Financial Sector

The financial system in Rwanda expanded due to favorable regulatory and economic conditions. The sector includes institutions and infrastructures that promote financial inclusion, attract investments, create jobs, and improve general wellbeing. The number of regulated financial institutions increased from 634 in December 2022 to 664 by December 2023. This increase was fueled by the addition of a new Sacco, a mutual insurance business, 12 new lending-only institutions, 6 Trust and Business Service Providers (TCSPs), 3 money transfer and remittance companies, 6 payment aggregation service providers, 2 E-money issuers, and 2 private pension funds. However, the number of banks has dropped due to the merging of Cogebanque and Equity Bank Rwanda. Sonarwa Life acquired Heifer, while SANLAM Vie was suspended in the pension sector.

In December 2023, the financial sector's total assets increased by 20% to FRW 10,687 billion (USD 8.5 billion), up from FRW 8,909 billion (USD 8.2 billion) in December 2022. The banking industry, which accounts for 68.3% of total assets, had 22% growth due to increased deposits, operational efficiencies, and retained earnings. The pension sector's assets grew by 13.7% due to increasing contributions and investment revenue. The insurance sector experienced a 17% increase in assets due to investment income and premiums, while the microfinance sector expanded by 23.6% due to increasing deposits and equity. Even though the assets of the pension and the insurance sector increased, the percentage of their total assets dropped to 15.8% and 9% in 2023 respectively. The financial sector's depth rose from 64.9% in December 2022 to 66.7% in December 2023, measured by its assets relative to GDP.

Banking Sector

As of December 2023, the banking sector included 9 commercial banks, 3 microfinance banks, 1 development bank, and 1 cooperative bank. This number is estimated to decrease in 2024, as three microfinance banks convert from banks to microfinance organizations to meet capital requirements under new banking laws. The majority of banks (12 out of 13) accept deposits and mostly provide credit to the private sector. The Rwandan domestic credit to the private sector (% of GDP) in 2022 and 2023 remained at 22.8% and 22.7% respectively (World Bank data). In which the domestic credit to the private sector by banks (% of GDP) in 2022 and 2023 was 22.7% and 22.6%, showing that banks provide most of the credit to the private sector is provided by the banks.

Asset Structure of the Banking Sector

Since 2021 the total assets of the banking sector have been increasing. In 2024, banks' financial sheets improved dramatically. Total assets increased by 22% to FRW 7,304 billion (USD 5.8 billion) in December 2023, up from FRW 5,993 billion (USD 5.5 billion) in December 2022, exceeding the previous year's growth rate of 18.3%. This expansion was fueled by a 32.5% increase in customer deposits and a 13.3% increase in equity. Loans accounted for 51.1% of total assets, followed by investments in government securities (17.8%).

Funding Structure of the Banking Sector

The banking sector remained financially stable. Banks continue to face moderate funding and liquidity issues due to their reliance on customer deposits rather than borrowings for core lending. Customer deposits continue to be the primary source of funding for banks, accounting for 77.4% of total liabilities as of December 2023 (compared to 72.2% in December 2022). Banks rely heavily on domestic deposits for funding, making them less vulnerable to flight risk. This balance sheet structure protects banks from funding risks caused by volatility and disruptions in foreign markets, particularly during times of tight global financial conditions.

Banking Sector Soundness

The banking sector's capitalization remained robust since 2021, whereby in December 2023, a Capital Adequacy Ratio (CAR) was 21.5%, significantly higher than the 15% statutory minimum. The core CAR was 20.3% in December 2023, higher than the 12.5% limit. Banks maintained high-quality capital, namely Common Equity Tier 1 (CET1), which made up 94% of total statutory capital. The leverage ratio stood at 12.6%, exceeding the 6% minimum. Additionally, banks are well-capitalized thanks to retained earnings and operating savings, allowing them to sustain losses while supporting the economy. They also have strong liquidity buffers, with a Liquidity Coverage Ratio (LCR) of 234% and a Net Stable Funding Ratio (NSFR) of 114.6% in December 2023 respectively.

Non-performing loans (NPLs) rose to 4.1% in December 2023, owing to a single major default. Banks, on the other hand, managed credit risk conservatively, boosting provisions while maintaining a coverage ratio of approximately 99%. Looking ahead, banks are anticipated to maintain enough capitalization and properly manage liquidity risk. Credit risk is expected to remain modest, as banks continue to closely monitor high-risk borrowers.

The banking sector's profitability has improved through increasing investment in earning assets and effective risk management. Banks' net earnings climbed by 24.6 percent to FRW 219 billion in 2023, up from FRW 176 billion in 2022. In 2023, banks' Return on Assets (ROA) grew to 4.8% from 4.3% in 2022, indicating improved profitability from their balance sheet assets. During the same year, banks' Return on money (ROE) increased to 20.7% from 17.8%, indicating their capacity to convert money into profits. Bank profitability has improved due to lending, trade, and investment revenue.

