopia,

Kenya, Tanzania and Uganda case studies by Abdulul (2012) found out that agriculture is

still the backbone of many African countries. Agriculture is dominated by smallholder

farmers who occupy the majority of the land and produce most crops and livestock

products. The research also showed that farmers have limited access to bank loans due to

individualistic and the main target of farming which is substance agriculture. Their

research also revealed that the countries studied they have embarked on encouraging

small farmers to form cooperatives as this can facilitate them to easily access bank loan

and to shift away from substance farming to commercial farming. A research conducted

by Abdulul (2012) on the contemporary issues and leading activities to small scale famers

for agricultural production found out that availability of finance is necessary for the

adoption and diffusion of innovation and productivity raising technology in agriculture.

His research further asserted that improved technology in agriculture is almost always

associated with increased demand for working capital and the other finding was that

financial intermediation at the rural level are credited for providing credit as it is deeply

required by the rural famers

A research conducted by John , (2012) on bank loan and rural agricultural sector using

Tororo district famers in Uganda found out that credit flow by banks to agricultural sector

remains dismal and having a declining trend. He found out that agricultural sector face

the problem of limited access to loan yet it contributes much to the gross domestic

product of Uganda.

16

A research on bank loan and agricultural sector in Tanzania revealed that agriculture

income is generally considered to be volatile to its dependencies to production.

Production of agriculture requires the financial institutions to facilitate farmers to access

loans for their growth and development.

This research found out that agriculture is having limited access to bank loans because of:

lack of proper book-keeping for the farmers, agricultural sector in the developing

countries being much dependent on natural environment which is not easily predictable

and most of the farmers being tenants they lack security (John, 2012)

In Rwanda a research conducted by Byaruhanga ( 2013) on agricultural sector found out

that agricultural policy and strategies have been integrated into the national development

planning process anchored on the Vision 2020. The Economic Development and Poverty

Reduction Strategy (EDPRS, 2008-2012), as a continuation to meet targets for

Agricultural sector, but some of these targets seem too challenging even after the end of

the first phase of the Strategic Plan for Agricultural Transformation (SPAT1, 2005-2008).

Currently, efforts are underway to increase quantity and quality of production in the

agriculture sector. This sector review is important because it helps to identify the existing

gaps in the sector activities and strategies and to recommend how to address the

ineffective bank loan to rural agricultural sector in Rwanda

A research conducted on agriculture sector development framework found out that the

development framework for the agriculture sector in Rwanda reflects the laid down

principles in two key documents namely the Economic Development and Poverty

Reduction Strategy. The principles involve the fact that, Rwandans must own and

implement the sector development agenda within a common strategic framework, Private

Sector should be the principle investment of economic growth within the appropriate

enabling environment, all sections of rural populations should also participate in decision

17

making, community based approach should promote this participation and investment in

human capital and maximum use of Rwandan expertise is essential to sector growth

(Muhongayire, 2013)

2.2.1 Relationship between bank loan and rural agricultural sector

Many researchers have conducted researches about the relationship between bank loan

and rural agricultural sector in different parts of the world and the reviewed ones

includes.

In the research about bank loan and rural agricultural sector in Nigeria by (Gbenga, 2006)

he argues that there is no consensus that increases in agricultural productivity is a vital

pre-requisite for the rapid economic growth and development. He also argues that loans

should be given to “real farmers” to enable them break the viscous cycle of low

productivity. (Nwankwo, 2006), further states that in Less Developing Countries

(LDCs)where agriculture is predominant with credit facilities the people can easily adjust

to changing economic conditions and meet seasonal and fluctuating income and

expenditure. Since cash inflow and outflow typically occur at different times he re-

emphasized continuous disbursement of loans to farmers to enable them continue in

agricultural production. He observed that most of the agricultural credit obtained from the

informal sources also point to the fact that the volume of credit actually obtained is low.

And such credit, if could not properly be accounted for, it becomes difficult to know the

volume of the credit. He concluded by stating that agricultural credit might not have

much on productivity by small scale farmers except the medium and large

A study in Nigeria and most developing countries do not indicate that it is not only the

potential demand for credit that is high, but also the effective demand especially from

informal sources such as village money lenders or traders for use in agricultural

18

production. However, (Catherine, 2010) emphasized the need to match credit with

technological knowledge and skills, credit to small farmers in the absence of knowledge

can even be harmful since the farmer did not remember the maturity period of the loan.

The gap unfilled by informal associations is taken over by money lenders. The money

lenders charge high interest rate but are willing to lend money at great risk. (Amadi,

2003) Observed that there is need for government in developing countries to resolve the

problems of agricultural decline in rural areas through provision of small holder credit

which can be a major vehicle in arresting this very important sector in the country

development and it has also been argued that credit alone cannot guarantee the success

of innovation, other factors like –structural and infrastructural problems must be tackled

before any significant progress can be achieved. Several recommendations have been

made in spite of the increasing credit availability to farmers. These include disbursement

of loans, in kind; the adoption of informal agencies loan recovery strategies and the

involvement of credit agencies in marketing of farm produce. It is also advocated that

formal institutions target their borrowers properly as this would ensure that credit gets to

the neediest borrowers

A research conducted by (Nahayo, 2011) on the relationship between bank loan and rural

agricultural sector found out that despite significant contribution of agricultural sector to

the GDP of Rwanda, Rwandan agricultural production is largely based on subsistence

farming. As a result, food crops account for 90% of both output and cultivable land. This

analysis concentrated mainly on food crops, livestock and major export crops (Tea and

Coffee) using available data to assess four different aspects of their performance, these

factors include, quantity which was observed as a crucial step towards understanding

performance especially in assessing food security; land productivity that was also

considered as a key factor to understanding the underlying growth prospects since land is

19

a key factor of production and binding constrain in Rwanda. This is also an important

factor to facilitate comparison across countries (mainly in the Eastern Central African

region) quality which stood as an important factor for understanding the proportion of

desired produce in overall output. This is a key measure of success to small economy

trying to penetrate the market value addition is an additional factor to understanding the

country’s capacity to process and add utility to the produce for market penetration.

The five main causes that lead to low use of agricultural inputs include the country’s

geographical structure, insufficient inputs stocks, affordability, farmers’ knowledge and

skills and incentives. As in the case of Geographical structure more that 39% of the

cultivated land is on slopes which in turn occupies over 25% of available land in Rwanda.

