Senators have called for strategies to ensure Rwandans have access to affordable financial services such low-interest loans to help them invest in income generating activities to better their lives and uplift the economy.

They made the request on Tuesday, June 7, 2022 during a consultative meeting on inclusive financial service delivery, which was held at parliament. 

Senator Juvenal Nkusi, Chairperson of the Committee on Economic Development and Finance said that currently, interest rates charged by banks and other financial institutions are high and prohibitive.

Currently, the average loan interest rate from commercial banks in the country is 16 percent. 

However, Nkusi indicated that there are additional charges that actually raise the interest rate to 20 percent, calling for cheap loans and ease of processes.

What is worse, he said, the Umurenge Savings and Credit Cooperatives (SACCOs) which are closer to the people, (currently present in all of 416 sectors of the country), are charging even a higher interest rate on loans.

"That issue should be addressed,” Nkusi said.

Central Bank Governor, John Rwangombwa told senators that all SACCOs charge up to 24 per cent on their loans, yet they account for about Rwf177 billion or 39 per cent of the total financial sector assets. 

About 3.5 million Rwandans are banked with SACCOs, according to Rwangombwa.

"This means SACCOs is the financial sector component that has an impact on the lives of Rwandans and their development,” he said, observing that their members should have a say in setting an interest that is affordable for them.

Deeper financial inclusion

Nkusi commended the fact that 93 percent of about 7 million adults – 16 years or older – in Rwanda were financially included (including both formal and informal financial products/services), according to the FinScope Rwanda Survey conducted of 2020.

However, he expressed concern that many youths in the country have no access to financial services compared to other categories of the population.

The survey showed that youth within the age group of 16 – 24 years are financially excluded at 18 per cent points, significantly higher compared to the national average of 7 percent exclusion.

"Yet, the youth need capital to create their own employment. How can that investment be obtained for them to start running businesses,” he wondered.

Rwangombwa said that the loans given by the financial institutions in Rwanda are equivalent to 28 per cent of the country’s Gross Domestic Product, which he said is still a low compared to that of the Sub-Saharan Africa average of 37 per cent.

He said the fact that there is a low savings culture in Rwanda, makes financial institutions get money only from major firms, but at a high cost. This also makes banks charge high loan interest rates to customers.

Noel Muhawenimana, Chief Executive Officer of Umutanguha Finance Company Plc said that about 35 per cent of the loans from this financial institution went to financing agriculture.

But he voiced a concern of cash flow instability, which is caused by inadequate savings culture.

"To respond to such a problem, we resort to borrowing money from foreign countries at a high cost of about 12 or 13 per cent interest rate, and we provide loans to the farmer at about 22 per cent to,” he said, indicating that the institution would charge less if it gets affordable funds.

He proposed that micro-financial institutions that perform well should be facilitated to get access to the deposits by the Rwanda Social Security Board, that are relatively affordable.

"We wish that we can also have access to the deposits by the Rwanda Social Security Board, which is the biggest provider of such money,” he said.

Uzziel Ndagijimana, Minister of Finance and Economic Planning said that such a request for micro-financial institutions to have access to RSSB deposits will be considered.

Other proposed solutions

Rwangombwa said that greater financial services will be achieved through implementing different means such as strategies to increase long-term savings culture, because the money that banks lend to clients is gotten through people’ savings.

These include EjoHeza long-term savings scheme and the Rwanda National Investment Trust (RNIT) [Iterambere Fund].

Also, as an effort to encourage savings, he indicated that the Government put in place incentives for people who venture into long-term savings whereby when one saves in a bank for more than one year [without withdrawing it], there is a waiver of tax on the accrued interest, while for [the interest on] capital savings in capital market is taxed at only 5 per cent.