Memoire Online - An assessment of the role of commercial banks in promoting trade in rural areas: case study BPR S.A Kaduha sub-branch

AN ASSESSMENT OF THE ROLE OF COMMERCIAL BANKS IN PROMOTING TRADE IN RURAL AREAS:

Dissertation submitted to the Faculty of Economics and Management as a partial fulfillment for the award of the Bachelor's Degree in Economics by the National University of Rwanda.

I, Silas HABARUREMA, hereby declare that this dissertation entitled «AN ASSESSMENT OF THE ROLE OF COMMERCIAL BANKS IN PROMOTING TRADE IN RURAL AREAS» A case study of BPR SA., KADUHA Sub- Branch is my original work and has never been submitted to any University or other Institution or higher learning. It is my own research whereby other scholar's writings were cited and references provided.

ACKNOWLEDGEMENTS

This laborious work would not have been a success had it not been moral, financial support and guidance from various persons. I would like to express my most sincere gratitude and heart-felt appreciation firstly, to my almighty God, to whom I owe my life, wisdom, and good faith in all my endeavors. I praise him for enabling me on my academic journey and carry out this research in particular.

I wish to express my sincere gratefulness to my supervisor BIRASA NYAMULINDA, for his incomparable commitment to supervise my dissertation and his guidance. I am very grateful to him for giving me the benefits of his experience and suggestions.

Immeasurable and exceptional gratitude goes to the teachers in the department of Economics, Faculty of Economics and Management, National University of Rwanda who gave me invaluable guidance towards this work.

My thanks to my best friends, BALIGIRA Jean Evode, BIKORIMANA Celestin, HARINDINTWARI Innocent, HAKIZAMUNGU Celestin, NKUNDABANYANGA J. Baptiste, your love and advice were very helpful during my dissertation.

I owe my thanks to the Family RUHUMURIZA Nathan, Family NTIMUGURA Marcellin and Family BATUNGWANAYO Janvier Felicien who gave me moral and financial support during my academic formation.

My further thanks go to the Manager of BPR SA, Kaduha sub-branch, Mr Callixte KARIMUNDA his high collaboration to the results of this research.

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ABSTRACT

This study was carried out in Banque Populaire du Rwanda SA Kaduha sub-branch focused on the assessment of the role of commercial banks in promoting trade in rural areas in. The study had the general objective and three specific objectives.

The related literature was reviewed to identify the gaps that this study tried to fill. The population under the study was composed of the traders who got the bank loan to run their commercial activities. Primary data and secondary data were collected to achieve the stated objectives. Questionnaire was the technique used to obtain the primary data. The data were analyzed using quantitative methods (Analytical and synthetic methods). Frequency tables showing the frequency of response to particular questions were calculated. Interpretation and summary of the findings were based on percentages of responses to the questions.

The research findings proved that in rural areas there are trading activities supported by commercial banks; trade of agricultural and industrial products is more financed than the trade of food processed products and services. It was found out that banks contribute largely to the promotion of these activities. The study found out the importance of trading activities sustained by the bank loan to the traders, to the neighboring population and to the State. After financing their activities by the bank loan, traders increase their capital, expand and progress their businesses and services leading to the increase of economic growth and development of their households. Moreover there is an improvement of their living standards. People in rural areas are greatly helped by the financed business activities in terms of employment and increased wages and salaries. Furthermore, they get more and better products and services hence a reduction of the cost of acquiring them from the towns. Local governments also benefit from the trading activities financed by the loan; this increases the taxable capacity of the traders thus the government entities finance their budgeting programmes from the funds collected.

The researcher recommended the commercial banks to improve the credit services they offer to the customers, to reduce the interest rate calculated to the trade activities and to engage a project officer who could help the traders and other customers to prepare and implement their projects.

CHAPTER ONE: GENERAL INTRODUCTION

Commercial banks play an important role in extending credit to people through the mobilization of savings and financing the economic activities such as agriculture, commerce, manufacturing and trade. They normally play this role by accepting deposits from the public and extend credits to the business firms and individuals in an economy. It is therefore well known that those financial institutions are the backbone of all economic activities (Rose et al, 1993:196).

Commercial Banks in Rwanda are: BPR S.A, Rwanda Commercial Bank (BCR), FINA Bank, ECOBANK, Compagnie Générale des Banques (COGEBANK), Housing Bank of Rwanda, Kenya Commercial Bank (KCB, Urwego Opportunity bank (UOB), Access Bank Rwanda and Bank of Kigali. Most of them serve a limited number of people because they are located in cities especially in Kigali, except BPR S.A which opens branches and sub-branches in rural areas and whose main goal is to offer a full range of financial services in the urban and rural areas in a market driven and financially sustainable way, based on cooperative characteristics. Special attention is given to farmers, agribusiness enterprises, private individuals and micro as well as small and medium enterprises.

Rwanda recently re-assessed its position with regard to different regional economic groupings. In June 2007, Rwanda became a full member of the East African Community (EAC) and will also remain a member of the Common Market for Eastern and Southern Africa (COMESA) and the Economic Community of the Great Lakes Countries (CEPGL). Full EAC membership should allow Rwanda to exploit its comparative advantage in regional markets, as well as benefiting from ongoing global trade liberalization which offers improved access to European, American and Asian markets. By further opening up to international trade, exports should rise and inward foreign direct investment will be encouraged, thereby reducing the share of imported capital goods which are financed by external grants and loans (EDPRS 2007: 52-53).

For our country to achieve these goals, commercial banks can play a vital and formidable role in increasing the GDP through promoting all the productive sectors of the economy, most especially to the internal rural trade, which comprises wholesale and retail trade whose average growth decreased considerably from 19.8% in 2008 to 3.8 % in 2009 because of the international financial crisis which affected almost all less developed countries (BNR; 2010:11). As trade can, and indeed must, play a key role in achieving the ambitious targets that Rwanda has set for growth and poverty reduction and it is known that the internal trade is the one of the factors influencing the external trade, some trade policies adopted by the Government include development of the internal trade in making available goods and services on markets; make trade professional and domestic market supply improvement.

Therefore, to achieve the poverty reduction targets will require greater involvement of the poor, who overwhelmingly reside in rural areas, in commercial activities. This in turn requires the alleviation of a range of barriers that limit their participation in markets, both national and international. For trade to be the major vehicle for poverty reduction will require structural transformation of the rural sector and sustained efforts to reduce a wide range of constraints to supply (Rwanda; 2005:9).

1. 2. Problem statement

Rwanda is a landlocked country in which most of population lives in rural areas where the economic activities are largely dominated by agriculture of subsistence. The Government has adopted strategies of making the agricultural domain professional and encouraging people who are not able to perform well in it to carry out other economic activities which can give them more benefits. Among those activities trade is included.

In rural areas, trade is less developed than it is in cities. One can find retailers of agricultural products, industrial products and those who sell some services. Because their capital is small, they can not provide all goods and service that people need; some articles are not available in rural areas and people acquire them from towns; this creates disadvantages to both sides: to traders whose profits decrease because of the limitation of their commerce, and to the customers who pay transport, accommodation fees and other charges in spending time which would be allocated to other activities for obtaining those goods from cities. As one of major roles of commercial banks is lending money by overdraft, installment loan, or other means, the study seeks to find out how those financial institutions can help the low income rural merchants expand their transactions by facilitating them to access to credit and advising them how to use those credits efficiently so as to uplift their standards of living and to develop the rural areas in general through commercial activities.

1.3. Objectives of the study

1.3.1. General objective

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

1.3.2. Specific objectives

2. To identify the trade activities sponsored by the commercial banks in rural areas

1.4. Hypothesis of the study

1.5. Significance of the study

The research will help the government to adopt strategies of developing trade in rural areas. Commercial activities will be developed in rural areas and the income of people will increase. The study will help government collect money from rural taxpayers. Commercial banks by granting loans will raise their capital. After the research, the researcher got sufficient knowledge about the rural trade and the functioning of commercial banks. The research will contribute to the promotion of investment by entrepreneurs who wish to invest in rural sector, notably in trade. This study is helpful to the academic researchers and other interested people who will carry out their researches in related domains.

