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Banking in Rwanda

Interview - August 30, 2016

Rwanda is one of the most written about success stories in Africa, which is even more impressive considering its not-so-distant past. The country has made many achievements in the past decade leading to an impressive 7% average growth. However, as MD Maurice Toroitich tells us, there are still many challenges to overcome. He shares with us his views on the advantages of an East African integration at different levels, why Rwanda will continue growing thanks to its untapped resources, and how he and his bank is shaping the banking system…and people’s mentality.



One of the hot topics in the East Africa Community (EAC) is regional integration, whether it is free movement of people or a common currency in the long term. What are the bottlenecks you see to achieve regional integration, or a better integration within the EAC?

One of the greatest hindrances that I see are compartmentalized mind-sets, the sense of wanting to make progress but still maintaining very nationalistic laws and bureaucracies by each of the different countries. The high-ranking technocrats in different countries are still missing the big picture as they are still bent on wanting to satisfy localized and short-term needs as opposed to looking at the big picture. In principle, that is happening at leadership level, but when you look down to the administrative cadres in governments, the higher agenda is not very well understood. There are still quite a few difficulties on a practical day-to-day basis.

Rwanda is one of the most progressive countries in regards to the regional integration agenda. However, speaking about the country, one of the examples of the areas that it could take more advantage of is in the area of labor. Given the existing human resource and skills shortages, the country will do well by allowing a totally free labor market for EAC residents as this is the surest way for knowledge transfer in the long run (a Singapore Model). However, this is not entirely the case at present as in some cases, there is still some restrictions on certain forms of labor. While it is a perfectly acceptable Nationalistic agenda for Rwanda to protect jobs for its own people, this is a short term orientation. I believe that a totally free movement of any form of labor in the region will allow the market to determine the right type and price of labor to absorb and, in the long run, it will be possible to have seamless knowledge transfer at the right price.

And last, the sense I get is that all the countries are still very different in terms of the structure of the economies, their political governance standards, their fiscal policies, and so on. As a result, you do not get a sense that there is equal grassroots buy into the benefits of the East Africa Community. In many instances, there is an incorrect sense that this East Africa integration topic is going to benefit Kenya because Kenya is a bigger economy and it has a more educated population who might take over jobs in other parts of EAC. This is practically not the case even if there was going to be a totally free movement of labor. Those negative perceptions are still very alive in this journey of regional integration.


You spoke about the leadership on the government side, but what about the private sector? Is this also a private sector driven agenda?

In my view, the private sector is a lot more agile in seeking to take advantage of the integration agenda, and the government is still trying to catch up. The private sector is feeling a little bit pulled backwards by the slow process of enactment of laws and government bureaucracies. I think that If you would ask the private sector today, they would love to see East Africa as one nation.

In the banking sector, I would love to see a bank that is licensed in Uganda not required to go through a whole new licensing process and to deploy fresh capital in Rwanda to open up a branch. Why can’t we have East African banks operating in the region as domestic banks? However, it is good to appreciate that there is already some progress in other financial areas such as when there are IPOs in the region, the regional subscribers are treated as domestic applicants. So a Kenyan applying to buy shares in the Rwanda Stock Exchange will be treated like a local person. It will participate in the domestic allocation of that pool, but when it comes to investment in banking, each country is still operating on its own. The capital markets have probably moved a little quicker than the commercial banking side of things.

In the trade environment you still have a lot of differences in terms of tax rates, in rules of engagement, and so on. Kenya has a 16% VAT rate, Rwanda has 18%. In the region, there is still a very wide array of goods that are treated differently for domestic tax purposes hence a regional trader has different experiences across each country. But yet again, one can understand that, for example, given the structure of Rwanda’s economy VAT is a very important source of revenue, as the economy is not hugely diversified compared to Kenya that can possibly generate government revenue from other types of taxes.

It is a fact that the people of East Africa are socially integrated, but not structurally integrated from an economic perspective. Even from a political perspective, I wouldn’t say so entirely. Rwanda’s governance standards are very high, compared to the governance standards in Uganda and in Kenya, for example. But here lies the opportunity that the example of Rwanda should begin to positively influence the rest of the countries in the region, even though this might take some time.


Heads of State in the region are all aligned; they have been there for a while, so it is natural that the moment is now. Should they narrow the windows of opportunity down to a point where it is going to be possible to integrate?

I don’t believe that there is any doubt about the intentions and the push by the leaders of EAC (East African Community) countries to forge ahead with a much more integrated EAC. In any case, the private sector is already very well advanced, and very well geared up in this process. I do not expect that governments will backtrack on it, because I think it will be a little bit of a disaster. I also do not think the regional businesses will agree because of the costs of disintegration. Equally, there is a lot of social integration already. We talk about Kenyans living in Rwanda, they may not be as many but they actually feel part of Rwanda. Kids from Rwanda going to school in Kenya, or going to school in Uganda. There are a lot of families living in Rwanda that actually have deep roots in all EAC countries, so there is no way for example that you could separate Uganda from Rwanda, or Rwanda from Burundi for that matter.

