FRANÇOIS KANIMBA Governor of the National Bank of Rwanda

Mobilizing Rwanda’s domestic financial resources for investment and growth is one of the government’s key objectives, and central to this is the establishment of a secure, well-regulated financial sector.

A joint action to restructure the banking sector was agreed upon a couple of years ago by financial institutions and the central bank, the National Bank of Rwanda (BNR). This has had a noticeably positive effect and is in the process of being consolidated.

BNR has reported that all five commercial banks have come into compliance with prudential norms, together with a relative fall in the volume of non-performing loans, and general stability in the level of capitalization, solvency ratio, and return on assets.

“Our focus now is to build upon what has been accomplished so far in order to strengthen Rwanda’s financial stability,” says the Governor of the National Bank, François Kanimba. He lists three essential factors: low and predictable inflation, a steady exchange rate and “a secure banking sector where people can confidently deposit their funds.”

A significant contribution towards improving the soundness of the banking sector was made in August 2004 with the privatization of two banks. Foreign investors acquired majority holdings in the Commercial Bank of Rwanda (BCR) and the Continental African Bank of Rwanda (BACAR), now known as Fina Bank.
“Since the recapitalization of these two banks, we can say that all the banks in Rwanda are complying with the capital adequacy ratios,” says Mr. Kanimba. “Most banks have now started to provide longer-term credit because they have the capacity and have improved their own asset base. This is very important for small and medium-sized enterprises (SMEs) throughout the country. We have also seen the introduction of new financial products, such as leasing.

“For the first time we are really witnessing the broadening of the range of interest rates offered to borrowers, and the banks are now performing much better risk analysis with regards to their borrowers.”

Also underway is an ambitious program to bring in a card-based payment system. “An automated clearing system will be introduced within the whole banking community,” says Mr. Kanimba. “This will enable us to move progressively from a cash-based to an electronic system.”

BNR is working with the International Finance Corporation (IFC) to develop the regulatory framework, not just for banks but also for the increasingly important non-bank institutions that provide financial services in rural areas.

The Minister of Finance and Economic Planning Manasseh Nshuti wants to see the sector grow to service areas of the country beyond the capital. “Right now, our financial institutions are concentrated in Kigali,” he says. “We need more banks and insurance companies throughout Rwanda in order to provide services to a more diverse community.”

The government is committed to mobilizing funds to support activities that generate export income such as coffee and tea processing, corn cultivation, horticulture and the crafts industry.

When he was appointed last August, Professor Nshuti made clear his intentions to introduce new financial development models. Unlocking the investment potential of savings and reducing Rwanda’s dependence on foreign aid is one of his priorities, as more than 60 percent of Rwanda’s budget is currently financed by donors.

Although credit availability is improving, the absence of a savings culture among Rwandans has restrained lending and pushed interest rates up. “Low liquidity is a challenge for the banking sector because most Rwandans keep their money in their pockets or at home,” the minister explains. “We have millions of Rwandan francs out there that financial institutions are unable to reach.

“If that money were kept in the banking sector it would be accessible to investors, making a significant impact on the overall strength of our financial services industry.”

To gain access to some of this money for development projects, the government is introducing a National Savings Fund to be operated through the central bank. All working Rwandans will be obliged to make contributions to the fund.

Steps have already been taken to strengthen the Rwanda Revenue Authority and to modernize customs administration.

Capital market development is also on the agenda. A feasibility study for the establishment of the Rwanda Stock Exchange (RSE) has been submitted to ministers. The launch of the exchange, due to take place in the near future, should boost capital for rising sectors of the economy.