1.6. Scope of the study

Given the limitation of financial means of the researcher and the constraint of time allocated to this research, the study was restricted to the role of commercial banks in promoting trade in rural areas specifically in sectors covered by BPR S.a Kaduha sub-branch. Those sectors are Kaduha, Musange, Mugano, Mushubi and Kibumbwe.

1.7. Organization of the study

This study was organized into five chapters: Chapter one was the general introduction comprising the background to the study, problem statement, objectives of the research, and hypotheses of the research, significance of the research and scope of the research. Chapter two covered the literature review which reviewed in brief the ideas of preceding authors about the topic. Chapter three dealt with the methodological aspects of how data were collected, processed and analyzed. Chapter four discussed the research findings and interpreted data of the study based on the stated objectives. Chapter five was the summary of the major findings; conclusion and recommendations were also given in this chapter.

CHAPTER TWO: LITERATURE REVIEW

Introduction

This chapter was detailed with the review of the available literature related to the research under study. The review of the relevant literature considered various sources of information like text books, journals, magazines and internet. Thus, this chapter traces the literatures on the way Commercial Banks can contribute in promoting trade in rural areas.

2.1. Commercial Banks

According to BLACK C., (2006:32) Commercial Bank is a bank that offers banking services to the public and to businesses. Commercial banks are the most common type of banks today. They provide a very wide range of services to customers. Because of the wide range of services they provide, they are useful to business people.

Commercial banks are financial institutions that accept demand deposits and make commercial loans to the government and private individuals. Commercial banks are the most important financial intermediaries serving the public today. The general idea behind commercial banks is that, they are private, profit seeking depositor institutions serving business and non-business customers with deposits, current account and credits. They normally perform this duty by accepting deposits from customers and allowing writing cheques and lending money to individuals, business, non-profit making organizations, government and other organizations Peter, S. Rose (1993:23).

HASLEM (1985:4) argues that commercial banks lie at the heart of financial system. Until recently, they have unique in the issuance of deposit liabilities which are payable upon demand, usually by cheque. These checking accounts deposits have traditionally constituted the major portion of the country's money supply. The profit seeking activities of banks and central bank interact to determine the supply of loanable and investable funds in banking system. Commercial banks may create money through their lending activities.

According to Frederic S. (2004:34), Commercial Banks are financial intermediaries raise funds primarily by issuing checkable deposits (deposits on which checks can be written), savings deposits (deposits that are payable on demand but do not allow their owner to write checks), and time deposits (deposits with fixed terms to maturity). They then use these funds to make commercial, consumer, and mortgage loans and to buy U.S. government securities and municipal bonds. There are slightly fewer than 8,000 commercial banks in the United States, and as a group, they are the largest financial intermediary and have the most diversified portfolios (collections) of assets.

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

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

2.1.1. Organization of a commercial bank

Organization of a bank depends on the services carried in. Of course every bank is organized differently, reflecting a somewhat different mix of services and varying management philosophies. Size also greatly affects the organizational structure of banks and other financial institutions, with larger intermediaries typically having more complex organizational charts and more departments and divisions. Nevertheless, the following are areas and functions within the modern commercial bank:

2.1.1.1. The owners and policymakers

At the apex of the bank's organizational chart are its owners; the stockholders. A bank issues mainly common stock, which gives its holders the power to vote on all matters affecting the organization as a whole. At the annual stockholders' meeting a board of directors is elected by majority vote. It is the bank's board of directors that lays down the institution's operating policies, select and appoints management to carry out those policies, and monitors the institution's performance.

2.1.1.2. Senor management

The board of directors delegate authority for the day-to-day management and the control of the bank to the president (or chief executive officer) or other members of senior management. Included among the senior executives of the bank are one or more executive vice-presidents, each of whom oversees one or more divisions of the bank.

2.1.1.3. The credit division

The central focus of the credit division is making loans. In a large bank each major type of loan will be handled in a separate department.

2.1.1.4. Finance division

The finance division is responsible for rising funds that, in the main, flow to the credit division for making loans. Most incoming funds are received through the deposit services department, which oversees checking, time, and savings accounts. Funds are also taken in from correspondent banks in return for the services they render (such as clearing checks or providing investment advice). The finance division also may house a bond or investment department, which trades in both long-term and short-term securities. This division may also including a planning and marketing department, which sells existing services, develop new services, and plans for the bank's future growth and expansion.

2.1.1.5. Operations division

It is responsible for managing and protecting the physical facilities owned by the bank and for the daily routine of bookkeeping, posting and proofing, for thousands of customer credit and deposit accounts.

2.1.1.6. Trust division

It provides the many personal and business trust services. Bank trust departments are playing a key role today in managing retirement (pension) accounts for the bank itself and for corporations, proprietorship, partnership and individuals. (

2.1.2. The goals of commercial banks

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

2.1.3. Internal and external factors affecting the earning of commercial banks

2.1.3.1. External factors

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

2.1.3.2. Internal factors

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

2.1.4. Activities of Commercial Banks

Commercial banks today offer more services from one location than the majority of other financial institutions. The most important of these services are the following:

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

· Providing documentary and standby letter of credit, guarantees, performance bonds, securities underwriting commitments and other forms of off balance sheet exposures

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

· Traditionally, large commercial banks also underwrite bonds, and make markets in currency, interest rates, and credit-related securities, but today large commercial banks usually have an investment bank arm that is involved in the mentioned activities.

2.1.5. Commercial bank credit

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

Serrano C. (2001:39) argues that bank lending is directly constrained by monetary policy actions. He continues saying that monetary policy works through bank credit, in this view, monetary policy directly constrains the ability of banks to make new loans, making credit less available to borrowers who are dependent on bank financing. Thus, in the credit channel, restrictive monetary policy works not only by altering interest rates, but also by directly restricting bank credit. Restrictive monetary policy would cause banks to directly reduce the supply of loans, forcing business to cut back their investment and lending.

2.1.5.1. Types of credit secured by commercial banks

A secured loan is a loan in which the borrower pledges some asset (e.g., a car or property) as collateral (i.e., security) for the loan. A secured loan is a loan in which the borrower pledges some asset (e.g. a car or property) as collateral for the loan, which then becomes a secured debt owed to the creditor who gives the loan. The debt is thus secured against the collateral in the event that the borrower defaults, the creditor takes possession of the asset used as collateral and may sell it to regain some or the entire amount originally lent to the borrower for example, foreclosure of a home. From the creditor's perspective this is a category of debt in which a lender has been granted a portion of the bundle of rights to specified property. If the sale of the collateral does not raise enough money to pay off the debt, the creditor can often obtain a deficiency judgment against the borrower for the remaining amount.

The opposite of secured debt/loan is unsecured debt, which is not connected to any specific piece of property and instead the creditor may only satisfy the debt against the borrower rather than the borrower's collateral. Unsecured loans are monetary loans that are not secured against the borrowers assets (i.e., no collateral is involved). These may be available from financial institutions under many different guises or marketing packages. Bank overdrafts are classified in this category. An overdraft occurs when money is withdrawn from a bank account and the available balance goes below zero. In this situation the account is said to be "overdrawn". If there is a prior agreement with the account provider for an overdraft, and the amount overdrawn is within the authorized overdraft limit, then interest is normally charged at the agreed rate. If the negative balance exceeds the agreed terms, then additional fees may be charged and higher interest rates may apply.

A mortgage loan is a very common type of debt instrument, used to purchase real estate. Under this arrangement, the money is used to purchase the property. Commercial banks, however, are given security; a lien on the title to the house, until the mortgage is paid off in full. If the borrower defaults on the loan, the bank would have the legal right to repossess the house and sell it, to recover sums owing to it.

In the past, commercial banks have not been greatly interested in real estate loans and have placed only a relatively small percentage of assets in mortgages. As their name implies, such financial institutions secured their earning primarily from commercial and consumer loans and left the major task of home financing to others. However, due to changes in banking laws and policies, commercial banks are increasingly active in home financing.

Changes in banking laws now allow commercial banks to make home mortgage loans on a more liberal basis than ever before. In acquiring mortgages on real estate, these institutions follow two main practices. First, some of the banks maintain active and well-organized departments whose primary function is to compete actively for real estate loans. In areas lacking specialized real estate financial institutions, these banks become the source for residential and farm mortgage loans. Second, the banks acquire mortgages by simply purchasing them from mortgage bankers or dealers.