There is a lot of this social integration that has already happened, and business is following right behind it, so politics and the rest is really just coming to formalize what is already happening; this might slow things down a bit because business must be done within certain rules and regulations, which are determined by the slowest party in this process, which are the governments and its policies. Tanzania is a very good example; for the last five to six years it has been perceived as the laggard, not wanting to take the bold steps that Kenya, Uganda and Rwanda were taking. But as a result of a change of leadership, it seems that there is more openness to engage. Some weeks ago the President of Rwanda was in Tanzania looking for opportunities to forge trade. I have recently seen for the first time in many years a Tanzanian trade mission in Rwanda.

I think we would lose a very big opportunity if we don’t make regional integration happen, now that we have the leaders that we have, as they have been very strong proponents of the East Africa Community.


Rwanda’s economy has had an average growth of over 7% during the last decade. Do you think this growth is sustainable and that the economic outlook is still positive?

I am very optimistic that Rwanda will continue to grow. If you look at the fundamentals and the details of what has driven the growth for the last ten years, they can still be expected to still drive growth in the medium term. However, Rwanda has certain challenges ahead to ensure that we sustain the growth. One is dealing with the balance of payments difficulties without incurring a huge external debt that might weigh down on the economy in the long run. This is on the basis that one cannot sustain investment in infrastructure, energy, production facilities, and so on, unless we can increase and sustain domestic sources of foreign exchange.

On the other hand, there is a lot of untapped potential in agriculture. Agriculture should be the driver of growth in Rwanda. For the last 20 years it has been about investment in physical things (reconstruction and new construction). It has been about roads, power and infrastructure and that has been good as it is the foundation. Now we are reaching the point where we need production to happen, on top of that foundation. This means agriculture, mining, tourism, services; things that generate new value to the economy and create opportunities for employment and exports. If we can get that right, Rwanda can sustain the current growth for many years ahead barring any external shocks.


Is Rwanda’s private sector ready to invest in these sectors?

There has been a lot of change over the past years. The beauty about businessmen in Rwanda is that they learn from other people. One might say the level of entrepreneurship is not as sophisticated as you would find in other parts of the region, but I believe there is a lot of progress that has been made. It ties in with the quality of education, training and exposure, and the influence of new people and businesses coming into Rwanda. Competition is getting stiffer and everybody begins to look at how to become better tomorrow than they are today.

It is a well-known fact that the level of governance is very good at government level, but not so much at private sector level. The effectiveness of boards in large corporations and SMEs in making investment decisions can still be better than what it is today. It has been a rather closed private sector, done the traditional way. But now there are a lot of new examples, especially of businesses that are being formed and run by people (nationals and non-nationals alike) with different experiences from other parts of the world. The contribution of the private sector to the GDP growth has been small but its potential is enormous. However, I foresee that in another five to ten years there will be a switch and the private sector will contribute more to the GDP than the public one. When you look at the numbers, this is probably going to happen when Vision 2020 is achieved. By then, the private sector should be playing a much bigger role in driving growth than the public sector.


How has Rwanda’s banking landscape changed since you arrived 8 years ago and how competitive is the sector now?

It is definitely very different. What you see today and what you saw then is like day and night. We were actually the first foreign bank to set up afresh in Rwanda. All the other international banks that we found in the market had come in through an acquisition of a domestic bank. We set up from scratch, and in our quest to gain market share, we did a number of things slightly differently and I think we catalyzed a lot of positive change in the industry such as the whole concept of a bank going to the customer rather than the customer being subservient to the bank. What prevailed then was a general mentality that it was the customer that had to go to the bank, and that it was at the bank’s discretion to provide what the customer needed or not. Our view of it was that since we are in a service business, it is our responsibility to seek out the customer as the customer has other choices. Therefore, the way we entered into the market was a lot more proactive than reactive and this was unusual to the market. Recruiting sales people, direct marketing, branding, all the things that you see around today did not exist much before. Then, the use of ATMs and similar technology: there were ATMs in Rwanda when we set up, but everywhere you went the perception was that ATMs do not work. We set up with a very basic model, that each branch setup comes with an ATM machine, and a customer that opens an account today gets a card the following. Slowly we became one of the largest bank in terms of ATM transactions, just because we made it easy, we made it possible to use them. We went from customer carrying their cards in their pockets and still insisting to get served in a branch banking hall to where we are today: if our ATMs go down for five minutes we get calls because customers have learnt how to use the ATMs and structured their banking around them.

The quality of human resources is also something we changed. We have changed the mind-set about the type of staff that should be working in a bank. Today there are a lot of KCB employees that have been hired by other banks because they are well-trained and groomed bankers. We use not just our local facilities, but the Kenyan training facilities as well.

We have also contributed immensely to bring positive changes in the area of governance, laws and regulations such as in changing the old mortgage law that did not work to having a very progressive mortgage law. One of the wonderful things about Rwanda is that government is quick to make changes. The attitude is that of, “Okay, so if we made a mistake then what should have been the right thing to do?” That engagement was really pleasant, up to the point that the new law actually got implemented. It’s quite nice to see things like those happen and contribute to a whole new area of economic growth and business in housing finance.