This not only increases the risks of soil erosion, but also limits the use of tractors in

agricultural activities for example in 2003; Kenya had 50 times more tractors per hector

than Rwanda. Another issue is Insufficient National Stocks, Rwanda has for a long time

lacked indigenous sources of fertilizers and pesticides. In 2005, only 8% of the

households used inorganic fertilizers and 12% improved seeds. The Ministry of

Agriculture and Animal resources reported by then that imports of agricultural inputs

were not enough to cover the country’s demand, and the ability of delivery chain to get

bulk purchases to farmers is weak. Affordability is a problem because of lack of domestic

sources of fertilizer and high cost of pesticide, while most farmers are poor and lack

access to credit to finance inputs. Farmers’ knowledge and skills are limited, though a

number of farmers understand the fact that better use of inputs could improve the yields.

Farmers’ incentives are not defined, so there is always no clear link between price and

quality. At the same time, there has been some evidence that farmers have been reselling

seeds and fertilizer to meet short-term needs (Byaruhanga, 2013)

20

2.2.2 The relationship between bank loan and development

Banks mobilize domestic financial resources for development and as a result strengthen

and develop the domestic financial sector, by encouraging the orderly development of

capital markets through sound banking systems and other institutional arrangements

aimed at addressing development financing needs.

Development banks, commercial and other financial institutions, whether independently

or in cooperation facilitates access to finance. Addressing systemic issues makes banks

vital in the contribution to national development efforts, as an important component of an

international financial architecture that is supportive of development. Banks provides

consultations which focus on the financing instruments and the rationale and missions of

practices shared during the consultative process. Of course, knowing the national

characteristics and the needs of the economy is essential to use such good practices

efficiently (Rosengard, 2004)

Banks takes the form of diverse facilitation processes for making business through

increasing linkages, successful infrastructure projects are made possible when they are

not conceived as standalone projects but are part of development plans. Enhancing the

attractiveness of the country to investors through credit by fostering electronic factoring,

guarantee funds and venture capital, Guaranty programs in particular encourages the

participation of private and public lenders in financing infrastructure projects by

providing partial repayment protection against loans. Banks plays an important role as

intermediaries between foreign lenders, central governments and sub-sovereign entities.

Banks facilitates transfer of risks and encourage large- scale financing operations in

developing countries.

21

The role of banks does not only lead to economic development but also social

development by encouraging investment in programs like education and poverty

reduction. Most of this is done through loans provided to the individuals so that they can

undertake the necessary projects. The money that is distributed by the bank is a loan and

must be paid back with interest just like any other loan (Rosengard, 2004)

The other major role that banks fulfill is that they help to promote the region to potential

investors and this is necessary since private investment is critical for economic growth.

They also play the role of the middleman by helping connect potential investors with

businesses and projects that are in need of investment money. This program covers the

risk of funding new projects in addition to those risks related to the expansion and/or the

improvements of existing ones. The program covers the financing risks of all viable

income generating projects from different sectors of the economy (Hausman, 2003)

2.3 Critical review and research gap identification.

Even if the existing policies and strategies have improved many things in agricultural

sector, it is however important to mention that this assessment has revealed some gaps

which still need particular attention from the Ministry of agriculture and Animal

resources and its stakeholders. It has been found out that due to lack of national

production capacity and insufficient national stock, Rwanda still depends mainly on

imported inputs. There have been some attempts by the Government to make agricultural

inputs accessible by putting in place a guarantee fund (covering up to 70%) of the

investment in inputs. However, there has been low take-up of the mentioned funds,

making fertilizers to cost 50% higher than the expected. Currently there is no clear policy

addressing the farmers’ incentives.

22

It is not clear why farmers and businessmen are not fully exploiting the high potential that

the agricultural sector offers. Many tend to think that it is a mindset issue, though the

distinction between mindset and knowledge (skills) is difficult to discern.

A clear definition of the two concepts would help policies to efficiently address how both

mindset and low or limited skills affect the low commercialization incentives.

An additional gap to the low commercialization is the certification process which is too

costly, too difficult and done on a very small number of co-operatives in Rwanda. The

lack of good agricultural practices leading to low quality produce is one of the key

constraints to international competitiveness and market penetration of the Rwandan

agricultural products.

Other gaps related to the improvements of agricultural value addition are on one hand, the

less importance given to the rural infrastructure by transport and energy policies are on

the other hand. These policies tend to target flows amongst different towns and focus less

on basic infrastructure linking farms to the big axes leading to markets.

2.4 Theoretical frame work

2.4.1Theories of loan based on credit creation

There are very many theories which were put forward by many researchers, the review

theories for this particular research they include the following.

2.4.1.1 Chartalism theory

Chartalism theory sees the state as creating money when it spends, and destroying it when

it taxes. Ideally, the state has only macroeconomic policy needs (i.e. inflation or deflation

risks) in mind when considering this balance. More importantly, the private banking

system is noting empirical terms, reserve-limited, so its creation of money is an

23

endogenous process, driven by credit demand and lending willingness. This accounts for

the power of the state's interest rate policy in governing most of the money supply in

normal times. Chartalist economists view the fractional reserve story as mythical,

(Abdulul, 2012)

Chartalism theory is of relevance to the research work as from the theory a note is taken

that when private sector makes money through credit demand (BRD developmental loan)

and when the bank is having the willingness to lend money, the process lead to the

development at both ends that is on the side of the bank and clients who have borrowed

money, when the trend continues it leads to the development of rural agricultural sector.

2.4.1.2 Circuitist money theory

Theory held by some post –Keynesians which argues that money is created endogenously

by the banking system, rather than exogenously by central bank lending. Further, they

argue that money is not neutral a fractional reserve baking system is fundamentally

different from a barter system, money and banks must be an integral part of economic

models, (Richard, 2005)

In circuit theory, there is a sequential order in which various agents are brought into the

monetary circuit. Firms borrow from banks and spend first, paying out wages (and

dividends on the previous stock of shares); then, in a second stage, they obtain the means

to proceed to the final finance of their expenditures, through product sales and the sale of

financial assets (Marc, 2011)

Neo-chartalists share many common elements of monetary theory with other post-

Keynesians, more precisely with the circuitists. The elements that they share in common

are; first, the money supply is endogenous. Second, loans make deposits, and deposits

make reserves. Of course, as events during the subprime financial crisis have

24

demonstrated, this last statement is only true in normal times, as long as the target rate of

interest of the central bank is not set at the bottom of the interest rate corridor, delineated

by the rates of interest on credit and deposit facilities at the central bank. Third, central

bank operations are essentially defensive, as the central bank normally attempts to set the

supply of reserves equal to the demand for them. Fourth, the operating target of the

central bank is thus the overnight rate target, not the supply of the money stock. (Marc,

2011)

Circuitist money theory is of relevancy to this research as it points out that creation of

money is a circuit meaning that BRD clients borrow from BRD when they get money

they use it for spending through paying wages and buying inputs their respective

businesses by doing so the resources is distributed to many individuals hence growth is

facilitated which finally leads to development.

