Hon. Minister, it is common talk now that the Rwanda Financial Sector is getting vibrant. Can you tell us its status at present?The financial sector in Rwanda covers the short-term money market and foreign exchange market operated by the Central Bank (BNR), the long-term capital market, commercial and specialized banks, non-bank financial institutions and microfinance institutions.

During the last five years form 2003 to 2007, the financial sector has recorded an impressive 20% real growth per year. (However, the share of the financial sector in the gross domestic product (GDP) remains small at 5.2% in 2007). The government has conducted an assessment of the financial sector and designed a Financial Sector Development Program which contains specific actions to develop the banking sector, microfinance and access to credit, long-term finance and capital markets, contractual savings (insurance and pension) and payment systems.

In the first twelve months of implementation of this program, from April 2007 to March 2008, many achievements were recorded, including:

 The minimum capital requirement for banks was increased from RwF 1.5 billion to RwF 5.0 billion in order to increase the financial robustness and resilience of banks which are all complying.

 UBPR, previously a large microfinance network of cooperatives, was converted into a commercial bank (called BPR), with Rabobank of the Netherlands as a strategic partner; this conversion will allow the new BPR to enhance its ability to provide retail and international payment services.

 The Central Bank Act was amended to allow the BNR to regulate non-bank financial institutions, including insurance companies and pension funds; prudential regulation and supervision is essential to promote confidence and maintain the stability of the financial system.

 The Microfinance Policy implementation Strategy was completed to lay the ground for the development of microfinance activities and a supporting Microfinance Law was submitted to Parliament. Government support to capacity building and professional management will help increase access to finance by all Rwandans and the efficiency of microfinance institutions. Also both credit and capacity building funds for microfinance institutions were approved by the cabinet and will be established soon to provide long-term sustainable refinancing access to MFIs in form of external lines of credit and also enable MFIs access liquidity to invest and obtain earnings. A capacity building fund on the other hand aims at developing professional management and sustainability of microfinance institutions.

 A capital market was established with the creation of an Over-The-Counter (OTC) market operated by the Capital Market Advisory Council. This market is essential to issue and trade long-term securities currently comprising of Treasury bonds) and corporate bonds; contrary to T-bills (short-term tenor of less than one year) issued and traded on the money market, T-bonds (long-term tenor of more than one year) are essential to raise capital for public and private investments. The plan is to proceed with the issuance and trading of equities.

 SIMTEL, the company which operates the payment system, is being recapitalized and restructured with strategic partner acquiring 70% and bringing technical expertise. Furthermore, recently cabinet approved a decree establishing the National Payment Council (NPC) and Rwanda is already EMV (Europay, MasterCard and Visa) compliant. The purpose of the EMV standard is to specify interoperation between EMV compliant cards and EMV compliant terminals throughout the world; eventually Rwandans will be able to use their bank cards abroad and foreign cards will be accepted in Rwandan terminals and ATM machines.

1. Hon minister, what are objectives of the financial sector development in Rwanda?Rwanda’s long-term development objectives are articulated in Rwanda Vision 2020, which seeks to transform Rwanda into a middle-income country by the year 2020.

In order to pave the way towards our long-term vision, the Economic Development and Poverty Reduction Strategy (known as EDPRS) for the next five years from 2008 to 2012 has an ambitious annual target of 8% in real economic growth. The achievement of this objective requires a level of savings of at least 12% of GDP and domestic investments of up to 24% of GDP.

Hence, the overall objective of the financial sector development is to facilitate the mobilization of savings by establishing direct links to productive public and private investments required to recover and sustain strong real economic growth. In this regard, the specific objectives of Financial Sector Development Program consist of:

 Expanding access to credit and financial services to the whole population across the country in both urban and rural areas;

 Enhancing savings mobilization, especially long-term savings; and

 Channeling long-term capital for productive investments.

2. What are the challenges in Financial Sector Development in Rwanda and how do you plan to overcome them?

The main challenge of the Rwandan financial sector is inadequate institutional, organizational, and human resources capacity.