In addition, dealer service companies, which were originally used to obtain car loans for permanent lenders such as commercial banks, wanted to broaden their activity beyond their local area. In recent years, however, such companies have concentrated on acquiring mobile home loans in volume for both commercial banks and savings and loan associations. Service companies obtain these loans from retail dealers, usually on a nonrecourse basis. Almost all bank/service company agreements contain a credit insurance policy that protects the lender if the consumer defaults.

2.1.6. Benefits of commercial bank activities for the economy

The deposit and loan services provided by commercial banks benefit an economy in many ways. First, checking accounts, because they act like cash, make it is much easier to buy goods and services and therefore help both consumers and businesses, who would find it inconvenient to carry or send through the mail huge amounts of cash. Second, loans enable consumers to improve their standard of living by borrowing money to purchase cars, houses, and other expensive consumer goods that they otherwise could not afford. Third, loans help businesses finance plant expansion and production of new goods, and therefore increase employment and economic growth. Finally, since commercial banks want loans repaid, they choose borrowers carefully and monitor performance of a company's managers very closely. This helps ensure that only the best projects get financed and that companies are run efficiently. This creates a healthy, efficient economy. In addition, since the owners (stockholders) of a company receiving a loan want their company to be profitable and managed efficiently, bankers act as surrogate monitors for stockholders who cannot be present on a regular basis to watch the company's managers.

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

Because commercial banks attract large amounts of savings from depositors, they can make many loans to many different customers in various amounts and for various maturities (dates when loans are due). Banks can thereby diversify their loans, and this in turn means that a bank is at less risk if one of its customers fails to repay a loan. The lowering of risk makes bank deposits safer for depositors. Safety encourages more bank deposits and therefore more loans. This flow of money from savers through banks to the ultimate borrower is called financial intermediation because money flows through an intermediary that is, the bank (James, M. J., 2009:6).

2.1.7. Commercial banks in Developing Countries

The type of national economic system that characterizes developing countries plays a crucial role in determining the nature of the commercial banking system in those countries. In capitalist countries a system of private enterprise in banking prevails. In state-managed economies, banks have been nationalized. Other countries have patterned themselves after the social-democracies of Europe; in Egypt, Peru, and Kenya, for instance, government-owned and privately owned commercial banks coexist. In many countries, the banking system developed under colonialism, with banks owned by institutions in the parent country. In some, such as Zambia and Cameroon, this heritage continued, although modified, after decolonization. In other nations, such as Nigeria and Saudi Arabia, the rise of nationalism led to mandates for majority ownership by the indigenous population.

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

2.1.8. Problems faced by commercial banks in Rwanda

Rwandan Commercial banks face many constraints due to the existence of many poor customers who are scattered. So there are problems of savings mobilization. There are few creditworthy customers and lending is limited by lack of collateral security by most people. Most of the customers are illiterate other do not keep books of accounts and therefore it is difficult to asses their creditworthiness.

Inflation discourages lending and leads to loss of real value of money. Commercial banks are concentrated in urban areas and hence they compete for business. They are also hindered by the shortage of communication facilities, of trained manpower and funds to finance manpower development and staff training. The rate of interest used to be fixed by the government and it was sometimes high; this discourages people from borrowing money from banks. Foreign commercial banks are sometimes faced with the problem of unfavorable government policies e.g. taxation, nationalization (TAYEBWA B., 2007:220).

2.1.9. Financial intermediation in rural areas in Rwanda

Commercial banking system in Rwanda is composed of the following banks: BPR S.A, Rwanda Commercial Bank (BCR), FINA Bank, ECOBANK, Compagnie Générale des Banques (COGEBANK), Housing Bank of Rwanda, Kenya Commercial Bank (KCB, Urwego Opportunity bank (UOB), Access Bank Rwanda and Bank of Kigali. Most of them serve a limited number of people because they are located in cities especially in Kigali, except BPR S.A which opens branches and sub-branches in rural areas and whose main goal is to offer a full range of financial services in the urban and rural areas in a market driven and financially sustainable way, based on cooperative characteristics. Special attention is given to farmers, agribusiness enterprises, private individuals and micro as well as small and medium enterprises.

The engagement of commercial banks in rural areas is very little; this reflects, in part, the absence of standard elements upon which lending decisions are made. Individuals, enterprises and cooperatives lack formally registered assets which a bank can accept as collateral. There is a lack of organization and capacity to develop and define standard business plans and there are severe difficulties of communication. In response to this environment for lending certain specialized institutions have been created or strengthened to help channel financial resources towards rural activities and the financing of SMEs. These institutions include BRD, BPR S.A and its networks, the CDF and the microfinance institutions (REPUBLIC OF RWANDA, 2005:47).

BRD is responsible for increasing the flow of funds to rural areas. Given the reluctance of commercial banks to finance rural activities and the lack of a specialized bank to finance agriculture, the Government of Rwanda has revamped BRD to provide long-term financing of productive investments that create employment and value added. BRD is mandated to provide credits to agriculture, agro-industrial activities and long-term credits to viable firms. BRD finances cooperatives and associations for loans that are more than $10,000. The Government has recently injected BRD with RWF 3 billions to finance long-term development and address the lack of infrastructure in the rural sector.

The approach of BRD to lending is not commensurate with conditions in the rural area. BRD as well as commercial banks are cautious in lending to the rural sector because during the period 1996-2000, most banks issued loans without corresponding collaterals and against poorly evaluated projects. This contributed to the high level of non-performing loans. As a result of this experience, banks including BRD are tending to lend to borrowers who can demonstrate creditworthiness according to standard banking measures and to those who possess documented collateral. Experience elsewhere suggests that approaches to lending have to be adjusted when dealing with small farmers in rural areas who lack formally registered assets that can be used as collateral. At present, bankers including staff from BRD have limited capacity to conduct project appraisal and financial evaluation relevant to the context of poor farmers in rural areas.

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

MFIs which work as commercial banks can play an important role in providing financial products to the poor but cannot by themselves fill the gap in financial services provision. Rwanda has recently seen a flowering of decentralized financial institutions, which appear to have had some success in fostering microenterprise development. A number of these institutions have received assistance from donors in financing start-up costs. The main advantages of the MFIs include that they accept certain risks associated with informal activities in rural sectors that other financial institutions do not contemplate, they offer services that are more appropriate to the poorest members of society who do not have access to the formal financial system and they provide assistance to newly established enterprises that have difficulty to access credit from the formal financial sector.

The BPR S.A and its networks have had some success in mobilizing rural savings but these funds are not all reinvested in rural activities. BPR S.A has networks that operate as commercial banks across Rwanda and finance rural activities. This network is still inadequate to meet the financial needs of rural inhabitants and will continue to expand its activities. BPR S.A accepts deposits and makes loans to members. One of the key features of the BPR S.A is that they provide loans to cooperatives without requiring any collateral, although collateral is required for lending to an individual borrower. A loan recipient is required to fulfill the following 3 criteria: be a member for at least 3 months, present a bankable project and show the capacity to pay back the loan.

BPR S.A lends some of its funds to the banking system at a rate of 10-12 percent. Thus, BPR S.A is a net lender to the rest of the financial sector, whilst at the same time the rural sector is still constrained in access to finance. The low level of rural financing undertaken by UBPR is more a reflection of the limited absorptive capacity of the real sector, due to the lack of bankable projects, and the lack of organized cooperatives (REPUBLIC OF RWANDA, 2005: 50).

2.2. The concept of Trade

According to BLACK, C., (2006:202), trade is defined as the business of buying and selling goods and services.

Trade is the exchange of goods and services for money. Once money is obtained, it may b e used to buy other goods that are needed (Nathan, K. 2010:142).

Trade is the transfer of ownership of goods and services from one person to another. Trade is sometimes loosely called commerce or financial transaction or barter. A network that allows trade is called a market. The original form of trade was barter, the direct exchange of goods and services. Later one side of the barter were the metals, precious metals (poles, coins), bill, paper money. Modern traders instead generally negotiate through a medium of exchange, such as money. As a result, buying can be separated from selling, or earning. The invention of money (and later credit, paper money and non-physical money) greatly simplified and promoted trade. Trade between two traders is called bilateral trade, while trade between more than two traders is called multilateral trade.

