Burundi: Financial Sector Profile
Real GDP grew by an average of 3.8 percent a year from 2004 to 2008, supported by strong financial and structural reforms and economic reconstruction efforts. Real GDP growth slowed somewhat to 3.5 percent in 2009, down from 4.5 percent in 2008, as coffee, food, and sugar sector production decreased, while tourism and donor-financed and foreign direct investments inflows dropped following the global economic and financial crisis. Economic growth slightly improved growing at 4.2 percent in 2011 and projections are at 4.2 and 4.5 percent for 2012 and 2013 respectively.
The immediate effects of the financial crisis on Burundi's financial sector have been limited due to low levels of integration with the international financial markets and little exposure to high-risk securitized asset classes. Burundi's banking system, although relatively small, still largely dominates the financial sector and represents about 75 percent of total financial system assets. As of 2012 there are seven commercial banks in the country; and although they have confortable liquidity and large capital buffers, non-performing loans (NPL) ratio has increased in the recent years. Bank concentration slightly decreased but concentration is overall very high.
The legal and regulatory framework for banking supervision lags behind international standards, conforming to six out of the twenty-five Basel Core Principles for banking supervision. However, the Central Bank has, in recent years, embarked on several reforms to strengthen banking supervision, with a new banking law to become fully effective in mid 2013. Implemented measures have included raising minimum capital requirements and enhancing risk-based supervision, as well as introducing a new investment code and establishing the Burundi Revenue Authority.
Access to finance remains limited, with only about 2 percent of the population holding a bank account and 0.5 percent using bank credit services. The number of ATMs across the country rapidly expanded reaching 35.000. As such, cash transaction and physical exchanges of payment instruments largely dominate market transactions. Underdeveloped payment systems, poor creditworthiness information on borrowers, weak project preparation capacities and limited abilities to enforce guarantees also further restrict the expansion of the financial system.
Microfinance plays an important role in increasing access to financial services, with about 4 percent of Burundians members of microfinance institutions - a larger share of the population than that reached by banking and postal services combined. 26 licensed microfinance institutions (MFIs) offer savings, deposits, and short- to medium-term credit.
Capital markets are in the nascent stages of development. While public authorities have succeeded to establish a primary market for treasury securities, public debt management lacks an executing infrastructure.
Burundi's fixed income market is not very active and remains limited to government securities as there are no corporate issued debt instruments on the market. Authorities regularly issue a range of instruments of varying maturities. By June 2009, more then 64 percent of government securities featured maturities of less than one year. As of March 2013 Burundi received no long-term sovereign rating from any of the three major credit rating agencies.
With no primary dealers operating on the market, commercial banks with security accounts at the Central Bank play the role of capital market intermediaries. All investors, domestic and foreign, can access the market via commercial banks, subject to foreign exchange restrictions. However, foreign investor participation remains low and commercial banks, pension funds and insurance companies form the bulk of the investor base, with commercial banks holding more then 65 percent of outstanding government debt. There is effectively no secondary market activity, largely due to a lack of liquidity on the market; all transactions take place on the primary market and most investments are help until maturity. There is no active derivatives market in the country.
Burundi's insurance industry is poorly developed, with neither a set of regulations for the industry nor an insurance supervisor. The sector remains small, highly concentrated, and features a density rate (as measured by premium/inhabitant) about fifty times below the African average. The national pension system (INSS) covers only 5 percent of the population, and accounts for a mere 5 percent of total financial assets.