2.4.1.3 Credit theory of money

This approach was founded by Joseph Schumpeter .Credit theory asserts the central role

of banks as creators and allocators of money supply, and distinguishes between

'productive credit creation allowing non-inflationary economic growth even at full

employment in the presence of technological progress and 'unproductive credit creation,

(Richard, 2005).

Credit theory of money is of relevance to the research work as it points out the essential

nature of money banked since creation of money starts from depositing money into the

bank. The creation of money involves exchange so when clients of a bank borrow money

from a bank in form of a loan makes money which is distributed to many individual in the

society in form of buying services and input.

25

2.4.2 Theories of Agricultural Origins

Agriculture was developed more than 10,000 years ago and has undergone significant

changes since the time of the earliest cultivation. Several theories also proposed by many

scholars about the development of the agriculture. Most probably, there was a quick

change from hunter-gatherer to agricultural societies after a period during that, some of

the crops had to be planted in order to carter the demands of the increasing societies or

population. Some of the theories of agricultural origins of different scholars are

mentioned below.

Scholars have proposed a number of theories to explain the historical development of

farming. Early forms of farming are called proto farming. The transition from hunter -

gatherer to agricultural societies, based on evidence from south west Asia and China

indicates an antecedent period (Ancestor) of intensification and increasing sedentism,

known as the Neptunian in south West Asia and the Early Chinese Neolithic in China.

Current models indicate that a range of resources were being used more intensively. Wild

stands that had been harvested previously started to be planted. Evidence is also now

emerging that the crops grown initially were wild and not domesticated.

Crops such as emmer and einkorn wheat do not appear to have become domesticated until

well into the Neolithic and 'ancient cultivated rice’ took 3000 years to become

domesticated, (Agobin, 2006)

2.4.2.1 Oasis theory

The Oasis theory proposed and Vere Gordon Childe popularized this theory by

summarizing in his book entitled “Man Makes Himself”. This theory explains that when

the climate got drier, the societies contracted to the oases and they were into the close

26

connection with the animals that were then domesticated along with cultivation. He

suggests that the agriculture started in the Zagros Mountains and hilly sides of the Taurus

and that it developed from mainly focused grain collecting in the area. (Gregory, 2001)

2.4.2.2 The evolutionary and intentionality theory

The ‘evolutionary and intentionality theory’ suggests that the agriculture is the co-

evolutionary adaptation of humans and plants beginning with domestication by protection

of the wild plants, then specialization of the location and then the domestication. A recent

transition in the field of agrarian economics theory for rural development is the move

from a narrow agricultural sector approach, to one which adopts broader territorial vision.

This theory seeks to interpret interactions between urban and rural worlds in a more

comprehensive manner. This relatively new theoretical perspective is of particular interest

to academics and politicians in Latin American countries where, since the mid 1990s, the

concept of new reality has been seen as the source of a new approach to rural

development, (Kaye, 2009)

2.4.2.3 The quality theory

The quality theory, this theory states that agricultural products it is particularly clear that

quality is important in determining price and even market structure, and for this reason

agricultural economics was the first to develop the economics of quality. Most of these

theories are based on the realities of agricultural products in agricultural markets. There

is, however, another set of theories which is based on the assumption of rational

economic man (REM) making optimal choices between goods on the basis of the

objective characteristics of these goods, with perfect knowledge about the level of these

characteristics and their prices. This theory was developed on the assumption that

agriculture is realistic and non- trivial, (Moorad, 2009)

27

The history of agriculture dates back thousands of years, and its development has been

driven and defined by greatly different climate, cultures, and technologies. However, all

farming generally relies on techniques to expand and maintain the lands that are suitable

for raising domesticated species until the industrial revolution the vast majority of the

human population labored in agriculture. Pre-industrial agriculture was typically

subsistence agriculture in which farmers raised most of their crops for their own

consumption instead of for trade. A remarkable shift in agricultural practices has occurred

over the past century in response to new technologies, and the development of world

markets. Modern agronomy, plant breeding and agrochemicals such as pesticides and

fertilizers and technological improvements have sharply increased yields from cultivation,

but at the same time have caused widespread ecological damage and negative human

health effects. Selective breeding and modern practices in animal husbandry such as

intensive pig farming have similarly increased the output of meat, but have raised

concerns about animal cruelty and the health effects of the antibiotics growth hormones

and other chemicals commonly used in industrial meat production.

In 2007, one third of the world's workers were employed in agriculture. The services

sector has overtaken agriculture as the economic sector employing the most people

worldwide. Despite the size of its workforce, agricultural production accounts for less

than five percent of the gross domestic products of various countries both developed and

developing, (Adebayo, 2005)

Agriculture has played a distinctive role in Rwandan culture and history. Through

enormous expenditure of human labor, livelihoods have been sustained for ages and

generations given rise to others. Rwanda’s current agricultural status and orientation for

the future entails primarily, the stepping up of activities that develop and promote

28

agricultural and livestock production. Rwanda’s goal to achieve targets set in the

millennium development goals and Vision 2020 is to enable Rwandans to emerge from

under-development and poverty status by achieving economic growth objectives in

combination with social indicators objectives. One of the key aspects of these goals is to

eradicate extreme poverty and hunger. It is targeted that by the year 2015, the proportion

of people living below the poverty line shall not exceed 23.8% - a half of the 1990 level.

By the same standards, the proportion of people who suffer from hunger would also have

been halved. Given that agriculture is the main productive activity for the majority of

Rwandan households employing 88.6% of the working population; and as always,

dominating the country’s Gross Domestic Product (GDP) at 47% for the year. The 1980s

and the 1990s featured slow and negative trends in agricultural production at the rates of

0.5% and - 4% respectively (the latter owing to the 1994 genocide). This economic

growth trend reflected a tight resource base, declining soil fertility, and an extreme low

use of modern inputs (improved seeds and inorganic fertilizers). To reverse this decline

and pathetic performance, it has been necessary to encourage changes in production

techniques, including the intensive use of modern and better inputs.

