PROTECTING DEPOSITORS:Financial facility to cushion clients

The central bank is pushing for a law that would require banks and other financial institutions to make mandatory deposits with the objective of clearing depositors in case the bank or any deposit-taking financial institution runs bankrupt.Amb. Claver Gatete, the Governor of the central bank, told The Business Times that they are still exploring modalities for implementation of ‘deposit insurance’ but it will not be adopted before it’s tabled and approved by parliament by June."We are working with a team from America and we hope to have the scheme operating by the end of this years,” Amb. Gatete said in an interview recently.Gatete, however, would not mention details of what the new financial facility entails, saying it’s still premature until it’s tabled before parliament for approval by June. Banks and other financial institutions, including Microfinance institutions, will have a specific monthly deposit to the fund yet to be decided."It’s still an idea being developed, before it’s approved by parliament we cannot know what will be accepted or not,” Gatete said.The move is seen as a response to a situation, where Government through the central bank had to pay Rwf1.5 billion of a debt worth Rfw3 billion to clients of 20 Microfinance institutions that were closed. There have been no major cases of insolvency apart from the closed MFIs.Traditionally, government is not obliged to compensate depositors in case of bankruptcy of deposit-taking financial institutions. But it can intervene depending on the importance and the gap created.However, the establishment of the mandatory insurance deposit is provided for in the Banking and MFI’s laws and expected to stabilize Rwanda’s financial sector.Meanwhile, deposit insurance has a controversial debate worldwide, it has been criticised as encouraging mismanagement in the expectation that they will be bailed out.In a move to improve the savings culture, the government is interested in improving measures to provide an enabling environment to increase on the banking population and attract more investors in the sector, especially through MFI’s.