Govt tables before Parliament draft law to protect bank savings

Clients who save with banks will have more sleep and less worries even when their favoured institutions reel in financial difficulties, if a new law establishing a guarantee fund for the banking sector is approved. Legislators in the Lower Chamber of Parliament yesterday approved the basis of the Bill in a plenary session where Trade and Industry minister François Kanimba appeared to explain the proposal of the Bill on behalf of the government since Amb. Claver Gatete, the minister for finance and economic planning, was away. The government’s explanatory note of the draft law says the fund “aims at effectively contributing to financial stability by maintaining public confidence in the financial system through prompt payment of protected deposits to depositors of a failed contributing bank or contributing micro finance institutions.” Minister Kanimba said the fund will help the Central Bank get enough money to bail out banks in case they fail to meet their financial obligations, unlike currently when the banks are not collectively saving money to serve as a guarantee to their clients. “The Central Bank needs assurance that it won’t be using a lot from the government funds to bail out banks,” Kanimba said. The government has proposed that the Deposit Guarantee Fund will be a two-sided Fund comprised of the Bank Fund for contributing banks and the Micro-finance Institutions Fund for contributing micro finance institutions. Membership to the fund would be compulsory for all banks and micro-finance institutions in the country. The Deposit Guarantee Fund would be managed by the Central Bank and an Advisory Committee established by an Order of the Ministry [of finance]. The Bill suggests that the fund starts with only a narrow mandate of collecting premiums, investing money from the premiums, and paying out of insured depositors in case of liquidation of banks or Micro-finance Institutions (MFIs), before moving into becoming a legal entity equipped with sufficient capacity to perform a broad mandate that includes the resolution process of problems from banks and MFIs. Then the fund would be upgraded to a legal entity separate from the Central Bank within the next five years after it is set up. The proposed premiums to be paid by contributing institutions are 0.3 per cent of the total annual deposits, but it would be decided later by the Central Bank. The Bill instituting the fund will be examined at the parliamentary level in standing committees before it is tabled back in Parliament for enactment. Bankers welcome move Bank of Kigali chief executive James Gatera said setting up the fund will be one of the best practices for the banking sector in the country because it would ensure that depositors are protected. “The fund will be set up in Rwanda as part of experiences and best practices that have been seen elsewhere. It’s definitely one of the best practices,” he told The New Times. Gatera added that setting up the fund might increase the cost of doing business for banks in the short-term, but that it remains a “necessary fund” that will be helpful in the long-term. The Director of Programmes at the Association of Microfinance Institutions in Rwanda (Amir), Peter Rwema, said the fund would boost confidence among clients to save more with the MFIs. “It’s a very important fund for the MFIs because we will have guarantee for help in case we get into financial issues,” he said. Rwema said lack of a guarantee fund has kept a tough Central Bank rule that requires MFIs to always keep enough money in their savings. Legislators to ensure the law is clear However, MPs want more detail on the proposed financial instutituons law. MP Jean-Thierry Karemera said: “This is a sensitive law for our (development) vision. We need enough details.” MP Emmanuel Mudidi wondered if the existence of the fund will not make banks and MFIs careless with their business because there will be a guarantor. MP Jean-Marie Vianney Gatabazi, the new fund should also clearly respond to the issue of what happens to depositors in case managers of MFIs embezzle savings.

National

Govt tables before Parliament draft law to protect bank savings