Financial Inclusion and Digital Finance

Financial inclusion in Rwanda has risen to 96% (7.8 million people) as of 2024, up from 93% in 2020, moving closer to the target of universal access (FinScope, 2024). Formal financial inclusion has significantly increased from 77% (5.4 million people) in 2020 to 92% (7.5 million people) in 2024, exceeding the 2024 target of 90%. The adoption and usage of other formal non-bank products and services have surged to 92% (7.5 million) from 75% (5.3 million) in 2020, largely due to mobile money. The percentage of banked individuals has remained stable, with a minor increase in absolute numbers (22%/1.6 million in 2020 vs. 22%/1.8 million in 2024). While informal financial mechanisms continue to serve as viable options, their use has declined to 72% (5.9 million) in 2024 from 78% (5.6 million) in 2020. Currently, only 4% (316,000) of Rwandan adults are not using either formal or informal financial products or services, indicating financial exclusion. The financial access as a proxy for financial inclusion in Rwanda by area and gender. The financial inclusion gap between urban and rural adults has decreased to 1% in 2024, from 6% in 2020. In rural areas, 96% of the population has access to financial services, compared to 97% in cities. Increased use of formal financial products has significantly reduced exclusion rates in both urban and rural areas. Although financial inclusion has improved, rural populations continue to underutilize banking services. Urban areas experience significant use of banking services and mobile money, while rural areas mostly rely on mobile money for formal inclusion. Rural populations now rely less on informal products and methods.

Microfinance Sector

The industry includes 458 institutions: 416 Umurenge SACCOs, 23 non-Umurenge SACCOs, and 20 Public Limited Companies. MFIs have increased their percentage of total financial assets from 5.7% in December 2022 to 5.9% in December 2023, notwithstanding their limited reach compared to other financial intermediaries. MFIs' vast reach makes them vital for promoting financial inclusion in underserved communities. In December 2023, MFIs had 6,029,471 account holders, up from 5,204,981 in December 2022. U-SACCOs accounted for 67% of the total. In the next part, we will analyze the Microfinance sector's performance in December 2023 and identify significant variables that support its stability.

In December 2023, the microfinance sector's total assets increased by 23.6% to FRW 633 billion (USD 501.4 million) from FRW 512 billion (USD 471.5 million) in December 2022, driven by higher deposits and equity. Savings mobilization led to a 17.2% rise in deposits, reaching FRW 322 billion (USD 255.1 million) from FRW 274 billion (USD 252.3 million). Nominal capital also grew by 21.3% to FRW 214.1 billion (USD 169.6 million), supported by capital injections (18.2%), retained earnings (16.2%), current period profits (9.7%), and other equity, including subsidies (31.9%). Lending activities expanded by 34.9% to FRW 438.2 billion (USD 347.1 million), with growth seen across all microfinance categories. Outstanding credit in U-SACCOs increased by 21%, in Public Limited Companies (PLCs) by 35.7%, and in non-Umurenge SACCOs (O-SACCOs) by 44.6%.

Financing of SMEs

Micro, Small, and Medium Enterprises (MSMEs) are the primary drivers of economic development and job creation in Rwanda, accounting for 97% of total company activity. Access to Finance Rwanda (AFR) is actively working to understand and address financial access constraints for SMEs in Rwanda through the AFR SME Financing Facility. This initiative aims to enhance the market system for SME finance, leading to increased transactions between financial service providers (FSPs) and SMEs, particularly those owned or led by women, youth, and other marginalized groups. The program focuses on expanding financial services for SMEs to unlock their growth and job creation potential, especially in agriculture, agri-processing, light manufacturing, exports, tourism, ICT, and logistics. These sectors, despite being underserved in terms of credit and financing, have the potential to significantly contribute to job creation and economic growth in Rwanda. The SME Finance Facility aims to improve the financial market system's ability to support SMEs in productive sectors, resulting in business growth, increased profitability, and the creation of decent jobs, with a strong emphasis on opportunities for women and youth.

The Insurance Sector

Insurance provides critical financial security and risk management for individuals and organizations by transferring risk from the insured to the insurer in return for premiums. The industry is classified into non-life and life insurance, with additional categories such as micro-insurance, captive insurance, health maintenance organizations (HMOs), and mutual insurance. The Rwanda private insurance market is made up of 15 companies: 9 supplying non-life insurance, 3 offering life insurance, 1 micro-insurance, 1 captive insurance, 1 HMO, and 1 cooperative insurance. Furthermore, there are two public health insurers, 15 insurance brokers, 12 bancassurance providers, 1324 agents, and 30 loss adjusters.

