For Mukama, not his real name, a loan shark seemed like a lifeline. His struggling bakery business needed a boost to keep up with operations, and a quick loan from a local moneylender kept the ovens ablaze. But the initial relief turned into a stifling burden. The interest increased overnight, and Mukama’s small profits barely covered the weekly payments. “They threatened to take everything,” he said, despite promises that he would pay back. There is a high chance you have heard stories like Mukama’s and perhaps you have seen such loan sharks on street corners and used their services. They are mushrooming across the country. Loan sharks, locally known as Banque Lambert, are illegal, unlicensed moneylenders. They offer quick cash with sky-high interest rates, trapping desperate borrowers in a cycle of debt. Despite their illegal lending practices, they still manage to beat the radar of regulation. You need some quick cash – stop by and in a few minutes, you could boast of over Rwf1 million. “The problem is not borrowing, the problem is the exorbitant interest rates and exploitative terms that they exert on you. As a borrower who desperately needs quick cash, you are convinced that you will honor the obligations, but over time it becomes increasingly difficult to escape,” Mukama explained. ALSO READ: How loan sharks are getting smarter Curbing the vice According to the Rwanda National Police’s Spokesperson, ACP Boniface Rutikanga, cases of loan sharks persist despite continued efforts to deter them through routine arrests. “The suspects are screened out and sent to RIB [Rwanda Investigation Bureau] for further investigation,” he said, adding that, however, combating illegal money lending requires more than just patrolling. Efforts to secure a comment from the Rwanda Investigation Bureau, to understand the current scale of cases, were futile by the time of publication. Last year in December the National Bank of Rwanda passed regulation governing non-deposit taking financial service providers (NDFSPs). These service providers supplement banks in providing financial services to individuals and firms. Non-deposit taking financial service providers are considered the source of alternative finance and they can instill competition in the provision of lending services or similar services. While banks may offer a set of financial services as a package, these service providers unbundle their services, tailoring them to particular groups thereby promoting competition within the industry. ALSO READ: Loan sharks are created by our inefficient banking system Under the Central Bank regulation, loan sharks are placed in the third category as money lenders and are subject to a Rwf30 million capital requirement. Money lenders have also been conditioned to lend to only individuals and not legal entities. “The Central Bank’s stand is clear that this business is illegal and we (BNR) must create an environment where money lending can have a legal structure,” Gerard Nsabimana, an inspector and Director of Market Conduct at BNR told The New Times in a phone call interview. The regulation, he added, was eased to welcome more investors in alternative financial services and bring more innovative products into the financial sector. The directive The recently published regulation details the licensing requirements for granting, suspending, or revoking a license certificate for both domestic and foreign companies. Under the directive, a non-objection can be provided to the applicant to start operations with a period not exceeding 12 months upon fulfilling a significant portion of the licensing requirements. The regulation provides that activities and changes which include the appointment of board members and management, opening, relocation and closure of the place of business, change of corporate name,acquisition, amalgamation or merger, should all be approved by the Central Bank. The Central Bank has to also approve the acquisition and transfer of significant shareholding. This doesn’t deprive an investor to own shares up to the tune of 100 per cent, the regulation reads in part. The directive has four categories and the money lenders are placed under the third. “As the regulator, we are looking to continuously create an environment where all individuals in this business can be introduced to the legal structure,” Nsabimana noted, adding that unlike the other categories, money lenders need a relatively small capital to operate legally. The directive also slashed most of the corporate governance requirements and eased the staffing policy. Despite the new incentives, however, the uptake remains low. The New Times understands that only 10 money lenders have been licensed. This, according to experts, suggests strigent conditions by the regulator. Under the conditions, BNR explained that all NDFSPs should pay a non-refundable application fee of Rwf100,000 and Rwf50,000 for Category I&II and Category III, and special categories, respectively. The regulator has a supervision role and NDFSPs should pay an annual supervision fee except category III and special categories excluding debt collection service providers. An NDFSP may provide his or her financial services either face-to-face or digitally. “Any NDFSPs violating this regulation are liable for one or more administrative or pecuniary sanctions provided by this regulation.” No interest cap Nsabimana maintained that the Central Bank will not be involved in setting a harmonised interest cap, citing that the lender will be fully in charge of the exercise. When pressed for details he said, “The prices are determined by the average market rates,” he said, adding, “BNR requests for a pricing policy to be licensed. This is subject to revision because we look at different metrics that inform these rates.” With increasing numbers of people struggling through the cost of living crisis, Rwanda-inclusive, illegal money lenders appear to have moved upmarket targeting lower-income workers with a median customer income.