To overcome this enormous challenge, it is essential to build capacity in all these dimensions. The Financial Sector Development Program is an important step forward, especially in its emphasis on institutional development. As indicated, new laws and regulations are being passed, new institutions are being created, and existing institutions are being restructured or transformed. This is a fundamental focus of the Financial Sector Development Program and progress to date is very encouraging.

Next, there should be a focus on organizational development. In Rwanda, most institutions in the financial sector are private. Therefore, in some instances, the role of the government is to mandate a restructuring, as it was done for example for foreign exchange bureaus or microfinance institutions. In other instances, the role of the government is to tighten prudential regulation and supervision of financial institutions, as it was done for example for banks and more recently for non-bank financial institutions. In all case, it is the role of the government to create an enabling environment to allow financial institutions and other businesses to compete and prosper for the benefit of the Rwandan people.

At the nexus between organizational and human resource development, a challenge for the entire financial sector is to improve corporate governance. It is difficult or impossible to promote financial services when clients do not adopt modern corporate governance principles, do not maintain financial accounts and never carry out independent audit of their structures, processes and finances. In this respect, the Accounting Law passed by Parliament should raise the playing field in Rwanda. Other efforts in this area need to be strengthened and sustained.

Finally, there is the challenge of human resources development. This is an enormous challenge by itself. For this reason, almost every component of the Financial Sector Development Program has a training requirement. Take for example, the microfinance strategy and its capacity building module and facility. Every new initiative with respect to the financial sector such as the development of housing finance, the restructuring of financial institutions, or the deployment of the capital market must include a training component. Banks are also getting organized to foster on-the-job training and to provide specific training for their staff, insurance companies and pension funds will soon follow suite; some training costs can be expensed to reduce their tax bill. Other formal training such as those provided by the School of Finance and Banking should be made more relevant to the short-, medium- and long-term needs of financial institutions.

3. How is the financial sector development going to improve the living standards of the population?

International evidence on the link between financial sector development and improvements in living standards is compelling. Indicators to measure access to finance, analyzes of the determinants, and evaluations of the impact of finance on growth, equity and poverty reduction are increasingly shedding light on the benefits of financial sector development.

For example, there are about 70,000 micro-small-and medium-sized enterprises in Rwanda; if the financial sector could finance these enterprises and each could create 10 new jobs, then there would be a total of 700,000 new jobs created. Hence, it is clear that this market segment and its potential impact on employment can significantly raise living standards. Commercial banks, such as BCR, Finabank and BPR, as well as the development bank (BRD) are positioning themselves to serve this market.

Another example lies with food and commodity prices. Because the supply of food and commodities increases more slowly than the demand in Rwanda, prices go up. If the financial sector could finance the purchase of equipments and in puts to raise supply and productivity, then prices would be lower, purchasing power higher and living standards of the population would be dramatically improved.

These examples emphasize the impact on living standards through entrepreneurship, job creation, and inflation controls. Each example refers to productive activities as most efforts are geared toward raising the productivity of the Rwandan economy. However, another very powerful way to improve living standards through access to credit is to allow households to smooth consumption over time. In bad times, due for example to a poor harvest, households with access to credit can borrow to maintain their consumption level; in good time, they pay back. Hence, even consumption credit can significantly improve living standards.

4. Hon minister, how is the recently established capital market performing and what are its future prospects?

The GoR established an OTC market in February 2008 with all its rules and regulations and is being operated by Capital Market Advisory Council (CMAC).

It initially started with 3 products worth FRW 15 billion comprising of 1 corporate bond issued by BCR, 1 government Treasury bond and 2 bonds issued by National Bank of Rwanda (NBR). Currently RwF 200 million have been traded in only 15 transactions; these market bonds are capable of mobilizing capital, with market prices providing information to private sector and debt issuers to generate a yield curve on Rwandan market.

