The National Bank of Rwanda (BNR), which celebrated its 50th anniversary last week, is one of the most important institutions behind Rwanda’s fast economic growth and success story. Established in 1964, upon realising that it was necessary for Rwanda to have a national monetary policy, BNR then had only one commercial bank to regulate; Banque Commerciale du Rwanda (currently I&M Bank). The bank’s scope has since grown massively considering that the local financial sector is today made of 10 commercial banks, four micro-finance banks, one development bank and a co-operative bank with Commercial banks accounting for 78.6 per cent of the sector’s total assets. In an interview with The New Times, the Central Bank’s governor John Rwangombwa narrated how the bank was at one point embedded into politics in the late 1980s and 1990s under the previous regimes despite the bank’s effort to stay away from politics. “It went a little bit too far because it was used politically to allow who exactly was supposed to import goods in order to get credit from local banks. These controls took much longer than it should have been and hurt the economy,” Rwangombwa said. He explained that that political meddling was partly the reason why the country’s financial sector stagnated in the 1980s. “Because of that, we ended up with an average annual growth in the 1980s of around 2 per cent and we had only three commercial banks up to 1994,” he said. After 1994, the country began to rebuild itself and so did BNR, as the bank is called from its French appellation of Banque Nationale du Rwanda. Explaining the coming back to life of the bank, Rwangombwa said that the central bank aligned itself with other bodies and gained autonomy. “From 1997, we started working with the International Monetary Fund and we were given autonomy in the same year. Normally, for the central bank to execute and carry out its duties and continue its mandate, it has to be given autonomy,” he explained. Following the move, BNR started removing all the foreign exchange, capital movement and credit controls and opened up economy which consequently led to the emergence of commercial banks. According to the governor, a major turning point of the bank was in 2004 when it had to review its regulatory framework with banks and requested them to recapitalize. “By that time, the minimum capital requirement was Rwf 1.5 billion and this was increased to Rwf 5 billion, which was really the beginning of opening up the financial sector. That is when we started having regional banks coming in as well. From the financial sector point of view, we saw a turning point from around 2004,” Rwangombwa said. Henceforth, local banks that were struggling under the weight of non-performing loans had to embrace the reforms to remain afloat. The central bank too had to change its regulatory framework and put in place strict prudential norms across the banks which helped to maintain a stable banking sector. Rwangombwa cites the reforms made at the central bank among factors that led to the positive performance of the Rwandan economy, which grew at an average 7 or 8 per cent since 2005 as it attracted both domestic and foreign investments into the country. “New banks were established and those that had previously been around went through reforms and took in new investors,” he said. The governor said that the country’s financial sector is currently stable and can grow at an average 20 per cent per year compared to the 1980s when it grew at around 2 per cent. Although banking sector is relatively young, it is stronger in terms of growth and financial inclusion. BNR has successfully carried out its core mandate of ensuring price stability—helping Rwanda to maintain the lowest levels of inflation in the region even during the most economically volatile times. “We have noted that there has been a lot of development in terms of the management of the inflation in the economy,” Rwangombwa says. Among the measures in place is use of monetary aggregates and currency reserves like repos and treasury bills to manage the money in circulation. In 2009, the bank introduced the Key Repo Rate and also introduced interest rates as a monetary policy tool. Today, every quarter, the monetary policy committee of BNR announces whether they have increased or reduced the key repo rate and this has an impact on the behaviour of the markets which impacts on the control of inflation. Currently the bank estimates that there is formal financial inclusion of about 42 per cent and has set a target of 80 per cent within the next three years—by 2017. “Rwanda has set an ambitious objective of reaching 80 per cent of formal financial inclusion by 2017, and I am pleased to say that significant progress has already been made towards achieving this target,” Rwangombwa said on Friday. Dr Papias Musafiri Malimba, the Principal of the College of Business and Economics at the University of Rwanda, says that the bank indeed has reasons to celebrate; having achieved a lot in the last two decades. “It managed to salvage our economic growth and stability even in recent times when the world economy was not doing well. This is attributed to consistency and prudent macroeconomic and financial stability policies,” the academic said. According to him, a major milestone the bank has been able to achieve is the modernization of the payments system and interbank transfers. “The number of both banking and non banking institutions has increased significantly and, in the process, financial services for all sections of the Rwandan community have improved. In other words, the financial inclusion has improved,” he said. Dr Musafiri said that, going forward, the bank needs to focus on deepening financial services in order to reach a majority of the unbanked communities, especially those living in rural areas. He also said that the cost of banking remains high in the country and needs to be another area of interest for the central bank. “The cost of banking (both monetary and non monetary transactions) is still high. The bank needs to devise some policies that shall drive down the transaction costs for banking,” Musafiri says.
