Investigating the Impact of Business Development Fund Ltd’s Credit Guarantee on Small and Medium Enterprises in Rwanda: A Comprehensive Analysis

1David Nyambane and 2Uwimpuhwe Marie Clementine

1Faculty of Business Administration, Kampala International University Western Campus Uganda.

2Faculty of Master of Business Administration of Mount Kenya University Kenya.


In Rwanda, the Business Development Fund Ltd aims to support the initiation, growth, and success of Small and Medium Enterprises (SMEs) by providing credit guarantees, facilitating their access to bank financing. This study explores the efficacy of the credit guarantee fund in stimulating SME growth in Rwanda, particularly within Kigali City. It delves into the accessibility of the BDF Ltd credit guarantee fund for SMEs, assesses its correlation with employment generation, evaluates its influence on SMEs’ sales turnover, and analyzes its responsiveness to borrower demands from 2011 to 2013. Employing an explanatory research approach, this study employs a mixed-methods approach, combining qualitative and quantitative methodologies for data collection. A sample of 98 units was selected, utilizing interviews for primary data and document analysis for secondary data. Statistical analysis, including SPSS and tools like Kendall’s tau correlation and regression analyses, was employed to scrutinize the relationship between various variables. The findings indicate significant hurdles faced by SMEs in Kigali in accessing the fund, with 95.2% of respondents citing challenges such as prolonged application processes, increased collateral requirements, low bank utilization of the fund, additional bank prerequisites, and perceived inequities. The research reveals a noteworthy positive relationship (r = .37, p <.05, one-tailed) between the guaranteed amount for SMEs in Kigali and employment creation, where an estimated 3,333,333 RWF guaranteed amount predicts the creation of an additional job. Moreover, the study underscores that credit guarantees contribute positively to the beneficiaries’ sales turnover and notes that the BDF Ltd has effectively met borrower demands during the 2011-2013 period. This research presents a comprehensive analysis of the impact of credit guarantee funds on SME growth in Rwanda, shedding light on challenges faced by SMEs in accessing these funds and highlighting the fund’s substantial role in fostering employment and bolstering sales turnover within the SME sector.

Keywords: Business Development Fund Ltd, SMEs, Credit guarantee fund, Kendall’s tau correlation, Banks.


As globalization proceeds, transition and developing countries and their enterprises face major challenges in strengthening their human and institutional capacities to take advantage of trade and investment opportunities. While governments make policies in trade and investment areas, it is enterprises that trade and invest. Therefore, supply-side bottlenecks in the trade and investment areas and how governments, development partners and the private sector itself address these constraints have direct implications on the economic growth potential of transition and developing countries [1]. The foundation for balanced, sustainable economic growth is dependent on many factors, including an economic environment which encourages diversified economic activities, competitive opportunities, entrepreneurial drive and the availability of credit facilities to support business initiatives [2, 3]. All researchers recognize Small and Medium Enterprises (SMEs) as engines of economic growth by creating new business, new employment opportunities and raise productivity, hence, poverty reduction. According to [2], they provide the entrepreneurial vibrancy and vitality which drive economic activity across different industries.[4] argue that SMEs Contribute significantly to development and growth which in turn reflects on the economy itself and eventually increases in Gross National Product. Generally, SMEs represent above 90% of total projects worldwide. In Rwanda, the SME sector, including formal and informal businesses, comprises 98% of the businesses and 41% of all private sector employment [5]. Despite their importance to economic growth, access to financing continues to be one of the most significant challenges for the creation, survival and growth of SMEs, especially innovative ones. The problem is being exacerbated by the most severe financial and economic crises in decades [6]. Numerous studies highlight access to finance as one of the driving factors of an enabling economic environment. The World Bank and the International Finance Cooperation (IFC) rank economies according to their ease of doing business; in this framework, the ability of businesses to get credit is an important criterion. The Global Entrepreneurship Monitor (GEM) Entrepreneurship Framework Condition also highlights entrepreneurial finance, defined as the availability of financial resources for SMEs in the form of debt and equity, as one of the key factors for stimulating and supporting entrepreneurial activity [7]. Access to finance helps all firms to grow and prosper. The Investment Climate Surveys of the World Bank show that access to finance improves

firm performance. It not only facilitates market entry, growth of companies and risk reduction but also promotes innovation and entrepreneurial activity. Furthermore, firms with greater access to capital are more able to exploit growth and investment opportunities. In other words, aggregate economic performance will be improved by increasing access to capital [7]. [8] has reported that accessing finance is a challenging task for firms. However, these financing constraints tend to be more difficult for SMEs to overcome than for larger firms. This limited access is mainly associated with the high administrative costs of small-scale lending, the underdeveloped financial system, the high-risk perception attributed to small enterprises, asymmetric information and small firms‟ lack of collateral.

