The Rwanda Innovation Fund (RIF) has finally kicked off, with two ICT startups having secured financing to support their growth and profitability, Government officials have said.
Officials from the Ministry of Finance and Economic Planning (MINECOFIN), and the Rwanda Development Board (under which RIF is implemented) confirmed this on Thursday, September 22.
They were appearing before the Parliamentary Public Accounts Committee (PAC) to respond to the delayed execution of this project and the associated loan commitment fee – a fee charged by a lender to a borrower to compensate the former for its commitment to lend – that the Government has started paying.
The project aimed to provide equity financing for tech-enabled small and medium-size enterprises, train tech-oriented entrepreneurs in business planning and management, and increase awareness and sensitisation with respect to intellectual property rights.
In March 2018, Rwanda and the African Development Bank (AfDB) signed a loan agreement worth $30 million to finance the establishment of RIF (on the side of the Government).
According to AfDB, the Fund Manager — Angaza — signed an agreement with Rwanda to be a key participant during all stages of the innovation life cycle from start-ups to the Initial Public Offering of the firms.
Under the agreement, the Fund Manager was required to raise $70 million from private investors to achieve a target fund size of $100 million.
Initially, the project was due to complete on December 31, 2022. However, the report of the Auditor General for the financial year 2020-2021 revealed that there were undrawn funds amounting to $22 million, equivalent to 73.3 per cent of the total amount committed for the project on the side of the Government.
MP Christine Bakundufite said that this is a good project and we would be better if it is effectively implemented. However, she expressed concern over the delay in its executions.
Of the $30 million loan that the Government had signed with AfDB, Bakundufite said, the audit found that $2 million was disbursed and put on the account managed by MINECOFIN, where they lied idle for 688 days or about two years.
“We would like to get an explanation for why such money was requested, but not used for the intended purpose,” she addressed the leaders in question.
Tesi Rusagara, Kigali Innovation City Managing Director said that the extension of the project execution period is from December 2022 to December 2025.
The move, she said, will help to provide occasion to the existing fund manager to disburse the available funds, but also is an opportunity for the country to look for other fund managers [in order to get the required resources].
MPs expressed concern that the Government has started incurring costs including Rwf150 million in commitment charges for the undisbursed amount of the loan it had secured from AfDB – or project implementation delay.
“Continuing paying commitment fees is concerning,” said PAC vice chairperson, Beline Uwineza, calling for the expedition of the project implementation.
To address the issue, the officials said the only way is to expedite the project implementation, indicating that it is currently at 26 per cent.
Over 800 ICT startups applied for funding
Jean-Bosco Ndayisenga, National Programmes and Projects Monitoring Division Manager at the MINECOFIN said that the project would start with $60 million, to be equally mobilized from the Government and the partner (fund manager), and gradually grow to $100 million.
He told parliamentarians that in 2020, the Fund manager exposed challenges that it could not raise the required investment of $30 million, but had only $15 million or half of the needed amount.
Later, he said, the Cabinet approved the proposal that it could use the available funds [so as to support the execution of the project].
So far, he indicated, 818 ICT companies have requested finance from the Fund. Of these, two got funding, while 12 are in talks to sign the financing agreement. He said that a company gets between $250,000 (about Rwf260 million) and $500,000 (and Rwf500 million) in funding.
Other companies are at different levels of assessment for financing, but indicated that 407 were considered short of requirements and it was realised that investing in them would be risky.
For the company to get funding, he explained, the Fund manager has to make considerations including its screening to know how it is performing, finance management, governance, and whether the project is viable so that the money put in it does not become a loss.
Some of the project targets
The project aims to provide equity financing for tech-enabled small and medium-size enterprises, train tech-oriented entrepreneurs in business planning and management, and increase awareness and sensitisation with respect to intellectual property rights.
According to RDB, the project targets early growth high impact tech-enabled sectors, with potential to scale up regionally.
Priority sectors include energy clean technology and energy access solutions, smart transport and logistics, e-commerce, agri-tech, digital health, medical and technology devices, inclusive finance tech, and education technology.
It is expected to support more than 150 tech companies at various stages. It is forecast to create more than 2,000 direct jobs and over 6,000 indirect jobs over its 10-year life cycle.
The initiative is part of broader efforts to realise the envisaged Kigali Innovation City, a $1.9 billion flagship project that seeks to catapult the country into a knowledge-based economy.