Trade exists for man due to specialization and division of labor, most people concentrate on a small aspect of production, trading for other products. Trade exists between regions because different regions have a comparative advantage in the production of some tradable commodity, or because different regions' size allows for the benefits of mass production. As such, trade at market prices between locations benefits both locations.

2.2.1. Types of trade

2.2.1.1. Electronic trade

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

2.2.1.2. Commodity trade

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

2.2.1.3. Barter trade

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

2.2.1.4. Retail trade

Retail consists of the sale of goods or merchandise from a fixed location, such as a department store, boutique or kiosk, or by mail, in small or individual lots for direct consumption by the purchaser. Retailing may include subordinated services, such as delivery. Purchasers may be individuals or businesses. In commerce, a "retailer" buys goods or products in large quantities from manufacturers or importers, either directly or through a wholesaler, and then sells smaller quantities to the end-user. Retail establishments are often called shops or stores. Retailers are at the end of the supply chain. Manufacturing marketers see the process of retailing as a necessary part of their overall distribution strategy.

2.2.1.5. Wholesale trade

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

According to the United Nations Statistics Division, "wholesale" is the resale (sale without transformation) of new and used goods to retailers, to industrial, commercial, institutional or professional users, or to other wholesalers, or involves acting as an agent or broker in buying merchandise for, or selling merchandise to, such persons or companies. Wholesalers frequently physically assemble sort and grade goods in large lots, break bulk, repack and redistribute in smaller lots. While wholesalers of most products usually operate from independent premises, wholesale marketing for foodstuffs can take place at specific wholesale markets where all traders are congregated.

Traditionally wholesalers were closer to the markets they supplied than the source they got the products.

However, with the advent of the internet and E-procurement there are an increasing number of wholesalers located nearer manufacturing bases in Mainland China, Taiwan and South East Asia like Chinavasion, Ownta, Salehoo and Modbom, many of which offer drop shipping services to companies and individuals.

2.2.1.6. External trade

It is commonly called international trade and it refers to the buying and selling of commodities between or among the nations. It can be carried out by individuals, private companies or governments. The purchase of commodities from another country is called import trade and the selling of goods to another country is called export trade. The trade in goods is called visible trade while trade in services is called invisible trade. When two countries trade together, it is called bilateral trade and when trade takes place among more than two countries, it is called multilateral trade (TAYEBWA B., 2007:231).

2.2.2. Trade and Rwandan development

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

2.2.2.1. Constraints of the Trade Sector

The major constraints to the rapid growth and to expanding trade are often also constraints that stem from the geographical and historical situation of the country. For example, being landlocked and without cheap air or rail links greatly hinders Rwanda's current export capabilities. The trade sector suffers from two major problems, the production constraints on one hand and the international markets access on the other hand.

Our country is characterized by a weak export structure due to low quality products originating from weak industrial sector that use undeveloped technology. Rwanda being a land locked country and without cheap air or railway links to regional or international markets, transport costs are high and this makes difficult for trade development in the country. There is a poor infrastructure such as road network, especially in the rural areas which pose a serious transport problem to rural produced products, from areas of production to market. Trade in Rwanda is hindered by high production costs which have direct impact on prices, when imported product prices are lower than locally produced products prices then automatically imports are preferred to locally produced products hence being a problem to local producers who could not sell their products. Most of the business laws that are currently being used do not suite the current business situation.

Production is still low due to various constraints and this leads to trade that always targets internal markets or subsistence hence trade imbalance. Shortage of power supply cause most industries to work under capacity, leading to limited production and increased production cost. There are many factors that cause low quality production in Rwanda, these include, poor infrastructure, power shortages, unskilled labor, low production technology etc all these lead to lack of capacity to compete on international markets. Lack of modern technology in production that is always done at a higher cost as compared to the neighboring countries and the small size of the local production units do not allow exploiting the economies of scales.

Low standards and inability to reach international standards, lack of quality parking materials, inadequate conditions of stock control and high costs of transport passed on to the price of products reduce competitiveness. There are heavy requirements for loans emanating from out dated laws. This makes it hard for business men to access loans in the due time. Furthermore, weak financial institutions for example banks, insurance companies etc limit smooth functioning of business entities retarding trade development.

Marketing constraints such as lack of clear information on Rwanda's potentials, low purchasing power, lack of a professional business community and aggressive mechanism to promote the positive image of Rwanda, absence of the market information system and lack of skills in commercial techniques and international market hinder both internal and external trade (MINICOM, 2006:12).

Large traders have relatively easy access to finance for trade activities but access of SMEs to credit to finance trade is constrained. Large enterprises tend to have strong capacity to promptly repay loans and can present tangible assets for collateral. Banks in turn consider export/import activities to be favorable short-term activities yielding large, low-risk and quick turnovers. Local traders finance their activities using ownership' equity and commercial loans, while foreign-owned export/import firms can access not only commercial lending, but also can often obtain advances from their overseas suppliers. These large firms have access to short-term bank loans with negotiable interest rates around 12.5 percent. Well-established SMEs tend to finance trade activities using either owners' personal equity or bank loans. Newer SMEs have difficulties in financing their trade activities for the following reasons: high nominal interest rates, lack of training of entrepreneurs, difficulties in the search process of getting a loan, poor registry system, absence of adequate credit assessment tools and lack of information and awareness of available schemes (REPUBLIC OF RWANDA, 2006:17).

The mainstreaming of trade in national development plans, among other measures for stimulating economic growth and development, remains weak. The limited scope, lack of specificity and detail, content and depth of coverage of trade in national development plans like Vision 2020 and the EDPRS clearly demonstrates the point. There has not been a strong justification to put trade amongst other government sector policies, despite the fact that clear objectives, policy measures, negotiating strategies and clear links between trade and other important trade-related activities can help in boosting trade to spur development and reduce poverty. Some trade objectives are loosely referred to in some cases but this is limited and not done systematically. Clear trade policy objectives rich in both quantity and quality need to be present in the national plan. The ongoing exercise of mainstreaming trade in national plans through the Enhanced Integrated Framework continues to reveal substantial gaps between intentions and actual implementation (UNITED NATIONS; 2010:3).

2.2.2.2. Opportunities of trade sector

Opportunities in the trade and investment are numerous with strong potential for Rwanda to become a regional trade hub; Rwanda has a strategic central location and tremendous asset of both a common language and multilingualism with both international languages. Integrated Framework in its diagnostic trade integration study identified the barriers to trade of which are to be solved by a number of projects to be formed to overcome these barriers so as to attain the economic growth. Rwanda shows its commitment to trade in the action of integrating trade into poverty reduction strategies and enabling it to be an engine for economic growth.

Rwanda's fertile soils and good climate favor the growth of various types of crops throughout the year and this enables the development of commerce of agricultural products. Availability of marshlands, these too favor growth of various crops and assist in irrigation of dry places. Rwanda has numerous water bodies (lakes, rivers) which need to be fully exploited in order to develop fishing industry. The fish market prospection in the neighbouring countries show market opportunity for our fish products.

The opportunity of having research institutions e.g. ISAR, KIST, IRST which have done a number of researches in agriculture and scientific technology; many of these researches are market oriented and enables us to access new clients and overcome supply constraints.

Availability of skilled and semi-skilled labour in the country allows different types of people to be employed in many of the existing sectors and then lead to economic development. Prevailing peace and security in the country presents a strong opportunity for trade development as the business men carry out their activities without fear of robbery or any other security risk. Trade also is favoured by the existence of good governance especially the establishment of ombudsman that helps in fight against corruption in all sectors.

Rwanda is already a member to Common Market for Eastern and Southern Africa (COMESA) and its free trade area and able to access the whole market without any barriers to trade. Rwanda is also ready to benefit from various blocks like Economic Community for Central African States (ECCAS), African Growth Opportunity Act (AGOA), African Union (AU), World Trade Organisation (WTO), European Union (EU), bilateral trade arrangements, etc offers Rwandan internal traders an opportunity for easy access to foreign markets.