The development of an efficient private sector directed by competitiveness and entrepreneurship is an important pillar in Rwanda’s Vision 2020. Small and Medium Enterprises (SMEs) comprise over 90 % of private sector establishments and employ the majority of the population, indicating that expansion in the sector is of strategic importance in achieving inclusive growth and reducing the Balance of Payments and fiscal deficits [9]. Unfortunately, SMEs are strongly restricted in accessing the capital that they require to grow and expand, with nearly half of SMEs in developing countries rating access to finance as a major constraint. They might not be able to access finance from local banks at all, or face strongly unfavourable lending conditions, even more so following the recent financial crisis [7]. Even though there is a Business Development Fund to cater for SME growth in Rwanda, the country’s SME policy has reported that there is an under-utilization of this fund at a rate of 1.3%. This can explain the slow growth of SMEs shown by the fact that: – The average value of capital employed by an establishment in Rwanda is RWF 16.3 million (US$26,080), which is relatively small compared to the US$35,087 lower-end turnover of a small enterprise as defined by the RRA, – 72% of all establishment in Rwanda employ one worker while 92.6 of all establishment employ 1-3 workers. – And 60% of the SMEs have a turnover of less than 50 million Rwandese Francs [9]. After realizing that, the researcher decided to conduct a study to assess the reason for this under-utilization and to evaluate the contribution of BDF Ltd on SME growth in Rwanda especially in Kigali.


It is difficult for SMEs in Kigali to access the guarantee fund because of the long application process, extra bank requirements, lack of additional collateral, high management fees, unfairness and limited level of utilization of the fund by banks which is highly influenced by high default rate of SMEs and lengthy claim procedures in case of default. There is a significant positive relationship between credit guarantee funds and employment creation for SMEs in Kigali, r = .37, p (one–tailed) < .05. And with regression analyses r² was .169 which told us that variation in several employees was encountered for 16.9% of the variation in guaranteed amount. We can also predict that 3,333,333 RWF of guaranteed amount can help to create one extra job for SMEs in Kigali. They agreed that if they were given a guarantee this could increase their sales turnover and we can conclude that BDF Ltd has been able to satisfy its demand during 2011 and 2013 As findings have shown that 97% of all applications of SMEs from Kigali city were approved and 3% were rejected and SMEs guarantee fund, BDF ltd has never met a challenge of lacking fund since it started.


According to the results obtained in this study and considering the impact the credit guarantee has on the growth of SMEs in Rwanda especially those in Kigali, the following recommendations were formulated by the researcher for BDF LTD, Government Banks and SMEs. BDF Ltd. should put much effort in doing a follow-up on the projects that they have financed. More staff should be hired because this follow-up is a key point for business to succeed. In other words, this will reduce the high defaulting rate hence increasing banks’ utilization of the fund. The follow-up should be on-site follow-up and not only telephone follow–up. The on-site follow-up will ensure that people use the fund on what was planned. BDF Ltd. should also do a follow-up in banks to know their feedback on approved applications by the fund especially for Hangumurimo products, as sometimes banks refuse applications which were approved by BDF. So, this will help to know why banks refused those applications and see how to mitigate the raised issues. It should sit together with bankers and see how the application process should be reduced. BDF Ltd. should conduct a study to analyze the possibility of doing a parallel recovery of non-performing loans together with banks. This would reduce the weakness of the bank of not doing the recovery at the right moment hoping that BDF Ltd will reimburse in case of default and this will alleviate the people’s intention of taking this fund as a grant.


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CITE AS: David Nyambane and Uwimpuhwe Marie Clementine (2023). Investigating the Impact of Business Development Fund Ltd’s Credit Guarantee on Small and Medium Enterprises in Rwanda: A Comprehensive Analysis. IDOSR JOURNAL OF CURRENT ISSUES IN ARTS AND HUMANITIES 9(2):39-56.