The implication of the theories of agricultural origin to the research work are, these

theories points out that agriculture has passed through a transision process. From these

theories a note can be taken that the application of technology and modern inputs

increases the products and services in the field of agriculture. The theories are based on

realizing the importance of agriculture to poverty reducation both directly and indirectly.

From these theories the deevelopment of others sectors in the economy automatically

leads to the increased demand of agricultural products and services which can eventually

lead to development of rural agricultural sector.

29

2.5 Conceptual frame work

Figure 2.1. Conceptual frame work

Independent variable Dependent variable

Developmental bank loans Development of rural agricultural sector

Intervening variable

Source: Researcher

Developmental loan is the independent variable which involves aspects of as low interest

rate, loan repayment period and trainings on bank use that cause an effect to dependent

variable which is development of rural agricultural sector measured in aspects like

increase of agricultural loan borrowers, increase of agricultural investment and improved

standards of living.

The low interest rate can stimulate many people to seek for agricultural loans to do a

variety of activities. The loan repayment period can make people either to demand more

loans or few loans depending on the favorable period. Training on loan use is done by

development banks that makes the agricultural loan clients to acquire knowledge which

Low interest rate

Loan repayment period

Trainings on loan use

Increase of agricultural

loan borrowers

Increase of agricultural

investments

Improved standard of

living

Government policy

Market of the agricultural

products

Natural environment

30

can be based on to make informed judgments on either to acquire a loan or not. Secondly,

training can help them in proper use of their agricultural loan for the better output.

The relationship between the independent and dependent variables rotates on the fact that

improved standard of living is the target since people work aiming at improving their

wellbeing.

The Government policy when it is favorable many people can request for loans not

necessarily because of what developmental loans might have done and on the other hand

when the government policy are unfavorable few people can request for the loan. Market

of the agricultural products can make people to seek for agricultural loans when they

fetch high price not necessarily as a result of development bank activities. Natural

environment may affect the agricultural activity in the way that one part of the country

favors a certain crop than any other part leading to high production in that particular area

for that particular product not necessarily because of agricultural bank loans.

2.6 Summary

A review of the existing literature was done focusing on the existing theories in the field

of loans and in the field of agriculture. The theories reviewed on loans among others they

included, chartalism theory, circuitist money theory and credit theory of money. The

theories about agricultural origin reviewed included, evolutionary and intentionality and

the quality theory. The existing research findings were also reviewed whereby a number

of researchers’ works was reviewed critically to identify the research gaps.

The independent variable for this research is developmental bank loan and the dependent

variable is development of rural agricultural sector.

31

CHAPTER THREE: RESEARCH METHODOLOGY

3.0 Introduction

This chapter describes the methodology that is, research design, and target population,

instrument of data collection, collection techniques and data analysis. The methodology

comprises of an intellectual process or orderly system of arrangement that enable one to

reach the aspect of knowledge.

3.1 Research design

This research design was an analytical whereby it was conducted by both qualitative and

quantitative approaches to attain the quality and quantity aspect of the research topic. The

qualitative aspects targeted include the feeling, attitude, perception and understanding

developmental loans; this was attained by use of the interview guide. The quantitative

aspect was the amount of loan issued annually, number of people who get agricultural

loans annually and average duration for its repayment. This was got by use of the

questionnaire. This research was case study research since a case study excels at bringing

an understanding of a complex issue to extend experience or add strength to knowledge

which is already known to the research topic, to emphasize detailed contextual analysis,

examine contemporary situations and provide the basis for the application of ideas and

extension of methods (Catherine, 2010)

3.2 Target population

The target population in this study is 285 farmers and 5 bank employees from agricultural

loan unit and these are; head of the agricultural loan unit and 4 investment analysts who

were interviewed. The 285 farmers took the agricultural loan for different lines of

agricultural investment; 50 for bee keeping, 55 for piggery, 70 for cropping, 40 for

poultry and 70 for dairy farming, all of them were given a set of questionnaire designed

32

specifically for them. 285 farmers were given questionnaires and 5 bank employees were

interviewed totaling to 290 as target population.

3.3 Sample Design.

3.3.1 Sample Size

A sample of 102 was selected out of the total population. This sample was selected by the

use of Slovin’s formula,

It is computed as n = N / (1+Ne2).

Whereas:

n = no. of samples

N = total population

e = error margin / margin of error

N=290,

e=0.08

n=?

Therefore, n=290/1+290(0.08)2

n=102

3.3.2 Sampling Techniques

After getting the sample size by use Slovin’s formula, stratified sampling technique was

applied so that all the strata are represented in relevancy to the ratios against total

population without 5 individuals from agricultural loan unit and the strata ratios are as

follows;

33

Table 3. 1: Different lines of agricultural investments

Source BRD records of average clients from 2009 to 2014

3.4 Data Collection Methods

Data is the facts used as a basis for inference. When data is organized in a meaningful

form it becomes information, (Vickers, 2009). This research in particular, the sources of

data was both primary and secondary sources.

Primary data is the data collected for the first time (first hand information) whether by the

researcher or someone else for the purpose of research (Miller, 2010) .The primary data

was collected from the respondents using the questionnaire and interview guide.

Secondary data is the data removed from the original work already gathered and is

examined for the study subject. The secondary source specifically for the review of the

existing literature was got from the internet, reading books containing information related

to the research field, reports and journals.

3.4.1 Data Collection Instruments

Data in this research was collected by the use of the questionnaire and interview guide as

the main collection instrumental ways.

Strata A fraction of strata out of

the population

Respondent to be included

in the sample size

Beekeeping 50/285*97 17

Piggery 55/285*97 19

Cropping 70/285*97 24

Poultry 40/285*97 13

Dairy farming 70/285*97 24

Total 285 97

34

3.4.1.1 Questionnaire

The questionnaire was designed for 97 BRD clients who had borrowed money for any of

the five strata. The questionnaire was used as one of the major collection instrument

because; it is very cost effective, easy to analyze, able to give more accurate information

on personal issues, reduces the bias since there are uniform questions presented to all

respondents (loan clients) and finally the questionnaire provides information which is

more considerate as the respondent get time to think before answering and if need be

he/she may consult from the existing documents or even from colleagues.

3.4.1.2 Interview guide

An interview guide was used to collect information from head of agricultural loan unit

and 4 investment analysts in BRD. The interview was used as a way to complement the

information collected by the questionnaire and even to attain the qualitative aspect of the

research topic such as personal feelings, perception and opinion which is equally

important in giving reliable research findings.

