Financial Awareness
Senior 1 · Entrepreneurship
Financial Awareness
Lesson 2 of 5
25 min
Thirty dairy farmers in Nyagatare District sell their milk together as a cooperative. Every evening some of the milk goes sour before the buyer's truck arrives, and the cooperative loses money. A milk cooler would solve the problem, but with installation it costs Frw 2,400,000, and the cooperative's account holds only Frw 600,000.
The committee lists every way it could find the rest: a loan from the Umurenge SACCO, a bank loan, paying the supplier in instalments, asking members for more, or applying for a grant. Each has a price, and each has a risk. (An illustrative case.)
Definition
Capital (in business finance): the money and other assets used to start and run a business.
Example: the Frw 2,400,000 the cooperative needs for the cooler.
Definition
Start-up capital: the money needed to set up a business before it earns anything: equipment, premises, first stock. Working capital: the money needed to run it day to day: stock, wages, rent and bills.
Example: a kiosk's fridge is paid from start-up capital; this week's fruit from working capital.
Sources of finance are grouped as internal (from inside the business or its owners) and external (from outsiders).
Definition
Internal finance: money that comes from the owners or from the business itself. External finance: money that comes from outside: lenders, suppliers, investors or donors.
Example: retained profit is internal; a SACCO loan is external.
Definition
SACCO (savings and credit cooperative): a financial cooperative owned by its members, who save with it and can borrow from it. Rwanda set up an Umurenge SACCO in every sector (umurenge) from 2009.
Example: farmers saving their harvest money in the local Umurenge SACCO.
| Source | How it works | Advantages | Disadvantages |
|---|---|---|---|
| Personal or members' savings (internal) | Owners put in their own money | No interest; no repayments | Often too small; owners risk their own money |
| Retained profit (internal) | Profit kept in the business instead of being paid out | Free; no debt | Slow; a new business has none yet |
| Family and friends (external) | A gift or informal loan | Quick; little or no interest | Can damage relationships if not repaid |
| Savings groups (ibimina) (external) | Members save together and lend to each other | Easy to join; trust; low cost | Small amounts; short loans |
| SACCOs and microfinance (external) | Loans to members and small businesses | Close to the community; smaller loans allowed | Interest; may need collateral or guarantors |
| Commercial bank loan (external) | A loan repaid with interest over a set time | Large amounts; long terms | Interest; collateral; strict conditions |
| Supplier (trade) credit (external) | Receive goods now, pay later | Keeps cash in the business | Higher price; late payment damages trust |
| Grants and competitions (external) | Money given by government, NGOs or prizes | Never repaid | Competitive; conditions; slow |
| Partners or investors (external) | New owners bring money for a share of the business | No repayments | Profit and control are shared |
Definition
Grant: money given to a person or business for a stated purpose, which does not have to be repaid.
Example: a prize for young entrepreneurs in a business-plan competition.
Tip
Match the money to the need. Use long-term finance (a loan over two or three years, savings, grants) for things that last, such as equipment. Use short-term finance (supplier credit, a short loan) for stock that will be sold within weeks.
Worked example
The cooperative's financing plan (illustrative figures)
The committee decides: members' savings Frw 600,000; a SACCO loan of Frw 1,200,000; and the supplier agrees to take the remaining Frw 600,000 in instalments.
Check the total:
Shares: , , and 25% from the supplier.
Three quarters of the cost (the SACCO loan and the supplier credit) is money the cooperative owes, so it must plan its repayments before it signs (Lesson 4).
Worked example
How much does a juice kiosk need? (illustrative figures)
Start-up capital: blender Frw 150,000; fridge Frw 350,000; kiosk Frw 200,000.
Working capital for the first month: fruit and sugar Frw 180,000; rent Frw 40,000; electricity Frw 20,000.
Total needed: . Many new businesses fail because the owner counts only the start-up capital and runs out of cash in the first month.
Warning
Don't spend all your capital on equipment. Keep working capital for at least the first month. A kiosk with a new fridge and no money for fruit cannot open.
CrashCourse, "Financing Options for Small Businesses" (Crash Course Entrepreneurship #16, 11 minutes). Watch for the difference between borrowing (debt) and selling a share of the business (equity). The examples are American: match each one to a Rwandan source in the table.
Practice
Sources and credits
Written by Ganzaa: the Nyagatare case, the tables, the bar diagram, the worked examples, the activity and the practice items. All figures are illustrative (2026).
