Financial Literacy as a tool to enhance Rwandan MSMEs’ access to finance

 By Germaine Utembinema and Richard Tuyishime (National Bank Rwanda), and Aisyah Razihan (AFI). Contribution by Nik Kamarun (AFI).

Micro, Small and Medium Enterprises (MSMEs) are vital to Rwanda’s economic growth, comprising 55% GDP and 70% of total employment. However, MSMEs are vulnerable to economic shocks and were hit the hardest during the COVID-19 pandemic. Youth-led small business owners in Rwanda were no exception to the adverse impact of COVID-19. According to a survey conducted by Rwanda’s Ministry of Youth and Culture, 95% of youth entrepreneurs surveyed reported that their businesses were severely impacted by the pandemic and would require financial support.

Most MSMEs in Africa are engaged in informal activities and, thus, are at a higher risk of losing their livelihood due to economic shocks. To enhance their capacity to withstand financial shocks, the National Bank of Rwanda (“NBR”) embarked on a project to equip local MSMEs with enhanced financial literacy and financial management skills. The project kicked off with a study to understand the barriers and the needs of MSMEs in Rwanda. The outcome and recommendations from the study were then used to develop a teaching tool for trainers to conduct a financial literacy program for the MSMEs. The program aims to ensure that MSMEs are equipped with the knowledge, skills, and attitudes to make responsible financial choices that will enhance their access to bank services and improve their participation in the broader economic systems.

 Rwanda has a significant number of youth entrepreneurs, and this initiative by the NBR complements the Mastercard Foundation’s Young Africa Works strategy by creating an enabling environment for young entrepreneurs and small businesses to expand through access to financial services. This initiative will aid the Mastercard Foundation’s goal of enabling 30 million young Africans to access dignified and fulfilling work by 2030.

The project’s initial phase involved conducting an in-depth study to gain insights into the overall status of Rwandan MSMEs. This includes assessing this sector’s financial literacy and financial management level. The study surveyed over 300 MSMEs, and results indicated that 53% of respondents would require improved financial literacy and financial management skills to gain better access to formal financial services. The type of knowledge the MSMEs require ranges from basic knowledge, such as understanding bank statements and filling in credit application forms, to complex management skills, such as preparing a proposal to apply for a credit facility for their personal and business finances.

Following the completion of the study, the outcome was extracted and used to inform the development of the trainers’ manual, which guides NBR staff on how to conduct the financial literacy training program. The manual details the course content, requirements for participating MSMEs and trainers, the course assessment matrix, and the training delivery model. Course content is divided into two central units: “Unit 1: Personal Finance and Banking Services” and “Unit 2: Business Records, Tax and Compliance”, which delves deeper into business management processes and basic government regulation requirements.

The NBR conducted a pilot training programme in January 2023, attended by 60 MSMEs from three districts in Kigali City. The pilot training was intended to gauge the interest of MSME trainees while also assessing the trainers’ capacity to deliver the course content. For this reason, only one module from Unit 1 was covered during the pilot training. Based on observations during the pilot training programme, the NBR concluded that the content of the course is most suited for micro-enterprises. More training will be conducted nationwide in the coming years.

Going forward, expanding MSME literacy across the country will involve several key steps. Firstly, a comprehensive Training of Trainers (ToT) program will be conducted to equip facilitators with the necessary knowledge, teaching skills, and content from the financial education toolkit. This will ensure consistent and effective delivery of the training program.

Next, training will be disseminated nationwide, reaching MSME owners in all provinces, including Kigali City. Collaborations with local government bodies and private sector federations will help identify and recruit MSMEs interested in participating in the program.

The aim is to train a minimum of 100 MSMEs in each of the four provinces and Kigali City. This broad coverage will allow a range of businesses to benefit from the program, addressing the specific needs and challenges faced by MSMEs in different regions.

The training program will cover all toolkit modules, ensuring that MSME owners receive comprehensive knowledge and skills to manage their personal and business financial activities better. Topics covered include financial concepts, financial products and services, budgeting, bookkeeping and tax management, and business planning.

Through these steps, the expansion of MSME literacy training in Rwanda aims to empower entrepreneurs to manage their businesses and improve their access to finance effectively. By enhancing financial literacy among MSME owners, Rwanda can foster economic growth, as MSMEs are important agents that play a vital role in the country’s economy.

In the long run, financial literacy is a catalyst for enhancing access to finance for Rwandan MSMEs. By equipping MSMEs, especially youth-owned MSMEs with the knowledge and skills to navigate the financial landscape, they can access formal financial services, improve creditworthiness, mitigate risk, and make informed financial decisions. This will lead to increased business growth, job creation, and economic development, thus allowing young people in Rwanda access to fulfilling and impactful employment opportunities. Through continued efforts to enhance financial literacy, Rwanda is fostering an environment that supports the growth and success of its MSME sector. Ultimately, a more financially resilient and empowered MSME sector will positively impact the overall economic stability and prosperity of the country in the long term.