Rwanda: Financial Sector Profile

Since the end of the civil war, Rwanda has made remarkable progress in rebuilding its economy: peace and political stability have been reestablished and sound macroeconomic and structural policies implemented, backed by substantial donor assistance. As a result, the country has enjoyed strong growth, averaging 7 percent a year since the mid-2000s. Real GDP growth increased from 7.2 percent in 2010 to 8.6 percent in 2011 with expected rate of 7.7 and 7.5 percent for 2012 and 2013 respectively.

Rwanda is a member of the East African Community (EAC), which also includes Burundi, Kenya, Tanzania and Uganda. EAC countries established a common Customs Union in 2005 and a Common Market in 2010, and are working towards creating a Monetary Union by 2012.

The financial sector has been growing in recent year, and its stability, structure and efficiency improved considerably due to stricter enforcement regulations by the central bank.

Rwanda's banking sector, comprising 9 commercials banks and five specialized banks, experienced a liquidity crisis in late 2008 caused by a significant reduction in deposits and increase in withdrawals by major depositors, as well as an increase in opportunity costs of bank deposits due to increasing negative real interest rates in the face of rising inflation. This forced the Central Bank to intervene in January 2009 with the injection of RWF 13 billion into the country's banking sector. The credit crunch has, however, pushed many banks to undertake efforts to expand their depositor base and offer new and attractive incentives to the public. Banks are now actively expanding their branch networks and investing in innovative products and technologies to increase the convenience and efficiency of their services. The number of branches increased significantly passing from 53 to 326 from 2007 to 2011. The banking system is highly concentrated, but competitive. The three largest banks accounted for about 50 percent of total bank assets at end-June 2012 (from 60 percent as at end 2010). The distribution of loans and deposits is concentrated in a few institutional clients, and corporate lending mostly concentrated in construction and housing. Bank assets increased substantially between 2006 and 2010, and grew by another 37 percent by end-June 2012, while NPLs declined significantly to 6 percent (September 2012) compared with 11.3 percent (end-2010).

Authorities are actively taking steps to improve access to finance and encourage the creation of new financial institutions. In May 2007, the government finalized the country's Financial Sector Development Program (FSDP) to establish a comprehensive policy framework and a detailed action plan for developing the financial sector. The number of Savings and Credit Cooperatives (SACCOs) is increasing, in 2012, , the government had fully licensed 220 of the 416 Umurenge (district-level) Savings and Credit Co‑operatives (SACCOs) while 196 SACCOS were partially licensed to grant loans to expand access to banking services beyond the current 20% of the population. Microfinance Institutions (MFIs) have also been rapidly expanding, though many still suffer from a lack of capacity to finance themselves, develop new products, or expand their reach to rural clients.

An over-the-counter debt market was established in February 2008, and Rwanda has begun developing the necessary regulatory framework to oversee the expansion of capital markets. But, to date, the fixed income markets remains in its infancy and mostly consists of short term treasury bills and government bonds with maturities not exceeding three years. As of March 2013, Fitch gave Rwanda a rating of B for both local and foreign currency long-term debt.

While the primary market is open to all investors, including residents and non-residents that hold a domestic bank account, the investor base remains dominated by commercial banks which account for about 83 percent of total holdings. There is currently no derivatives market in the country, though plans are underway to develop one; a forward exchange market has been envisioned and authorized, but has yet to materialize.

The insurance industry is small, with only few companies active in the sector. Premiums account for less than 1 percent of GDP and total insurance assets for 1.7 percent. The sector is de facto unsupervised; however, an insurance bill, establishing the legal and regulatory framework for insurance companies, was submitted to Parliament in July 2008.

The pension industry is limited to a public pay-as-you-go system, which provides mandatory coverage to public and private sector workers in the formal sector.

Prior weaknesses in land ownership and registration, which were hampering the development of mortgage products, have been addressed, paving the way for a functioning housing finance framework.

Official remittance flows play a minor role in Rwanda's economy, with the latest available data suggesting that annual remittances were roughly equivalent to 1.6 percent of GDP.

Financial Sector Development Indicators
  2007 2008 2009 Average Africa 2009
Liquid Liabilities /GDP n.a. n.a. n.a. 0,412
Deposit Money Bank Assets / GDP n.a. n.a. n.a. 0,32
Other Financial Institutions Assets / GDP n.a. n.a. n.a. 0,288
Private Credit By Deposit Money Banks and Other Financial Institutions / GDP n.a. n.a. n.a. 0,272
Bank Credit / Bank Deposits n.a. n.a. n.a. 0,728
Net Interest Margin 0,069 0,063 0,058 0,069
Bank Concentration 0,87 1 1 0,841
Stock Market Capitalization / GDP n.a. n.a. n.a. 0,947
Remittance Inflows / GDP 0,015 n.a. n.a. 0,237
Mobile Cellular Subscriptions (Per 100 People) 6,718 13,606 - 40,33
Private Credit Bureau Coverage (% Of Adults) 0 0 0 4,539
Public Credit Registry Coverge (% Of Adults) 0,2 0,3 0,4 2,575
Number of commercial bank branches per 100,000 adults 1,061 1,709 2,26 6
Depositors with commercial banks per 1000 adults 23,955 190,021 224,351 311
Borrowers from commercial banks per 1000 adults 6,28 26,987 30,162 87