Originally published on March 20, 2017.
Around every hillside of Rwanda, it’s easy to spot a cow, a bicyclist carrying a milk container or a milk collection center. So it may come as a surprise that the dairy industry here was once considered a high risk investment for financial institutions. With so many factors threatening the reliability of the dairy value chain, banks weren’t confident that they would see returns on their investments. As a result, those in the industry struggled to get ahead.
Mr. Patrick Byabagamba has been a dairy farmer in East Africa his whole life and understands the challenges so many face. Like how long distances can easily turn morning milk sour, and how finding a reliable milk buyer is difficult without formal relationships. These factors and more make for inconsistent incomes – not an ideal equation for a banking institution. For Patrick and others in his community, a cooperative model was the answer. After participating in an informal association for ten years, he and eleven other farmers legally registered and joined the Dukunde Amatugo Cooperative (CDA) in 2007.
This business decision opened a number of opportunities for CDA members. By doing business together, farmers held each other accountable not only for the quantity of milk collected and sold, but also the quality of their product. As a result of their success, they now have reliable daily buyers including local households, schools, restaurants, a local police academy and Inyange, Rwanda’s largest dairy processor. In the years following their launch, CDA saw a lot of progress, but they still struggled with inefficiencies. One being a $1,000 US a month rental truck fee for transporting their milk to Inyange. CDA knew that buying a truck would be more cost effective, but the banks were still wary of dairy investment.
Implemented by Land O’Lakes International Development, the U.S. Agency for International Development’s Rwanda Dairy Competitiveness Program II (RDCP II) helped CDA make this connection. Since 2012 the program has been training and working with dairy stakeholders across the entire value chain to strengthen quality standards for industry growth and investment. RDCP II worked with institutions like Urwego Opportunity Bank (UoB) to establish a path for low-risk, high impact investments to reliable dairy stakeholders like CDA.
“Land O’Lakes mobilized us to consider service to dairy farmers. We had worked with agricultural partners in coffee, beans and crops before, but never dairy. With standards now in place across the dairy sector, we were ready to try through facilitation with Land O’Lakes to work with dairy value chain players,” says Jackson Munyaneza, UoB Financial Officer. “We now work directly with the cooperatives and local Small Micro Financing Institutions to get them the loans they need.”
In 2014, UoB provided CDA a $29,000 US (23 million Rwandan Francs) loan to purchase a truck to transport their milk from the cooperative collection center to Inyange Industries. They are now making payments of $600 a month to UoB, nearly half of what they were paying previously for the rental. With demonstrated credibility as a business, UoB is now also distributing loans to individual cooperative members.
“In collaboration with the bank, 36 of our members have received a loan to grow their dairy business. This benefit is attracting new members to the cooperative. In 2007 we had 12 members. Today we have 157. And during this time our production has accelerated from 50 liters a day to 4,000.” says Patrick.
CDA is just one of several cooperatives UoB is working with as a result of RDCP II’s facilitated relationship. Since July 2014 UoB has distributed 500 Million Rwandan Francs in loans to farmers and cooperatives in three Rwandan districts (Rwamagana, Musanze and Rubavu). Loan recipients have purchased cows, equipment, transportation vehicles and tricycles to expand their dairy businesses. While this lending program by UoB is new, not one loan has been defaulted to date. UoB continues to seek new partners in the dairy industry.
Patrick (far right) standing with the Dukunde Amatugo Cooperative board in front of the truck that was financed by the Urwego Opportunity Bank