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

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

1.1. Background to the study

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

Commercial Banks in Rwanda are: BPR S.A, Rwanda Commercial Bank (BCR), FINA Bank, ECOBANK, Compagnie 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.