The Government's commitment to private sector development makes it an opportunity for trade development, as there are initiatives of creating conducive environment for trade. Establishment of the trade point which will provide all trade related information; this becomes an opportunity as trade information will be easily obtained in one place. Permanent national trade fair ground creates an opportunity for trade development as it will give business men a chance of regular expositions which will help them in sell and advertisements of their products.

Establishment of business development centres (BDC) which will facilitate easy coordination of business activities in rural areas is one of the major factors of trade. Government's initiative in cooperatives development creates an opportunity for trade development for from a strong cooperative movement trade is improved.

2.2.3. Rural areas towards internal trade

Internal trade is carried out within a country. It is known as domestic trade. The selling of food to towns by rural areas is an important part of Rwandan internal trade. Meat, maize, fruit, and milk are produced in rural areas and sold in towns. Bananas, beans, maize and other crops are bought from rural farmers in areas and transported to be sold in Kigali. Similarly, manufactured goods are bought from factories and shops in towns and sold to rural areas in Rwanda. Internal trade is made of retailers who sell individual items directly to consumers. Retailers include open air market traders, roadside traders, hawkers and shopkeepers (NATHAN, K., 2010:142).

2.2.4. Strategies of promoting internal trade

Rwanda has adopted the strategies of development of the internal trade to make available goods and services on markets, creating a favorable environment for integrating the informal sector into the formal private sector, organization and management of the professionalism in businessmen and improvement of distribution networks and optimization of the supply of the domestic market.

The Government entered into working partnerships with private sector operators to solve the problems that are limiting better functioning of the private sector. Given current private sector weakness, the country has laid strategies of encouraging professionalism in the private sector. In order for this policy to have impact on trade, there will be workshops and meetings oriented towards explaining it to the business community. It will be organized in such away that all traders in their decentralized entities are trained.

The government will protect consumers of all categories through supervision and ensuring quality products on the market, ensure the country's supply in oil products through establishment of petroleum industry policy, create a conducive environment for trade i.e. legal, institutional, etc, build capacity, coordinate the action of training business people so as to increase professionalism in their business and coordinate the program of installing and running strategic stocks (food and oil products).

The country wishes to strengthen these activities: controlling quality packaging, parking materials that suit international standards; funding business community to participate in national, international trade fairs, study tours etc, establishment of business development centers (BDC) which will facilitate easy coordination of business activities in rural areas; strengthening institutional framework, where there will be easy access to finances by private sector operators; entrepreneurship development through establishment of the new fund for young entrepreneurs; organizing regular meetings with bankers and bank's associations in finding appropriate measures of reducing bank interest rate and training of women and youth on professional business (MINICOM 2006:14-15).

2.2.5. Rural trade and development in Rwanda

2.2.5.1. Poverty in rural areas

Poverty in Rwanda is a rural phenomenon, as 99 per cent of the poor live in rural areas. Among household characteristics, occupation appears to be the single most important variable affecting the probability of being poor. Typically someone who earns a wage in the non-farm sector has a substantially higher chance of not being poor. A self employed non-farm worker is also much more likely to be non-poor. On the other hand, being an agricultural worker implies a higher probability of being poor and about 76 percent of household heads are farmers. That is why the government encourages people who are not performing well in agriculture to shift in other sectors of production including trade.

2.2.5.2. Financing trade and rural development

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

2.2.6. Barriers that restrict the ability of households to move into commercial activities

Of particular importance to poverty reduction are factors that constrain the ability of farmers to move into commercial and non-farm activities. Reducing trade costs increases incentives to move into new activities but there are substantial barriers that limit farmers' responses.

2.2.6.1. Lack of access to credit

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

2.2.6.2. Lack of organization of the rural sector

The lack of effective organization of the rural sector is a substantial barrier to the emergence of market oriented activities. The highly fragmented nature of the rural economy limits the scope for financial intermediation in rural areas and constrains the emergence of effective supply chains linking rural producers to local, regional, national and international markets. A key initiative must be to strengthen the role of cooperatives, first, by clarifying their legal standing and then by raising capacities to organize members, to develop business plans and to attract and manage credit.

2.2.6.3. Lack of access to energy

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

CHAPTER THREE: RESEARCH METHODOLOGY

3.1. Introduction

This chapter showed various methods used in data collection, research design i.e. how data were collected, population, sample selection, research instruments, methods of data analysis, and limitation to the study.

3.2. Population, sample, and the sample determination

3.2.1. Population

The population of our study was composed of 480 traders who used a bank loan from BPR S.A KADUHA Sub-Branch to carry out and develop their businesses working in five sectors: KIBUMBWE, MUGANO, MUSANGE, MUSHUBI and KADUHA; the area in which this bank extends its activities. Because the study is aiming at `assessing the role of commercial banks in promoting trade in rural areas' the research was carried out referring to the data of period from 2006 to 2010.

Due to the time and resource constraints, and the nature and size of the population, it would not be possible to make a study of the whole population but rather to select a sample representative of the entire study population. The sample was picked among the retailers of food crops not requiring industrial transformation such as beans, sorghum, potatoes, etc., food processed products in which are classified rice, vegetable oil, and cereals flour. Also participated the traders of animal products such as milk, skin and flesh meat. The merchants of tree derivative products such as charcoal and boards were not let aside. The study finally involved the traders of industrial products and those who sell services such as bar and restaurant, transport and commercialization of airtimes.

3.2.2. Sample and sample selection

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

As their names are written in computer by software of Excel, to determine the sample, the researcher selected among the electronic list of loan granted to finance trade during the stated period 48 people (1/10 of the whole population) randomly, by ticking the names corresponding to the number which is multiple of 10 (10, 20, 30, 40,............, 480 and the total was 48 people), hoping that they could give the information relating to the whole group. To reach their residence, the researcher followed their identification recorded in the book of granted loans. Therefore the researcher used to visit them and distributed the questionnaires in order to collect the relevant information.

3.3. Source of data

In conducting the research study the required data were gathered from both primary and secondary data sources. The information required helped the research to achieve the set objectives.

3.3.1. Primary data

During the research, primary data were used to obtain from the sample elements relevant information concerning the whole people under the study. The technique used was questionnaire. The questionnaire was addressed to the selected traders under the study and contained both close-ended and open ended questions.

3.3.2. Secondary data

The sources of secondary data for this study were the main library of the National University of Rwanda and the documents from Rwandan financial institutions mainly BPR S.A KADUHA Sub-Branch. Extensive study and review of published and unpublished documents, reports, journals, magazines and policy reports relevant to the study was done.

3.4. Data processing

After the process of data collection, the data were analyzed by arranging and organizing them properly so as to be easily interpreted. To analyze data the researcher used editing, coding and tabulation.

3.4.1. Editing

The ultimate purpose of editing was to discover or to monitor the accuracy and to detect gaps and other weaknesses in the data and collection methods. Here the researcher will make sure that all the questionnaires were fully answered and returned to him. Maximum care will be taken in the process of sorting out the unnecessary information so as not to distort the message from the respondents.

3.4.2. Tabulation

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

3.5. Data analysis

Data were analyzed after editing, coding and tabulation. This analysis was based on percentages that were obtained to show the relationship between the study variables. The information was summarized according to the objectives of the study.

3.6. Hypothesis testing

The hypothesis of the study stated that, `Commercial Banks can contribute to the development of trade in rural areas'. The aim of this hypothesis was to show the role played by BPR S.A KADUHA Sub-Branch in promoting trade in the area under the study. The hypothesis was tested basing on respondents views. Testing the hypothesis means that the analysis of data either supports or rejects the hypothesis. The researcher tested the hypothesis quantitatively basing on the opinions of several respondents to whom questionnaires were distributed.

CHAPTER FOUR: DATA ANALYSIS AND INTERPRETATION

4.1. Introduction

This chapter analyzes data collected for the study and interprets it to enable the researcher to draw conclusions in light of the study objectives. It deals with elements that proved relevant in assessing the role of commercial banks toward trade in rural areas. Findings of the study are based on both primary and secondary data analysis, and are presented in the form of tables, percentages and descriptions.

4.2. Description of the area under the study

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

The project of Banque Populaire du Rwanda is one of the fruits of the co-operation between the Swiss confederation and the Republic of .Rwanda. Then the principal idea was centered on the installation of a network of the co-operatives of saving and credit in order to contribute to the collection of the deposits especially in rural area and to reinvest them in projects of development.