What makes Rwanda unique in terms of its human resources?

The unique thing about Rwanda is the total acceptance to learn new things. While the quality and depth of human resources in Rwanda is still a big challenge, I believe that the willingness to learn and the ability to adapt are great advantages. I always say that one of the most rewarding things to do is to teach someone who is willing to learn. It’s good to see people learning things that they thought they knew in a different way, and begin to do things much better than they used to do before.

The quality of human resources in government is very different. My perception is that the human resource quality is a lot better and is a lot more progressive and engaging. It is born out of the big dream of being Rwandan and serving the nation, and wanting to be part of this success story. To me those are the real special things that you see. A lot of investment is still necessary, of course, in building a very solid human resource base especially at private sector level but this takes time and it is not something that just happens. I think that journey already has started.


What other things needs the sector to improve in order to take it to the next level?

One of the biggest challenges that we have in Rwanda is that we are still a very cash-based economy. Mobile banking is in deployment but uptake is not as good as one would expect. Why? Because we do not have a lot of merchants who actually believe they can get paid using a mobile payment system as, for them, cash is still king. I am currently the Chairman of the Bankers Association in Rwanda and if there is a legacy that I would love to leave for Rwanda is getting the banks in Rwanda to work with their customers to change that mentality of making and receiving payments in cash, and begin to use the electronic means of payments. ATMs, mobile money, cards, and internet banking are all available now and we have to take advantage of that to transform how payments are done. We need to get Rwandan business people to embrace non-cash payment services. I think that would make a big difference because if you look at the pyramid, a big part of the population has very low level of income as 80% to 90% of the population live in the rural areas. The only way to serve those people effectively is to be able to provide them with some form of low cost mobile payment systems that they can control from their rural locations.

One of the things that we are going to do in KCB is, for the first time, to enable customers to open accounts through their mobile phones without needing to go to a branch. The way it works is the following: as Rwanda has a very good national ID system, everybody has an ID that is actually biometric so, what we are going to do is to ride on that by performing our KYC through the ID system. When a customer applies for an account using their phone credentials, we will generate a query to the national ID system to verify their identity. A customer does not need to have a smart phone with 3G because this operation can also be done using a basic USSD system. We will enable a customer to follow though the steps of account opening and set up on the banking system without needed to be present in a banking hall. With that we will encourage them to save and borrow money, all from the phone. From opening an account to saving and to borrowing, without needing to go to a bank. I think this will transform this country because we will really address a big part of the population of Rwanda.


Banking the un-banked is a key strategy, bringing innovative and cost effective solutions. Is there anything else that banks are going for? And how is the competition reacting to your strategies?

Competition will be in this area over the next few years. The biggest part of the population is actually looking at convenience, looking at being able to do the small things that they do everyday in a simpler, more efficient way. While this is already happening to a large extend for large corporations and SMEs, I think there is going to be a lot more investment into those areas, possibly looking at new segments that are not being targeted today. I do not expect any mind-boggling changes in corporate and SME banking, because that is already happening.

Where the real changes are going to be is in agriculture, which implies the lower part of the pyramid. In this part of the world, we talk about agriculture contributing 30% to 40% of the GDP, but when you look at the kind of investment that goes into agriculture, it is still very low. It is an irony, and therefore if African countries are going to grow, then the sooner we figure out how to make agriculture work commercially, the better for all of us. I see banks already putting money into agriculture, including ourselves. We are currently working with MasterCard Foundation to develop a mobile-based customer relationship management solution that is geared towards creating a value chain around agriculture.

The problem with agriculture is that you have many people but you do not know what income they have and how they spend it and therefore it is very difficult to determine how to lend to them. The moment we begin to capture that information by plugging into the value chain, from where they are buying inputs, to when they are harvesting and delivering to buyers, to when they pay school fees, buying food from the grocery, paying hospital bills and so on, then you can begin to have an understanding of their spending patterns.

By using large data analytics that we now have in terms of agriculture output, rainfall patterns, the trades that we see in the East Africa Exchange, all those things should provide very useful forecasting tools. That will enable us to say, “Well, given the information that we have about our customers and the bigger picture in the market, we should be able to take a certain amount of risk in a particular agriculture sector. And we should expect with some reasonable estimation that this is going to be the output.” Building insurance or some form of guarantees into it in case of failure, because it happens, and slowly begin to create commercially viable agriculture ventures will actually make things very different.

One of the reasons why agriculture has failed in Africa is because it has been done the traditional way. They operated with very rudimentary technology, did not explore anything new and so on. The reason I am bringing it up is because in other part of EAC, I now see a lot of young people moving to agriculture from white-collar jobs.

I am very optimistic about the future of agriculture in Africa because access to information about best agriculture practices is now very widely available through the internet. Consequently, this offers information that even an untrained person can actually use to grow and improve production.