The Vice President of the European Investment Bank (EIB), Thomas Ostros, was recently in Rwanda during which he met several government officials and CEOs of Rwanda's leading commercial banks, as well as signed a 100-million-euro line of credit with Bank of Kigali.
The 100 million euro is the largest package EIB has signed with the private sector in Rwanda.
The New Times' Business Editor Julius Bizimungu spoke exclusively to Thomas Ostros. In an emailed response, Ostros said that the bank has committed to increasing financing to key economic sectors in Rwanda, and he saw Africa as a continent with potential for investors and major banks like EIB.
Below are excerpts, edited to fit the editorial standards:
1. You concluded a visit to Rwanda during which EIB signed a financing agreement with the Bank of Kigali worth 100 million euros. How significant is this?
Bank of Kigali (BK) and the European Investment Bank (EIB) have a longstanding relationship stretching back to 1999. We had previously advanced 111 million euro to BK for on-lending to Rwandan clients.
The current investment partnership that we signed for a total of 100 million euros from the two institutions, represents the largest ever EIB support for private sector investment in Rwanda.
What attracted the EIB to partner with BK is the fact that it has a comprehensive agricultural finance strategy that lays out the direction for BK as it seeks to become a leading financier of the agriculture sector. This sector is heavily underserved, receiving only 4% of formal credit here in Rwanda.
The gender gap in access to agricultural loans remains significant in Rwanda. While 74.5% of men have access to agriculture loans only 25.5% of women do, yet they provide the majority of the labour. Bank of Kigali seeks to promote gender equality and women empowerment in its lending, something that is very important to the EIB in its financial inclusion agenda.
Through our partnership, we aim to see the transition from an agribusiness approach to a value chain approach as testament of the growth impact of the funding being availed to support farmers today to be more resilient to climate change.
2. What is the nature of the 100-million-euro financing agreement? What are the terms of repayment?
The nature of the investment partnership with Bank of Kigali is a line of credit by the EIB with a tenure of up to 10 years.
The way these partnerships are structured is in such a way that the line of credit allows the financial intermediary and the EIB to form a partnership with the goal of enabling the financial institution to develop its lending portfolio, thus providing greater access to credit for a wider range of clients.
Financial intermediaries benefit from the EIB's favourable financial terms (longer tenors and more attractive pricing compared to what typically commercial national banks can offer) and transfer this advantage to final beneficiaries.
In conjunction with the credit line, the EIB provides technical assistance for capacity building to the financial intermediary as well as to the final beneficiaries to roll out successful projects.
This provides substantial added-value to our EIB counterparts.
3. How has EIB grown its financing and investment portfolio in Rwanda?
Rwanda is a key partner for Europe under the Global Gateway strategy. It has one of the best business environments in Sub-Saharan Africa that fosters a great investment climate.
The EIB has supported transformational investment across Rwanda since 1977 and signed over 400 million euro for private and public investment. This includes support for telecom, clean energy, water, transport, health and business investment and support for climate and business investment with the BRD and Bank of Kigali.
Some of the projects supported by the EIB include the National Health Laboratory Electricity Access Rwanda that is rehabilitating transmission lines, Kigali Central Sewerage Line, and support for SMEs through advancing credit lines to local financial institutions.
Last year in December, the EIB signed an MOU with the African Pharmaceutical Technology Foundation that is headquartered in Kigali, agreeing on new technical cooperation. This highlights EIB's continued commitment to advancing pharmaceutical technology in Africa.
EIB participated in the inauguration of the BioNTech MRNA vaccine production facility, supporting vaccine equity for the continent. EIB also signed an MOU on Critical Raw Materials with the Government of Rwanda.
The European Investment Bank visited Rwanda to strengthen our partnership and support sustainable development, health, and high-impact investments across Rwanda.
It was an opportunity to engage with our Rwandan partners, discuss collaborative initiatives, and reinforce our commitment to the region's prosperity.
4. What about elsewhere in Africa?
The EIB has operated in Africa since 1965. Since then, the Bank has invested over 60 billion euro, supporting infrastructure projects, innovative firms and renewable energy schemes, the public sector and private companies from microenterprises to the largest multinationals.
We set up EIB Global in 2022. It is the EIB Group's specialised arm dedicated to increasing the impact of international partnerships and development finance outside of the EU.