Thus, in June-July 1971, a Swiss commission made feasibility studies which proved to be conclusive and at the end of which an agreement would be signed in Bern (in Switzerland) the 7^th December 1972. However, the operational phase did start that with the creation of BP de NKAMBA in ex-Commune of KABARONDO, in the ex-Prefecture of KIBUNGO on August 04^th, 1975. The periods which followed were characterized by the creation of the new Popular Banks. In 1986, the Union des Banques Populaires du Rwanda (UBPR) was born thus replacing the office of direction (of orientation).

Before 1994 the UBPR joined together 131 Popular Banks. The members were counted with 356779 people, with 455020291 Rwandan francs of deposits. The genocide and the war of 1994 put an end to this evolution, much of members were assassinated, others fled, and the Popular Banks were plundered. However, the period post genocide was characterized by activities of rehabilitation which made that the Popular Banks of Rwanda retake their activities. Thereafter, the Popular Banks were spread everywhere in the country.

Nowadays, Banque Populaire du Rwanda S.A maintains a network of 18 branches, over 109 sub-branches and 61 outlets in all provinces of the country. It employs 1460 staff number and has a capital of 5,800,000,000 Rwf. BPR Motto is «BANKI YACU, HAFI YACU»; English meaning: Our neighborhood bank.

4.2.2. Mission and vision of Rwanda People's Bank

BPR's mission is still wholly in line with the original strategy of its founding banks. The main difference being the national approach and the extension of its products. In short: «To be the leading retail bank of Rwanda» BPR will provide a full range of financial services in the urban and the rural areas in a market-driven and financially sustainable way, historically based on cooperative characteristics. Special emphasis will be on providing a wide range of financial services to farmers, agribusiness enterprises, private individuals and micro- as well as SME types of businesses». BPR vision is to be the leading retail bank of Rwanda.

4.2.3. Objectives of Banques Populaires in Rwanda

The Banques Populaires were created with the objectives of developing people's savings and credit, promoting cooperation through social and economic welfare of their members and serving the community. They aimed at attaining above-mentioned objectives by:

1. Extending credit facilities to their members. This enabled members to cover their economic needs.

2. Promoting savings by giving members economic interest on fixed accounts according to the time limited and on agreement terms.

3. Creating an environment for expansion of agricultural and art-craft production and other income and job creating activities particularly in rural areas.

4. Creating an environment for economic and social progress of the population through training members about project formulation.

4.2.4. Historical background of BPR SA Kaduha sub-branch

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

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

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

1. To BPR S.A, KADUHA Sub-Branch sensitizes and mobilizes its members on the culture of saving and proper management of incomes.

2. To sensitize and mobilize its members to carry out different income generating project, for their development and for the country in general. To support the National policy of provision of employment opportunities to qualify people, to fight against poverty, to carry out capacity building, mobilizing and encouraging the local community to use credits.

3. In particular, this bank aims at the development of local individual from isolation, train him/her the culture of working and become job creator other than job seeker.

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

The Sub-branch of KADUHA aims to be a profitable financial institution, competitive, durable and autonomous rendering services of quality meeting the socio-economic needs for the members in particular and the community in general.

4.2.7. Principal activities of BPR S.A KADUHA Sub-Branch

4.2.7. 1. Activities of Savings

They consist of voluntary savings. The member who wants to save money deposits any amount on the current account during one, three, six or twelve months. The account is remunerated by the interest rate which varies from 4 to 5.25% depending on the saved amount and the duration of this saving. The saved amount can neither be increased nor decreased before the period agreed upon between depositor and the bank.

Apart from savings activities there is also the current account which assures safety and access to customer's money all day long at the sub-branch. The BPR current account is meant for the customer's daily transactions. This type of account is important because it gives the customer possibility to apply for a loan, it doesn't require the minimum operating balance; no account maintenance fees, instant access to your cash. You personally control what goes in and out of the account; possibility of money transfer: account to account, bank to bank, etc.

4.2.7.2. Activities of the credit

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

Credits are given to individual person, group of people and an association. To get the loan, an individual, group of people or association must have spent a month working with the bank, be trust worthy, have profitable project or venture, have good transactions with the bank and filling other requirements like: an application letter for credit, explaining the purpose of credit and showing where the repayment will be generated.

The kinds of collateral security accepted by the bank are mutual security for the associations and house, land, forest, movable assets and lastly deposit like monthly salary for an individual.

4.3. Analysis of data from the respondents

4.3.1. Analysis of information relating to the commercial activities financed by BPR S.A Kaduha sub-branch

The researcher endeavored to know rural trading activities supported by commercial banks mainly BPR S.A Kaduha sub-branch and information from the respondents was summarized in the table below:

Commercial activities	Number of respondents	Percentage
Trading of agricultural products	17	35.4
Trading of food processed products	7	14.6
Trading of industrial products	13	27.1
Trading of service	11	22.9
Total	48	100.0

As shown in table 4.1 the research revealed that out of respondents questioned 35.4% requested loan to finance agricultural activities followed by the traders of industrial products and services (which count respectively 27.1% and 22.9%) at the last place come the traders of food processed products with a percentage of 14.6% of all respondents.

From this information, the research found that in rural areas the most trading activities supported by commercial banks are trading of agricultural and industrial products. The commerce of services and food processed products are less supported. This shows clearly that the banks play an important role in financing trade in rural areas.

4.3.2. Respondents' view on credit services offered by BPR SA Kaduha sub-branch

The researcher attempted to know if the bank neither delays its credit services nor creates barriers to its customers to obtain the loan. He therefore asked them the amount that they got from BPR S.A Kaduha sub-branch, the period after which they got the loan from the date of application and other related questions. The responses are summarized in the next tables.

4.3.2.1. Amount received as credit

The researcher was eager to know the amount of credit that the loan applicants got from BPR S.A Kaduha sub-branch in order to finance their commercial activities and the information given is indicated in the table below:

Table 4. 2: The amount of credit that traders got from BPR S.A Kaduha sub-branch

Amount of credit got from the bank (in Rwandan francs)	Number of respondents	Percentage
Less than 100 000	2	4.2
Between 100 000 and 500 000	16	33.3
Between 500 000 and 1 000 000	24	50
Over 1 000 000	6	12.5
Total	48	100.0

As revealed by the table 4.2, a half of respondents got the amount which is between 500,000 and 1,000,000Rwf; the second place is occupied by the merchants who requested the amount which is between 100,000 and 500,000Rwf with a percentage of 33.3%; the class of less than100,000Rwf and more than 1,000,000Rwf have lower percentages (4.2% and 12.5% respectively).

This implies that trade in rural areas is in medium category; once the requested amount is lower, the project could not exhaustively be financed and if the requested amount is higher it would lead the customer to insolvency and mismanagement of loan, and the loan is given according to various factors including the type of business, business plan and the collateral security.

4.3.2.2. The period after which the customer gets loan from the date of application

In order to know the period of getting the loan from the date of requesting, the researcher asked it to the respondents and they gave the information summarized in the following table.

Table 4. 3: The period after which the customer gets loan from the date of application

The period of getting loan from the date of application	Number of respondents	Percentage
Less than one month	11	22.9
Between one month and two months	29	60.4
Between two months and three months	7	14.6
Over three months	1	2.1
Total	48	100

Referring to the table 4.3, 60.4% of respondents revealed that they got the credit after the period between one and two months, 22.9% received the credit in the period less than one month, 14.6% got it between two and three months while 2.1% got it after the period beyond three months.

From the above information, the research found out that the majority of merchants got the loan in period extending between one and two months. The portion of applicants who fulfilled the requirements earlier obtained the loan before one month and those who delayed in accomplishing the conditions such as the clear and understandable business project, filling of some documents proving the capacity of loan repayment including the collateral security and the signatures of some witnesses got the loan in the period which is between or beyond two and three months.

4.3.2.3. The agreed period of loan repayment and its respect

The researcher wanted to know the period of loan repayment and the information from the respondents are given in the table below.

Agreed period of loan repayment	Number of respondents	Percentage
Less than one year	2	4.2
Between 1 and five year	38	79.2
Over 5 years	8	16.6
Total	48	100.0

According to the above table, 79.2% of the respondents questioned agreed to repay the loan in the period extends to one and five years, 16.7% of respondents agreed to repay in the period beyond five years. Only 4.2% agreed to repay in the period less than one year.

