For any economy to grow, it relies heavily on the agility of its financial sector. This is measured partly against its flexibility when it comes to disbursing loans for investments to fuel the economy.
In Rwanda, it is not any different. The country has come a long way and a lot has been achieved over the past 28 years, more so for a country that was starting from near zero.
The financial service sector has also grown in leaps and bounds. For instance, in 1994, there were just three commercial banks which were undercapitalized and heavily dependent on government.
Fast forward to 2022, there are 16 commercial banks – which are all privately owned – several micro finance institutions and credit and saving cooperatives, which are spread across the country, including the Umurenge Saccos with presence in each of the 416 sectors of the country.
Without any doubt, the banking industry has been significant player in the country’s economic gains over these years. However, there have been persistent complaints when it comes to the cost of borrowing in Rwanda.
The same concern this week got the attention of Senators, who said that the cost of borrowing, where the interest rate currently stands at 16 per cent on average, was high and becoming a major hindrance to economic growth.
The legislators also raised concerns of some additional charges by commercial banks which end up driving the interest rate to above 20 per cent in some cases.
These are valid concerns from senators and business operators and a solution should be swiftly sought because, the more loans are disbursed, the more money you have in circulation, hence increasing the trickle-down effect.
It is however important that banks and other financial services providers are listened to, and address the concerns that may be driving up the cost of borrowing , including putting in place mechanisms to make lending less risky.
The conversation started by the Senate, which brought together financial services providers and the sector regulator, the Central Bank, was a good place to start from.