EFFECT OF COVID-19 ON MICRO, SMALL AND MEDIUM ENTERPRISES (MSMEs) IN RWANDA

Abstract

Economic disruptions from COVID-19 have left Micro, Small and Medium-Sized Enterprises MSMEs in Rwanda struggling to survive. Many Micro, Small, and Medium Enterprises (MSMEs) in Rwanda saw their incomes disappear overnight because of COVID-19. The impact of the pandemic on the business operations, supply chains, as well as the household income and expenditure of MSMEs was greatly affected by the outbreak of coronavirus pandemic (COVID-19) which severely affected the global and Rwandan economy at large. It delved deeper into the coping strategies these enterprises adopted to mitigate the effects of this disruption among MSMEs in Rwanda. To control and contain the pandemic; Rwanda implemented a range of containment measures including border closure, suspension of domestic travel, cancellation of public gatherings, institutions teleworking, and closure of schools, places of worship, and non-essential businesses. These measures worked well for Rwanda to contain the pandemic, as of 21^st December 2020, Rwanda reported 7,402 cases of COVID-19 infection. However, these measures negatively affected the livelihoods of many Rwandans, especially those who earn their living on daily basis. Furthermore, the measures also considerably affected the Microfinance sector which serves the majority of the Micro, Small, and Medium Enterprises (MSME and SMEs). The target population was the Rwandan microfinance sector that consists of 460 institutions, of which three are microfinance banks, 19 limited liability companies, 416 Umurenge SACCOs, and 22 non-Umurenge SACCOs. The microfinance sector serves nearly four million micro, medium, and small entrepreneurs (MSMEs and SMEs) in Rwanda, as per the Association of Microfinance Rwanda (AMIR). The article adopted an exploratory methodology with comprehensively reviewing the available literature, including policy documents, research papers, and reports in the relevant field. Combination of quantitative and qualitative methods was used to analyze data, while questionnaires and interviews were used to collect data. Further, to add empirical evidence, the study collected data from 110 MSMEs registered in Kigali province by administering an online questionnaire. The data were analyzed through descriptive statistics. The results indicated that most of the participating enterprises had been severely affected and they were facing several issues such as financial, supply chain disruption, decrease in demand, reduction in sales and profit, among others. The study estimated a large increase in the failure rate of MSMEs under COVID-19 of nearly 9 percentage points, absent government support. Accommodation & Food Services, Arts, Entertainment & Recreation, Education, and Other Services are among the most affected sectors. The jobs at risk due to COVID-19 related MSMEs business failures represented 3.1 percent of private sector employment. Despite the large impact on business failures and employment, we estimated only moderate effects on the financial sector: the share of Non-Performing Loans on bank balance sheets would increase by up to 11 percentage points, representing 0.3 percent of banks’ assets and resulting in a 0.75 percentage point decline in the common equity Tier-1 capital ratio. The results had important implications for the severity of the COVID-19 recession, the design of policies, and the speed of the recovery.

Keywords: COVID-19, MSMEs, Rwanda, Crisis, Policy Recommendations, MSMEs Survival

CITATION: Rwigema, P. C. (2020). Effect of covid-19 on micro, small and medium enterprises (MSMEs) in Rwanda. The Strategic Journal of Business & Change Management, 7 (4), 1630 – 1655.