This information clearly shows that the majority of traders requested for the small and medium term credits. The proportion of 16.7% received the long term credit.

The researcher also wanted to know if the customers were able to repay the loan in agreed period, and their views were shown in the table below:

Period of loan repayment	Number of respondents	Percentage
Within the agreed period	42	87.5
Beyond the agreed period	6	12.5
Total	48	100.0

From the above table, the majority of traders questioned (87.5%) confirmed that they repaid in the agreed period 12.5% said that they repaid the loan beyond the agreed period; they were not able to respect the period of loan repayment. This implies that the business of those who paid within the agreed period was successful whereas others might meet some hardships in implementing their businesses after getting the loan.

Asking the factors that helped those who proved the capacity of repaying in the agreed period succeed, the responses that they gave are shown in the table below.

Table 4.6: The factors that help customers respect the agreed period of loan repayment

Factors	Number of respondents	Percentage
Low interst rate	1	2.4
Profitability of the business	38	90.5
Good management of the loan	3	7.1
Total	42	100.0

The profitability of the business is the main factor helped the traders to respect the period of loan repayment as asserted by 90.5% of the respondents. Normally, the interest rate calculated for commercial projects is higher comparatively to other projects such as agricultural loan and good management itself without profitability of the business for a great deal of respondents (90.5%) cannot help them to repay the loan within the stated period.

4.3.2.4. Respondents' opinion on the extent to which the bank loan is helpful in financing trade

The researcher also investigated whether the bank loan is supportive in financing trading activities in rural areas and the information given is summarized in the in the table below:

Table 4.7: Respondents' opinion on the extent to which the bank loan is helpful in financing trade

Answers	Number of respondents	Percentage
Strongly agree	27	56.3
Agree	21	43.7
Disagree	0	0.0
Strongly disagree	0	0.0
Total	48	100.0

As indicated in the table above, all of the respondents (56.3% + 43.7%) agreed that the bank loan is helpful in financing trade in rural areas.

From the above table, none of the respondents ignored the importance of bank loan to finance the commercial activities, the researcher then concluded by affirming that bank loan is helpful in financing trade.

4.3.2.5. Respondents' opinion on credit services offered by BPR S.A Kaduha sub-branch

The researcher went further to know how the respondents appreciate the credit services offered by BPR S.A Kaduha sub-branch and their responses are shown in the table 4.7.

Table 4.8: Respondents' opinion on credit services offered by of BPR S.A Kaduha sub-branch

Respondents' appreciation of credit services offered by the bank	Number of respondents	Percentage
Very good	9	18.8
Good	34	70.8
Bad	5	10.4
Very bad	0	0.0
Total	48	100.0

From the table above, 89.6% of respondents (18.8% + 70.8%) appreciated the credit services offered by the bank, 10.4% did not agree with the services delivered by their bank.

The information given above shows that the credit services offered by BPR S.A Kaduha sub-branch are relatively good; the bank doesn't create hardships that can prevent the traders from benefiting the credit advantages. Because a small percentage of the respondents (10.4%) don't agree with the credit services offered by their bank, improvement should be made.

4.3.3. The performance of commercial activities supported by BPR S.A Kaduha sub-branch

The study intended to examine the performance of rural trading activities financed by BPR S.A Kaduha sub-branch by asking various questions related the profitability of the business, its impact in the area after being financed by the loan, the impact on cash flow and employment and other related questions. All the information provided by the respondents was summarized in the subsequent tables.

4.3.3.1. The impact of loan on the business

Asked if the bank loan permitted them to increase the stock of the product they sell, cash inflow of the business and the sales volume of products, all of the respondents agreed there was increase. For the sales volume they gave the different reasons of this escalation which are mentioned in the table below:

Table 4.9: The reasons of increase of the sales volume after getting the loan

Reason of increase	Number of respondents	Percentage
Raising of capital	5	10.4
Availability of new various products	2	4.2
All above	41	85.4
Total	48	100.0

As highlighted in the table 4.9, most of the traders (85.4%) accepted that after they got the loan, they raised their capital and there was the availability of the new product in the area of the activities this caused the presence of the new and more customers for their products.

Basing on this information, bank loan is important in increasing the capital and the consumers can buy more and new products from the traders who obtained the credit.

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

The researcher sought to know if the government collected more amount of the tax from the traders after getting the loan, all of respondents agreed that the tax they paid to the government increased at different rate depending on the amount of credit received, and the size of the business. Their views were shown in the table below:

The rate	Number of respondents	Percentage
Between 25% and 50%	43	89.5
More than 50%	5	10.5
Total	48	100.0

As indicated in the above table, a big number of traders increased the tax that they paid to the government between 25 and 50% (89.5% of the respondents), 10.5% increased the tax more than 50%.

This implies that the bank loan is not only important for the traders but also for the government, because it collects more amount of tax from the tax payers hence allowing it to increase capital to support and expand its budgeting activities.

4.3.3.3. Respondents' opinions on the novelty of the business in the area after getting the loan

The researcher also wanted to know if after getting the loan the business has changed favorably to the consumers who live in the area in which the traders extend their activities and the answers were summarized in the following table.

Answers	Number of respondents	Percentage
Availability of new products	14	29.2
Availability of high quality products	7	14.6
Availability of more existing products	17	35.4
Availability of new services	10	20.8
Total	48	100.0

After the bank granted loan to traders, more existing products were available on the market as it was shown by 35.4% of the respondents; 29.2% purchased the new products, 20.8% offered the new services, and 14.6% availed the high quality products to the customers.

This implies that people benefit from the credit gained by the neighboring traders as there is improvement and development in the areas of activities, they get more and better products and there is reduction of costs because they don't pay the transport fees for acquiring goods away from their residence.

4.3.3.4. The performance of the business after getting the loan

The researcher was willing to know what happened to the business itself when the traders got the credit from BPR S.A Kaduha sub-branch. Here, he really wanted to know if there was improvement or expansion of the business caused by the loan granting. The information that they gave was summarized in the table below:

Answers	Number of respondents	Percentage
Improvement of the business	9	18.8
Expansion of the business	34	70.8
Stagnation of the business	5	10.4
Slowing down of the business	0	0.0
Total	48	100.0

As it is shown in the table 4.12 there was improvement and expansion of the business when the traders received the loan (as it is shown by 18.8% and 70.8% respectively). 10.4% confirmed that their commercial activities remained unchanged. None of them said that his/her activities slowed down after being financed by the loan.

As affirmed by the respondents, there was the improvement and expansion of their businesses because of the raising of capital. The traders whose business stagnated after getting the loan, it was due to the fact that the rate of tax that the government collected from them increased more proportionately to the improvement or the expansion of their activities or due to the mismanagement of the amount received as credit or to other unexpected event.

4.3.3.5. The impact of the bank loan on the employment

The research wanted to know if the bank loan had positive impact on the employment in recruiting the new workers or in increasing the wages and salaries for the existing workers. The respondents supplied the information summarized in the table below.

Impact	Number of respondents	Percentage
Recruitment of new employees	13	27.1
Augmentation of wages and salaries for the existing employees	17	35.4
All above	11	22.9
None above	7	14.6
Total	48	100.0

It is revealed in the above table that after getting the loan 35.4% of the respondents increased the wages for its employees, 27.1% recruited new workers, 22.9% recruited new workers and augmented the wages and salaries for the existing workers while 14.6% were not able to do any of the above mentioned activities.

With the extension, improvement and increase of the businesses after the traders obtained the bank loan, the traders engaged new workers and increased the wages and salaries of the existing employees on account of the augmentation of working hours. For the respondents who did none of above activities, either their businesses stagnated or the increase of the services and activities was not at the level of employing more workers.

From this information, the researcher can conclude that the loan given to traders is favorable to the employment in the area; there is availability of more jobs and increase of money supply from the increase of salaries. The loan helps to reduce the rate of unemployment.

4.3.3.6. The bank loan towards the standards of living for the traders

Normally when there is improvement and expansion in the business, it would be the same for the living standards of the people who implement this activity. The researcher sought to know if really after getting loan the traders improved their ways of living in terms of health, food, education for their children, infrastructure and so on. The answers that they gave are exposed in the following table.