3.4.2 Administration of Data Collection Instruments

The interview was a face-to face whereby the researcher organized appointments with the

5 persons to be interviewed and the questionnaire was self administered to agricultural

loan client from BRD.

3.4.3 Reliability and Validity

Reliability is the degree which an assessment tool produces stable and consistent results.

Validity refers to how well a test measures what it is intended to measure. (Wren, 2006)

Test retest reliability was used by the researcher to test the reliability of the research

instruments.

35

The researcher first gave the questionnaire to a group 10 people to observe their response

and again after one week the same questionnaire was given to the same group to test the

correlation.

Sampling validity was used to ensure that all the concepts under the study are measured

and considered whereby those who had rural agricultural loans for bee keeping, cropping,

piggery, poultry and dairy farming were integrated in the study. Interview guide helped

the researcher in maintaining asking of the same questions of the similar content to all 5

interviewees in relation to study objectives. The questionnaire was translated in

Kinyarwanda since most of the rural agricultural borrowers do not understand well

English language.

3.5 Data Analysis Procedure

Data analysis is the classification, editing, organizing and interpreting of data collected

from the respondents into meaningful information in order to find out the relationship

between the independent and dependent variables and finally develop the conclusion. The

relationship between developmental loan and development of rural agricultural sector was

derived at by the use Pearson correlation.

3.5.1 Editing

The information gathered was edited with the aim of ensuring completeness, accuracy,

uniformity and coherence of data. Editing helped the researcher to identify and correct

any error in the questionnaire and interview data collected to ensure validity and create a

good base for coding and tabulation.

36

3.5.2 Coding

Numerical numbers was assigned to the information to match in the datasheet. Coding

was used to enable the researcher summarize and analyze data that can be tabulated and

counted.

3.5.3 Tabulation

Tabulation is the process of arranging the figures or information together in a set or a list

so that data can easily be compared, interpreted and presented. Tabulation was done after

editing and coding. Statistical tables were used to present data and complemented with

words to make them clearer. Tabulation helped the researcher to put together the data into

statistical tables for better understanding.

3.6 Ethical consideration

This research was purely academics and the information given by the respondents was

handled diligently and with a high degree of confidentiality. The reporting of the findings

is completely, widely and objectively with full information on the methodology

employed. The research was more of primary and whenever other people’s works was

used a credit was given through in text citation and referencing.

37

CHAPTER FOUR: RESEARCH FINDINGS AND DISCUSSION

4.0 Introduction

This chapter describes the demographic characteristics of the respondents which begin

with the general information age, gender and level of education, presentation of findings

in line with research objectives, and the data is presented in form of statistical tables and

interpreted.

4.1 Demographic characteristics of the respondents

The researcher was interested in the demographic characteristics of the respondents

thereafter the findings in line with the research objectives basically from the primary data.

Basing on the nature of the research topic, the researcher found it necessary to point out

gender, age and education level as this can add value to the research findings.

Table 4. 1. Gender of the respondents

Frequency Percent

Valid Male 62 63.9

Female 35 36.1

Total 97 100.0

Source: Researcher.

Table 4.1 shows the gender of the respondents, male are represented by 63.9% of the total

respondents and females are represented by 36.1% of all respondents.

This implies that female enrollment in agricultural businesses is still low compared to

males.

38

Table 4. 2. Age of the respondents

Frequency Percent

Valid 21 to 30 Years 2 2.1

31 to 40 Years 20 20.6

41 to 50 Years 58 59.8

51 to 60 Years 14 14.4

Above 61 Years 3 3.1

Total 97 100.0

Source: Researcher.

Table 4.2 shows the age of the respondents represented as follows, below 20 years is zero,

21 to 30 years is 2.1% of the respondents, 31 to 40 years is 20.6% of the respondents, 41

to 50 years is 59.8% of the respondents, 51 to 60 years is 14.4% and above 61 years is

3.1% of the respondents.

The highest percentage of 59.8% follows between 41 to 50 years, this implies that in this

range of years they have collaterals they can present to bank as a guarantee to borrow

money.

39

Table 4. 3. Education level of the respondents

Frequency Percent

Valid Without PLE certificate 7 7.2

Primary six (PLE) 16 16.5

Ordinary level (‘’O’’ level) 38 39.2

Advanced level (‘A’ level) 16 16.5

Advanced diploma 4 4.1

Bachelor degree 12 12.4

Masters and above 4 4.1

Total 97 100.0

Source: Researcher.

Table 4.3 shows the level of education of the respondents, those without PLE certificate

are represented by 7.2% of the respondents, those with PLE are represented by 16.5% of

the respondents, those with Ordinary level are represented by 39.2% of the respondents,

those with Advanced level are represented by 16.5% of the respondents, those with

Advance diploma are represented by 4.1% of the respondents, those with bachelor’s

degree are represented by 12.4% of the respondents and those with masters and above are

represented by 4.1% of the respondents. The implication of this finding is that the rural

business sector is dominated by drop outs there is a need to sensitize graduates to look of

opportunities in self employment than waiting to look for paid employed.

40

Table 4. 4. Duration of being a client to BRD

Frequency Percent

Valid One year 3 3.1

Between two and three years 13 13.4

Between four and five years 24 24.7

Above five years 57 58.8

Total 97 100.0

Source: researcher

Table 4.4 shows the finding of the duration clients have worked with BRD, those of

below one year are represented by zero, those of one year are represented by 3.1% of the

respondents, those of between two to three years are represented by 13.4% of the

respondents, those of between four and five years are represented by 24.7% of the

respondents and those of above five years are represented by 58.8 % of the respondents.

This finding implies that the duration of being a client of a given bank is equally

important in influence the bank to extend a loan to the borrowers.

4.2 Presentation of the findings

To be able to assess the impact of developmental loan to the development of rural

agricultural sector as the general objective and the specific objectives as to examine what

BRD considers while extending developmental loan to rural agricultural sector, to

identify types of developmental loans issued by BRD to rural agricultural sector and to

determine the relationship between developmental loans and rural agricultural sector a

number of questions was asked to the respondents and the findings are presented as

follows.

41

4.2.1 BRD considers a number of factors to extend development loan

This section focused on the results from two different research instruments that are

questionnaires and interview guide whose result follows respectively.

Table 4. 5. Response about attainment of developmental loan

Frequency Percent

Valid Yes 97 100.0

Source: Researcher

Table 4.5 shows the response about attaining a developmental loan from BRD, the

finding is that 100% of the respondents said yes. The implication of this finding is that the

researcher only targeted persons who have ever got a development loan from BRD.