Total sector assets climbed by 16.9%, from FRW 824 billion (USD 758.8 million) in December 2022 to FRW 963 billion (USD 762.8 million) in December 2023. Public medical insurers were responsible for 61.7% of these assets and 40.7% of gross written premiums. Insurers received FRW 372.8 billion (USD 295.3 million) from financial institutions and invested FRW 79.9 billion (USD 63.3 million) in local equities and FRW 311.2 billion (USD 246.5 million) in government securities. Non-life insurance, particularly automobile and medical, continues to be the largest contributor to private insurance premiums, accounting for 78.8% of private premiums and 46.8% of total Gross Written Premiums (GWP).

The Capital Market

Rwanda Stock Exchange (RSE) Limited was founded on October 7, 2005, with the goal of conducting stock market operations. The Stock Exchange was initially registered as a business limited by shares, resulting in its demutualization. The company was formally launched on January 31, 2011. There are 10 listed companies (5 domestic and 5 foreign companies) in the Rwanda Stock Exchange (RSE). In 2023, trading activities on the Rwanda Stock Exchange (RSE) declined compared to the same period in 2022, as the equities market exchanged 33 million shares in 566 deals, resulting in a total turnover of FRW 6.89 billion (USD 5.5 million), a 57.32% decline over the same period in 2022. In which the 2022 equities market generated a total turnover of FRW 20.90 billion (USD 19.2 million) from 132.32 million shares traded in 611 deals. In 2023, the Government of Rwanda issued six treasury bonds, reopened seven bonds, and issued a sustainability-linked bond with a total face value of FRW 308 billion (USD 244 million), a 17.85% decrease from the FRW 363 billion (USD 334.3 million) issued during the same period in 2022. The coupon rates for these bonds ranged from 11.75% to 13.15%, with subscription levels varying from 100% to a high of 205.42%.

The Rwanda Share Index (RSI) and RSE All Share Index (ALSI) closed at 113.30 and 143.78, respectively in 2023, with gains of 3.35% and 0.73%. By November 2023, the market capitalization was USD 2.96 billion, down by 11.88% from USD 3.36 billion in January 2023. In November 2023, there were 69,654 active investors, representing a 17.01% increase from November 2022. The majority of investors are domestic (94.26%), followed by other East Africans (4.39%), and internationals (1.35%). Subscriptions to investment products, including Iterambere Fund of RNIT, Aguka Fund by BK Capital, and Ejo Heza, continue to increase. Subscriptions to investment products, including Iterambere Fund of RNIT, Aguka Fund by BK Capital, and Ejo Heza, continue to increase.

Social Security and Private Pension

As of December 2023, the pension sector accounted for 15.8% of the financial sector's total assets, making it the second-largest sub-sector. It is mainly driven by the mandatory pension scheme (RSSB) for salaried workers, operating under a defined benefit plan. This plan calculates benefits based on a formula outlined in pension laws or contracts, considering factors like years of contributions, contribution period, and the insured's age. The scheme ensures retirees receive pensions, allowing early retirement at 60 and mandatory retirement at 65, given at least 15 years of contributions. Those with fewer than 15 years of contributions receive a lump sum payment.

The pension fund also manages the Long-Term Savings Scheme (LTSS) Ejo-Heza, which aims to extend pension coverage to informal sector workers not covered by the mandatory pension scheme. As of December 2023, the mandatory pension scheme held 91.3% of the pension sector's total assets. The 2015 Pension Law allowed the licensing of voluntary pension schemes, which function as Defined Contribution (DC) plans. In DC plans, benefits depend on the contributions made and the investment performance of those contributions. By December 2023, there were 11 registered voluntary pension schemes, including 6 Complementary Occupational Pension Schemes (COPS) and 5 Personal Pension Schemes (PPS). COPS are formed through agreements between employers and employees, while PPS are managed by financial institutions offering retirement savings accounts to clients.

Conclusion and Recommendations

The financial sector in Rwanda remains strong, resilient and adequate. Rwanda's ultimate goal of building a resilient financial system capable of handling climate-related and environmental risks while capitalizing on sustainable opportunities is the exceptional. This includes incorporating environmental considerations into financial laws and practices, increasing financial institutions' capacity to identify and manage climate risks, and encouraging investments in sustainable initiatives. Rwanda hopes to achieve economic stability, safeguard natural resources, and promote long-term sustainable development.

The financial inclusion has improved both at national level and globally, and gender gap is minimized. Access to Finance Rwanda (AFR) facility is also a good facility that support women entrepreneurs and encourage their participation in the economy. To further enhance financial inclusion, the national bank of Rwanda, and other relevant regulators and policy makers should foster collaborations between government, private sector, and non-governmental organizations to develop innovative solutions that deepen financial inclusion.