Did the bank loan allow you to improve the standards of living	Number of respondents	Percentage
Yes	43	89.6
No	5	10.4
Total	48	100.0

The majority of respondents (89.6%) said that their standards of living have ameliorated, 10.4% held that their ways of living remained unchanged.

From this information, the researcher agrees that the bank loan given to the traders is positive towards their standards of living.

4.3.3.7. Respondents views on the future loan application

Asking if after the loan repayment, the applicants could request for another loan, 36 over 48 (75%) answered positively, while 12 (25%) said that they would not request for another loan. The researcher discovered that those who would request for another loan want further to expand their business whereas for the others either the business was not profitable after getting the loan or they have got the sufficient capital to run their commercial activities without being helped by other external funds.

Finally, for those who would solicit the further loan in the future, the researcher was interested to know which amount comparatively to the previous one. They gave the answers summarized in the table below:

Table 4. 15: The amount that the customers could request for after the loan repayment

Amount	Number of respondents	Percentage
Greater than the previous amount	33	91.7
Equal to the previous amount	3	8.3
Less than the previous amount	0	0.0
Total	36	100.0

As shown in the table above, 91.7% of the respondents wish to request from the bank the amount which is greater than one requested previously and 8.3% would request the same amount. This means that the traders have known the role of bank loan in promoting their trading activities.

CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1. Introduction

All the previous chapters have been dealing with theoretical and scientific part of the study mostly looking at different variables and drawing the relationship between bank loan and the promotion of trade. This chapter presents the summary of major findings, conclusion and recommendations provided by the researcher about the assessment of commercial banks in promoting trade in rural areas and suggestions for further research.

5.2. Summary

The study was carried out in the area covered by the activities of BPR S.A Kaduha sub-branch in order to assess the contribution of commercial banks in promoting trade in rural areas. The targeted population under the study was the selected traders who got the bank loan to finance their trading activities. Data was collected by the use of questionnaire and documentary technique. This study is organized in five chapters and sub chapters as it was seen from the beginning.

Referring to the objectives of the study, the results from questionnaire and documentary technique were analyzed and proved that there are trading activities supported by commercial banks in rural areas mainly BPR S.A. Those activities are trading of agricultural products, industrial products, food processed products and services.

The study indicated that commercial banks play an important role in promoting trade in rural areas as confirmed by the respondents questioned. Banks grant different amount of credit to traders depending on the nature and the size of trade; this increases their capital and more and better product become available to the consumers. From the date of the loan application, the research revealed that banks don't delay their credit activities; the period of loan granting depends on the customer's will and rapidity to fulfill the loan requirements. The study also found out that most of traders finance their activities by small and medium term credit as is was shown by 83.4% of the respondents. The findings of the research proved that bank loan is helpful in promoting trade; this was confirmed by all of the respondents questioned. About the credit services offered by BPR S.A Kaduha sub-branch, most but not all of the respondents (89.6%) appreciated them.

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

Some neighboring people are recruited by the traders who expand their activities after they get the bank loan and they increase the salaries of the existing permanent or temporary workers; this was declared by 85.4% of the respondents questioned. Thus, the study revealed that this has favorable impact on the employment in the area because there is reduction of unemployment rate and living conditions of the workers become ameliorated.

During the research, it was found that 89.6% of the respondents improved their standards of living in terms of health, food, education and the fundamental equipment have been enhanced after they god bank support. However, there is a small portion of respondents (10.4%) whose conditions remained unchanged once they got the loan; this was due to different factors such as mismanagement, the heavy tax imposed by the authorities and working conditions.

After recognizing the importance of bank loan in financing trade projects, 75% of the respondents would request for another credit once they finish repaying the existing loan in order to enlarge and get better their activities.

5.3. Conclusion

The research aimed at assessing the role of commercial banks in promoting trade in rural areas and its hypothesis stated that «Commercial banks can contribute to the development of trade in rural areas.» From the results of the research in chapter four which presented the activities financed by BPR S.A Kaduha sub-branch, their performance and contribution to the improvement of standards of living for the traders, innovation and development of rural areas, we conclude by accepting the research hypothesis and we strongly agree that commercial banks can contribute to the development of trade in rural areas.

5.4. Recommendations

Considering the above mentioned findings and results of data analysis, a number of recommendations are in order.

- Even if the credit services offered by commercial banks mainly BPR.SA are relatively good, they should be improved so as to facilitate traders easy and rapid access to loan.

- The bank should have a project officer who could help the traders and other customers to prepare and implement their projects

- The interest rate calculated to commercial activities are so high; they should then be decreased so as to help all categories of traders access to loan

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

5.5. Suggestion for further research

After carrying out this study, learning some problems in this field and considering some limiting factors to it, the researcher came up with the following field for further research.

BIBLIOGRAPHY

FREDERIC, S,. Mishkin (2004). The Economics of money, Banking and Financial markets, seventh edition. Columbia University.

Gill K., EDUARD,. (1989). Commercial Banking, Prentice hall, Englewood cliffs, New Jersey.

GOVERNMENT OF RWANDA, (2002), Poverty reduction strategy paper, National Poverty Reduction programme, Kigali.

KENNETH D. BAILEY (1980), Methods of social research, 2^end ed., a revision of Mc Milliam publishing Inc, New York.

KOLARI,. (1993). Financial institutions: understanding and managing financial services. 4^th edition, Cornell University, New York.

MINECOFIN, (2007). Economic Development and Poverty Reduction Strategy 2008 - 2012. Kigali

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

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

ROSS, L., NORMAN, L., AND THORSTEN B., (1993), Financial intermediation and growth: causality and causes, the World bank, Washington D.C.

SERRANO, C., (2001). The role of commercial banks in the provision of credits to small and medium enterprises in Mexico, IMF working paper.

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

UNITED NATIONS (2010). Rwanda's development-driven trade policy framework. New York and Geneva.

APPENDICES

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

You are kindly requested to provide the necessary information about your bank as regard this research by answering these questions.

You are requested to be sincere, as confidentiality of information will be highly respected as this research is only for academic purposes.

Ndi umunyeshuri mu mwaka wa nyuma mu ishami ry'Ubukungu muri Kaminuza Nkuru y'u Rwanda. Ndakora ubushakashatsi bujyanye no kureba akamaro ka banki z'ubucuruzi mu guteza imbere ubucuruzi mu cyaro hifashishijwe Banki y'Abaturage y'u Rwanda, Agashami ka Kaduha.

Murasabwa kandi gutanga ibisubizo by'ukuri, kandi mbijeje ko ibisubizo byanyu bizakoreshwa gusa mu kwandika igitabo.

QUESTIONNAIRE ADDRESSED TO THE TRADERS WHO RECEIVED LOAN FROM BPR S.A KADUHA SUB-BRANCH /Ibibazo bigenewe abacuruzi babonye inguzanyo muri Banki y'Abaturage Agashami ka Kaduha

1. Tick the letter corresponding to the trading activity you got the loan to support from BPR S.A KADUHA Sub-Branch

Hitamo inyuguti ijyanye n'igikorwa cy'ubucuruzi wakiye inguzanyo muri Banki y'Abaturage y' u Rwanda Agashami ka Kaduha.

Wabonye inguzanyo ingana n'amafaranga angahe muri Banki y'Abaturage y'u Rwanda Agashami ka Kaduha?

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

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

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8. Did the tax you pay to the government increase after getting the bank loan? Yes No

Ese nyuma y'uko ubonye inguzanyo imibereho yawe yabaye myiza kurushaho? Yego Oya

17. How do you appreciate the credit service offered by BPR S.A KADUHA Sub-Branch?

Ubona ute ibikorwa bijyanye no gutanga inguzanyo bya banki y'abaturage y'u Rwanda agashami ka Kaduha?

18. What suggestions could you give to the BPR S.A KADUHA Sub-Branch in order to improve its credit services?

Ni izihe nama wagira banki y'abaturage y'u Rwanda agashami ka Kaduha ngo itunganye neza ibikorwa byayo byo kuguriza?

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An assessment of the role of commercial banks in promoting trade in rural areas: case study BPR S.A Kaduha sub-branch