Table 4. 6.Amount of money requested as a developmental loan

Frequency Percent

Valid Over 15,000,000 Frw 97 100.0

Source: Researcher

In regard to amount of money requested in form of developmental loan 100% of the

respondents requested for above 15,000,000 Frw. The implication of this finding is that

for project owners seeking financing from BRD, the minimum amount granted to

investments is 15,000,000 Frw and there is no limit on the maximum amount granted that

means it depends on the set up project and its value.

42

Table 4. 7 Duration of receiving the developmental loan from the time of application

Frequency Percent

Valid Less than one month 76 78.4

Between 1 and two months 21 21.6

Total 97 100.0

Source: Researcher

Table 4.7 shows the duration it take to receive a developmental loan from the time of

requesting and the findings are, those who said less than one month are represented by

78.4% of the respondents which is the largest percentage, those between 1 and 2 months

are represented by 21.6% of the respondent, those who said between 2 and three months

are represented by zero and those over three months are represented by zero. The

implication of this finding is that developmental loan on average take a duration of less

than one month depending on the set up project and its value.

Table 4. 8. Agreed loan repayment period

Frequency Percent

Valid Above five years 97 100.0

Source: Researcher

Table 4.8 shows the response about the loan repayment period of which the findings of less than

one year are represented by zero, those between one to five years are represented by zero and

those above five years are represented by 100% of the respondents. The implication of these

findings is that developmental loan is mainly repaid in a relatively longer period of time that is

why the majority said over five years depending on the cash flow projected for the project.

43

Table 4. 9. Factors that favored loan repayment

Frequency Percent

Valid Profitability of the business 4 4.1

Good management of the loan 93 95.9

Total 97 100.0

Source: Research

Table 4.9 shows the response on the factors which favored the respondent to repay the

loan they acquired from BRD. The findings are those who said low interest rate

represented by zero, those of profitability of the business are represented by 4.1% of the

respondents, those on good management of the loan are represented by 97.9% of the

respondents which is the largest percentage and those of good government policy are

represented by zero. The implication of these findings are that for the borrowers to

succeed in servicing a loan, management policies are very important as this can facilitate

the borrower to respect the agreement between the borrower and the lender to prevent

extra charges due to failure in complying with the agreed contracts, the profitability of the

project also matters.

44

Table 4. 10. Performance of the business

Frequency Percent

Valid More products 10 10.3

High quality products 84 86.6

New services 3 3.1

Total 97 100.0

Source: Researcher

Table 4.10 shows the response of the respondents about the performance of their business

basing on various aspects. The findings are, those of new products are represented by zero

of the respondents, those of more products are represented by 10.3% of the respondents,

those of high quality products are represented by 86.6% of the respondents and those of

new services are represented by 3.1% of the respondents. The findings imply that most

business performance after getting loan was abundantly based on the quality products in

their areas of investments in agricultural sector.

Table 4. 11. Cash flow of the project

Frequency Percent

Valid Yes 97 100.0

Source: Researcher

Table.4.11 shows the response about the cash inflow in the business as a result of

attaining the loan from BRD. The findings in this regard are, those who said yes are

represented by 100% of the respondents. Finding implies that money makes money as

when working capital increases the cash inflow increases too.

45

Table 4. 12. Agricultural changes after getting a developmental loan

Frequency Percent

Valid Improvement 75 77.3

Expansion 15 15.5

Stagnation 7 7.2

Total 97 100.0

Source: Researcher

Table 4.12 shows the response about what happens to agricultural activities after

receiving developmental loan. The findings are, those who said that their business

improved are represented by 77.3% of the respondents, those who said expansion are

represented by 15.5% of the respondents, those of stagnation are represented by 7.2% of

the respondents and those of slow down are represented by zero. The implication of this

finding is that developmental loan is very important in the growth of rural sectors due to

the repayment period and project profitability.

Table 4. 13. Response on request for another loan

Frequency Percent

Valid Yes 97 100.0

Source: Research

Table 4.13 shows the response whether the respondents after repaying the loan they are

willing to request for another developmental loan. The findings are 100% of the

respondents are willing to take another developmental loan after repaying the first. The

implication of this finding is that development loan when managed properly leads to

46

success of the business that is why the majority is willing to request for another after

repaying the first one.

Table 4. 14. The amount of requesting another loan

Frequency Percent

Valid Greater than the previous

amount 97 100.0

Source: Researcher

Table 4.14 shows response on the amount the respondents willing to request at second

time. The response is that 100% of the respondents are willing to request for a higher

amount than the first amount. The implication of the finding is that the developmental

loan is a normal source of income to financing the business that is why after paying the

first amount they are willing to demand for a higher than the previous.

Table 4. 15. Developmental loan helped in financing agricultural activities

Frequency Percent

Valid Strongly agree 10 10.3

Agree 87 89.7

Total 97 100.0

Source: Research

Table.15 shows the response on whether developmental loan helped respondents in

financing agricultural activities. The findings in this regard are those of strongly agree are

represented by 10.3% of the respondents, those of who agree are represented by 89.7% of

the respondents. The implication of the finding is that borrowers get loans when they

have done a feasibility study of their projects on both technical and financial.

47

Table 4. 16. Improvements of standards of living

Frequency Percent

Valid Yes 97 100.0

Source: Researcher

Table 4.16 shows the response on whether the developmental loans from BRD help rural

agricultural sector to improve their standards of living. The findings are 100% of the

respondents said that after attaining the loan and its proper use in project yield profits

which in turn improve standards of living. The implication of this finding is that when the

loan is invested in a planned venture it yields return which eventually improves the

standards of living of the borrower.

Table 4. 17. Appreciation of developmental loan services offered by BRD

Frequency Percent

Valid Very good 4 4.1

Good 93 95.9

Total 97 100.0

Source: Researcher

Table 4.17 shows the response on the rank about the developmental loan services offered

by BRD. The findings are those who responded on the services as very good are

represented by 4.1% of the respondents and those who see it as good are represented by

95.9% of the respondents.

The implication of this finding is that the services offered by BRD are appreciated by

respondents as indicted in the table.4.17 much as there are those who rank it as very good.