CMAC has started comprehensive programs of public awareness nationwide through educating opinion leaders, businessmen and decision makers at all levels on capital market operations and advantages. Very soon the cabinet will authorize a proposed list of incentives to promote the market. Agreements are being prepared for better integration and coordination with regional capital markets. To boost the equity market, Capital market authority is looking ahead to the development of equity market with government shares in SONARWA, BCR, BRALIRWA, MAGERWA, MTN and FINABANK. On private side, both BRALIRWA and CIMERWA have expressed their willingness to rise above RwF 2 billion each by issuing bonds to the public.

5. Weak payment system is one of the obstacles to robust financial sector development. What steps are you taking to improve the payment system in Rwanda?

The major constraint to the Rwanda’s payment system has been lack of modern legal and regulatory framework for payment system as well as the limited outreach of payment facilities.

To modernize the national payment systems, SIMTEL, which operates these systems has been recapitalized and restructured with a strategic partner acquiring 70% and bringing high level technical expertise. Furthermore, a decree establishing the National Payment Council (NPC) is being finalized and Rwanda is already EMV (Europay, MasterCard and Visa) compliant. The purpose of the EMV standard is to specify interoperation between EMV compliant cards and EMV compliant terminals throughout the world. In the near future, Rwandans will be able to use their bank cards abroad and foreign cards will be accepted in Rwandan terminals and ATM machines.

To increase access to SIMTEL’s services, SIMTEL has already designed a National Strategy to collaborate with MTN, ELECTROGAZ, and RWANDATEL in modernizing communication infrastructure. This will enhance the outreach of both POS (Point of sale) and ATMs (Automatic Teller Machine) and will facilitate mobile banking. In a bid to strengthen the payment system in Rwanda, SIMTEL intends to start its product called Rwanda payment card (RPC) which will capture the use of National identity cards in banks and microfinance institutions to access financial services and increase their outreach even to the vulnerable poor using the information on their chip by press of a button.

6. Hon Minister, the access to credit and to other financial services is limited mainly in Kigali and other major towns. What are the government strategies to expand the outreach to all Rwandese population?

Truly, limited access to banking services and to other financial services has been hampering development in Rwanda. However, the Government has pursued positive steps to address this problem especially through the strengthening of micro finance institutions.

The GoR recognizes that Microfinance can play a crucial role in improving the welfare of the Rwandan population because it facilitates the poor especially in the rural sector to access credit and to make savings, which is fundamental to poverty alleviation. The GoR is strongly committed to developing a robust microfinance sector and has designed a national microfinance policy as well as strategy to implement it.

7. What are the main challenges in the microfinance sector and how do you see them being addressed?

The major challenges to the microfinance sector have been particularly related to the insufficient refinancing mechanisms of MFIs, their low capacity to employ professional and sustainable management as well as lack of regulation. Weak partnership at all levels and lack of capacity to support MFI product diversification and outreach are also important constraints to its development. The GoR has already begun to take progressive actions in response to these issues. The national microfinance law has been passed by the Parliament to regulate the sector and the Cabinet has recently approved the establishment of special funds to support the MFIs i.e. the Credit Fund and Capacity Building Fund. For any microfinance to qualify for the funds conditionally 60% should be financing rural sector activities in order to boost its development and the project to extend insurance services to rural sector is under way.

The purpose of establishing a Credit Fund is to provide sustainable refinancing access to MFIs in form of external lines of credit and also enable MFIs access liquidity to invest and obtain earnings. A Capacity Building Fund, on the other hand, aims at developing professional management and financial sustainability of Microfinance Institutions. These funds will facilitate the MFIs, to employ professional management, increase savings and expand outreach thereby contributing to poverty alleviation in rural areas, and to the overall economic development.

8. Is the joining of EAC a liability or an asset to the Rwandan financial sector?

There are advantages to the Rwanda financial sector of joining the East African Community, which makes it an asset to the financial sector. Most importantly, integration of Rwanda in EAC will link our market to regional markets and will enable our economy to access the regional savings and to make profitable investments on regional financial market.

Furthermore, joining the EAC means increasing competition to our financial institutions, which will have to conduct business in a better way to remain sustainable in the integrated market. This means that their efficiency will increase and the population will be able to enjoy improved services as well as better and diversified products.