Last year the EIB provided more than 3.2 billion euro for public and private investment across the continent and of this amount 1.1 billion euro went into supporting the private sector. This sector received EIB's largest share of investment in Africa as per the 2023 Financial Results.
Another growing investment tool for the EIB is the Private Equity Funds sector. Africa has the EIB's largest share of PE investments, at 57 per cent, mainly due to two reasons. The EU sees Africa as a close and important partner for development and would like to support its growth for mutual benefit.
Secondly the continent has a lot of untapped potential and opportunities for growth that present l benefits for the private sector as well as investors to get good returns.
5. What economic sectors make sense to finance in Rwanda and across Africa currently?
The EIB's investment priorities in Rwanda are very much aligned to the Global Gateway investment package for Africa, which aims to support a strong, inclusive and digital recovery across the continent.
The key priorities are climate and energy, transport, digital trade, healthcare, education, as well as sustainable growth and job creation.
For instance, through massive deployment of renewable energy and unlocking business opportunities both on the supply and demand side industries.
A good example in Rwanda is our work with the Bank of Kigali to provide financing to the agriculture sector so as to promote climate resilience among Rwandan farmers.
EIB is also looking to support a flood mitigation project in the Volcanoes region of Rwanda.
In transport, the focus is on smart investments in quality infrastructure, respecting the highest social and environmental standards and supporting green, smart and safe transport.
The EIB is exploring opportunities to finance Bus Rapid Transit lines in Kigali to promote use of electric buses for public transport.
In the digital space, we facilitate projects in submarine/ terrestrial fibre optics as well as cloud and data infrastructure and support regulatory frameworks promoting a digital transition.
We have worked with corporates and private equity funds that have a large geographic focus on the continent to support investment in the building of Telecom Towers, to promote digital connectivity as well as support the expansion of digital financial services.
6. EIB has positioned itself as a bank committed to financing green projects. How critical is it for financial institutions to shift their approach to integrate green financing in their investment decisions?
According to the Climate Policy Initiative, climate finance reached an all-time high in 2021 with more than 1 trillion dollars, but it is still only about 1% of global GDP. 51% of climate finance comes from the public sector.
Climate finance must increase by at least five-fold annually by 2030 to avoid the worst impacts of climate change and deliver a transition to a green industrialisation that accelerates uptake of solar and wind power and development of mineral resources that support this transition.
The private sector must deliver the bulk of this increase in global climate finance flows. Public coffers are simply not deep enough.
In Africa, banks are keen to provide green products, but green lending can be constrained by factors on both the demand side (firms) and the supply side (banks).
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Supply-side barriers include a lack of long-term capital to match the longer investment horizon of green investments, the higher perceived riskiness of green projects, and a lack of in-house technical skills in banks to start and monitor green loans.
Demand-side barriers generally relate to a lack of technical expertise to appraise projects and develop bankable proposals or a lack of knowledge of the available finance products.
A 2023 EIB survey, published in the Finance in Africa Report, found that 59% of banks already have a climate change strategy, and 22% plan to introduce one. In addition, 65% of banks consider climate risk when assessing a new client or project, and another 23% plan to do so, showing that climate risk is an important element of the underwriting process.
Partnering with local financial institutions to deploy capital to businesses is an effective way to support the local economy while meeting climate action goals.
In 2023, the largest share of EIB's funding sector-wise went to supporting the private sector with credit lines to local financial institutions leading. The EIB invested over 3.2 billion euro in Africa and of that amount, 1.1 billion euro was dedicated to supporting the private sector to create economic growth and supply skilled and sustainable jobs.
Small businesses are the economic lifeblood of African economies, including in Rwanda, but are more vulnerable to crises such as climate change, than larger enterprises.
Improved access to financing is very important in boosting growth and creating jobs for the millions of young Rwandans entering the workforce each year. In developing countries, SMEs contribute more than one third of GDP and more than half of direct formal employment.
The framework under which we provide funds to local banks for on-lending is helping commercial banks continue focusing on financially inclusive solutions as well as continue lending to private sectors they are reluctant to due to the risks associated with the potential projects. A growing number of those risks are climate related.
The EIB's focus is to invest in the sectors with the highest potential to adapt to climate change, create sustainable and skilled jobs, especially MSMEs in agriculture, green and digital services.