48

Summary of the findings from the interview guide addressed to agricultural unit analysts

are: A person who qualifies for BRD developmental loan is any physical or moral who

fulfils the required conditions. The duration for developmental loan repayments depends

on factors such as, the amount of the loan, mutual understanding between the BRD and

the client requesting for the development loan, the projected cash inflow of the project to

be invested in and the cost of the whole investment because its shared between the client

and BRD.

Bankers prefer to lend money to borrowers who have borrowed at least once and have

paid back at least one loan on time. They are not venture capitalists that make high-risk

loans regardless of the profit prospects of your business. Bankers prefer to lend to low-

risk, low profit ventures than to high risk businesses or those with no record of

accomplishment.

Most of the clients pay as agreed in the loan contract, in case of failing much as there are

few case negotiations for flexibility where possible is done following an investigation of

what led to failure to abide by the terms and conditions as agreed upon. In incidences

where the client completely fails to repay the security is auctioned to recover the

developmental loan much as out of experience there are few cases of this nature. For

improvement of developmental loan use in Rwandan economy, the findings are:

developing of the project to invest in and verify them before requesting for the loan,

involving creativity innovation and change in the business, there should be a change from

copy paste of other people’s businesses.

49

The researcher was interested in examining what BRD considers while extending

developmental loan to rural agricultural sector. The response from the interview held with

BRD staff in the agricultural loan unit are, a feasibility study of the project (Technical and

financial), proven technical capacity in the field of the project for which finance is sought,

managerial capacity of the project, sufficient market share to ensure good turnover and

project profitability, A minimum participation by the promoter varying between 30 and

50% of the cost of investment depending on the size of the project. For expansion of

projects, the contribution of the bank can represent all necessary investment.

4.2.2 Types of developmental loans issued to rural agricultural sector by BRD.

The findings of the types of developmental loan extended to rural agricultural sector by

BRD are of different sectors as follows, beekeeping, piggery, cropping (mainly coffee

and tea), green house (flowers), poultry and dairy farming are the main developmental

rural agricultural loan extended to clients. The response is from an open question asked to

respondents.

4.2.3 Relationship between developmental loan and development of rural

agricultural sector.

The researcher had the objective of determining the relationship between developmental

loan and development of rural agricultural sector, a number of questions was asked to the

respondents, their findings is shown in tables as follows.

50

Table 4.18 Relationship between developmental loan and development of rural

agricultural sector

Developmental

Loans

Development of

Rural Agricultural

Sector

Developmental Loans Pearson Correlation 1 .509**

Sig. (2-tailed) .000

N 97 97

Development of Rural

Agricultural Sector

Pearson Correlation .509** 1

Sig. (2-tailed) .000

N 97 97

**. Correlation is significant at the 0.01 level (2-tailed).

There is a positive relationship between development loans and development of rural

agricultural sector as shown in table 4.18 analyzed by Pearson correlation. The

implication of this finding is that when developmental loans are extended to rural sector

there are high chances of developing that sector.

51

CHAPTER FIVE: SUMMARY, CONCLUSION AND

RECOMMENDATION

5.0 Introduction

This chapter summarizes the major findings presented in chapter four in line with the

research objectives. The objectives of this study were to examine what BRD consider

while extending developmental loan to rural agricultural sector, to identify types of

developmental loans issued by BRD to rural agricultural sector and to determine the

relationship between developmental loans and development of rural agricultural sector.

The objectives were achieved by answering the research questions thereafter the

conclusion was made from the findings. The research findings and general conclusion

were based on to give some recommendations and finally since the research was not

exhaustive the researcher invites other researchers to continue in the related disciplines.

5.1 Summary of findings

The presentation started with the demography of the respondents, for gender whereby

men are dominating with 63.9% of the respondents as presented in table 4.1. The largest

percentage of the borrowers lies between 41 to 50 years represented by 59.8% of the

respondents table 4.2. The finding on the level of education is that ordinary level (“O”

level) dominated and is represented by 39.2% of the respondents table 4.3. The period

that the client have been working with BRD is represented by 58.8% of the respondents

were above five years as it is in table 4.4

5.1.1 Factors considered by BRD while extending a developmental loan

In examining what BRD considers while extending developmental loan to rural

agricultural sector, an interview question was asked to the BRD staff from the agricultural

loan unit. The findings are: a feasibility study of the project (Technical and financial),

52

proven technical capacity in the field of the project for which finance is sought,

managerial capacity of the project, sufficient market share to ensure good turnover and

project profitability, A minimum participation by the promoter varying between 30 and

50% of the cost of investment depending on the size of the project. For expansion of

projects, the contribution of the bank can represent all necessary investment.

5.1.2 Types of developmental loan issued by BRD to rural agricultural sector

In order to identify the developmental loans issued by BRD to rural agricultural sector an

open question was asked to respondents, the finding was, beekeeping, piggery, cropping

(mainly coffee and tea), green house (flowers), poultry and dairy farming are the main

developmental rural agricultural loan extended to clients. The response is from an open

question asked to respondents.

5.1.3 Relationship between developmental loans and rural agricultural sector

development.

To determine the relationship between developmental loans and rural agricultural sector

development, a number of questions were asked; for the developmental loan attainment

from BRD, 100% of the respondents have acquired it as in table 4.5. The amount of

money requested as developmental loan is 100% of the respondents that requested over

15,000,000 Frw as in table 4.6. On duration of receiving the developmental loan from the

time of application is less than one month represented by 76% of the respondents as in

table 4.7. Considering the agreed loan repayment period 100% of the respondents pay it

in a period over five years as in table 4.8. Factors that favored loan repayment are good

management of the loan and profitability of the business with 97.9% and 4.1%

respectively as in table 4.9. Performance of the business is mainly based on high quality

products with 86.6% of the respondents as in table 4.10. Cash flow of the business

53

increased as a result of attaining and using of developmental loan represented by 100% as

in table 4.11.

The changes in agricultural activities after getting and using a developmental loan is seen

in improvements with 75.3% of the respondents as in table 4.12. Response on requesting

for another loan is 100% of the respondents as in table 4.13. The respondents after

repaying the previous loan showed willingness to request a greater amount than previous

one represented by 100% of the respondents as in table 4.14. Developmental loan helped

in financing agricultural activities represented by 89.7% of the respondents as in table

4.15. Improvements of the standards of living, 100% of the respondents pointed out that

their standards of living increased following an attainment and using of a developmental

loan as it is in table 4.16. Appreciation of developmental loan services offered by BRD,

95.9% of the respondents ranked it to be good as it is shown in table 4.17.

5.2 Conclusions

The research was carried out to find the impact of developmental loan to the development

of rural agricultural sector. The study used Development bank of Rwanda (BRD) as a

case study. The target population was 285 farmers and 5 bank employees from

agricultural loan unit totaling to 290. Sample of 102 was got by use of Slovin’s formula

and thereafter stratified sampling technique was applied. The questionnaire was the main

data collection instrument complemented by interview guide.

Research question one, what does BRD considers while extending developmental loans to

rural agricultural sector? The answer to this research question is a feasibility study of the

project (Technical and financial), proven technical capacity in the field of the project for

which finance is sought, managerial capacity of the project, sufficient market share to

ensure good turnover and project profitability, A minimum participation by the promoter

varying between 30 and 50% of the cost of investment depending on the size of the

54

project. For expansion of projects, the contribution of the bank can represent all necessary

investment.

Research question two what are the types of developmental loans issued by BRD to rural

agricultural sector, the answer to this question is, beekeeping, piggery, cropping (mainly

coffee and tea), green house (flowers), poultry and dairy farming are the main

developmental rural agricultural loan extended to clients. The response is from an open

question asked to respondents.

The third question Does the increase of developmental loans on rural agricultural sector

improve the output of farmers? The answer is the performance of the business increases

in terms of quality, developmental loan helped in financing agricultural activities, the

standards of living increased following an attainment and using of a developmental loan

and the respondents are appreciating developmental loan services offered by BRD.

5.3 Recommendations

These recommendations are put forward basing on the research objectives, major findings

and general conclusion of the study.

Education is an important determinant of loan repayment. An educated farmer is able to

use modern agricultural technologies, perform farming activities based on cropping

calendar, and manage resources properly. All these factors boost production, which

improves loan repayment in rural sector since agro-based businesses needs formal and

informal education.

The study recommends that increasing the number of development agents to change the

farmers’ attitude toward agricultural transformation and timely settlement of debt; Rural

development strategies should not only emphasize increasing agricultural production

without simultaneous attention to promote off-farm activities in the rural areas; The

55

elders, community leaders, local associations and religious organizations should equally

be involved to provide public lectures to rural sector.

Developmental banks offering developmental loans should use ratio analysis as a

supplemental check for evaluating the overall reasonableness in identifying trends in the

relationship of risk and businesses that require loan facilitates. This can be useful since it

creates ability in the management to come up with assumptions to be based on in

extending loans.

A borrower should be aware of any demand clauses in a note or loan agreement. A

demand clause is a provision that allows the lender to demand payment at any time. Even

though the demand provisions are seldom carried out, a borrower should be comfortable

with paying the loan upon demand, especially in times of economic uncertainty.

Developmental banks should provide technical assistance on financial matters to rural

sector more especially to agro-based businesses dominating rural areas

5.4 Suggestions for further study

The researcher invites other researchers to conduct other researches as this study was not

exhaustively handled. Further research is needed to establish whether or not there are

regional differences in the developmental loan repayment status in rural agricultural

sector. Studies need to be conducted to determine best proxies of developmental loan in

rural agricultural sector in Rwanda.

56

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59

APPENDICES

Introduction

Dear respondent

I am a student of Mount Kenya University finalizing master’s degree of Business

Administration (MBA) in the department of Business and Public Management.

Am doing a research on the impact of Bank loan to the development of rural agricultural

sector, a cash study BRD. The information required from you in this questionnaire will

help me complete my research project. The information you will provide will be strictly

used for academic purposes for the award of a masters’ degree of Business

Administration (MBA) at Mount Kenya University.

Your response to this questionnaire is very important as it will help me carry out my

study successfully. I re-assure you that the information you provide in this questionnaire

will be handled diligently, taken as confidential and strictly used for academic purpose

only.

Thanks

Yours faithfully

KARANGWA FRANCIS

The questionnaire addressed to clients of BRD

Guideline

For closed questions put a tick in the box in front of each question.

For open question, write your response in the space provided.

1. Gender

Male

Female

2. Age

Below 20 years

21 to 30 years

31 to 40 years

41 to 50 years

51 to 60 years

Above 61

3. Education level

Without PLE certificate

Primary six (PLE)

Ordinary level (‘’O’’ level)

Advanced level (‘A’ level)

Advanced diploma

Bachelor degree

Masters and above

4. How long have you worked with BRD?

Below one year

One year

Between two and three years

Between four and five years

Above five years

5. Have you ever attained an agricultural developmental loan from BRD?

Yes

No

6. If yes, how much credit did you obtain from the BRD as a developmental loan?

Less than 1,000 000 Rwf

Between 1,000 000 and 5,000 000 Rwf

Between 5,000 000 Rwf and 10,000 000 Rwf

Over 15,000 000 Rwf

7. What are the types of development loans issued by BRD to rural agricultural sector?

………………………………………………………………………………………………

…………………………………………………………………………………………….

8. When you requested a developmental loan, how long did it take you to obtain?

Less than one month

Between 1 and 2 months

Between 2 and 3 months

Over 3 months

9. What was the agreed period of repayment?

Less than one year

Between 1 and five years

Over 5 years

2

10. If you repaid it within the agreed period, what were the factors helped you succeed?

Low interest rate

Profitability of the business

Good management of the loan

Good government policy

11. What was the performance of your business after getting it?

Availability of new products

Availability of more products

Availability of high quality product

Availability of new services

12. Did your cash inflow increase when you received it?

Yes

No

13. Did the developmental loan allow you to increase stock of your product?

Yes

No

14. What happened to your agricultural activities after getting it?

Improvement

Expansion

Stagnation

Slowing down

15. After its repayment, would you like to request for another one?

Yes

No

16. If yes, which amount would you request?

Greater than the previous amount

Equal to the previous amount

Less than the previous amount

17. Is the developmental loan helped you in financing your agricultural activities?

Strongly agree

Agree

Disagree

Strongly disagree

18. After getting and using it were your standards of living improved?

Yes

No

19. How do you appreciate the developmental loan service offered by BRD?

Very good

Good

Bad

Poor

Interview guide:

The interview guide is prepared for the agricultural unit and to the investment analysts

1. Who can benefit from BRD developmental agricultural loan?

2. What are some of the factors you base on to offer an agricultural loan to the

client?

3. On average, how many clients ask for agricultural loan in a period of one month?

4. Does the clients when given agricultural loan repay in the scheduled agreed time?

5. In case of failing to repay in time, how do you handle the incident?

6. What are your suggestions for Improvement of developmental loan use in

Rwandan economy?