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Well-managed financial sector drives country forward

Article - May 10, 2017

Behind Rwanda’s socioeconomic progress is a stable and sound financial sector, which has enjoyed average annual asset and profitability growth of 18-20%, according to the governor of the central bank


Rwanda is one of the few countries anywhere in the world that has managed fast economic growth, robust reductions in poverty, and a narrowing of inequality. From a country that just 22 years ago was shattered by poverty and despair, it has used resilience, commitment and innovation to become a thriving nation, both socially and economically.

Key to this success have been several measures taken by the government to more effectively manage debt and enforce monetary stability by maintaining a flexible yet stable exchange rate. In parallel, the National Bank of Rwanda has strengthened and stabilized the financial sector while helping to urge reforms that attract foreign investment. The country also significantly improved its ratings in the 2015 Corruption Perceptions Index, and now ranks third in Africa and 44th globally. According to Fitch and S&P, Rwanda’s long-term foreign and local currency sovereign credit rating went upwards by one notch from “B” to “B+” with a stable outlook, and along similar lines, KPMG reports that Rwanda’s financial system remains solvent and with sufficient capital buffers.

Governor of the National Bank of Rwanda, John Rwangombwa, says that Rwanda’s financial sector is still young but very stable and sound. In terms of assets and profitability, it has been growing at a very good rate, with an average annual growth of between 18-20%. Bank credits towards the private sector also have increased between 18-20%, which has really helped drive investment in the private sector.

“When you look at our monetary policy, it is normally structured in such a way that it supports the financing of the private sector through financial institutions, as we have had relief from inflation pressure for quite some time now” John Rwangombwa, Governor, National Bank of Rwanda

“When you look at our monetary policy, it is normally structured in such a way that it supports the financing of the private sector through financial institutions, as we have had relief from inflation pressure for quite some time now,” he says.
As part of the country’s Vision 2020 elaboration, economic stability is an important engine for driving economic development, though challenges remain. “Our ultimate aim is to achieve a monetary union with one central bank, one monetary policy, one currency,” he says. “We have given ourselves until 2024 to achieve this goal.” He adds that the government has also signed a memorandum of understanding on currency convertibility, meaning that trade between countries in the East African region will be done using the domestic currency without first going through a hard currency.

“We want Rwanda to play as an equal partner in the international arena, and we believe it is possible,” says Mr. Rwangombwa. “When we look at the country’s poverty reduction from 60% in 2001 to 39% by the end of 2015, we are given hope that we will soon have no Rwandan living under the poverty line.”

According to Dr. Diane N. Karusisi, CEO of the Bank of Kigali, Africa’s demographics have helped propel Rwanda and the rest of the continent forward. Its large and young population makes it attractive to investors as a potential consumer market, while an increasingly educated and technology-savvy workforce offers an added incentive to investors keen to produce value-added goods and services.

“We want to consolidate our market leadership by continuing to create value for our shareholders with a return on equity of around 20-23%” Dr. Diane n. Karusisi, CEO, Bank of Kigali

Dr. Karusisi underscores that the key to sustaining growth and continuing to attract foreign investors lies in considering Africa as one single market rather than a collection of individual countries. “Africans today understand that opportunities are first with our neighbors,” she says. “We know that intra-Africa trade is the lowest when compared to other regional blocks – it averages 16%, while it stands at 70% in Europe and 50% in Asia. We need to reduce barriers.” In a bid to do just that, Dr. Karusisi explains that an East Africa Community integrated market of more than 150 million people is being developed. As such, investors that set up shop in Rwanda gain access to the Tanzanian market or the Ugandan market and more.

In parallel, Rwanda recently re-joined ECCAS, the Economic Community of Central African States. “We want to be the hub for people coming from the East to the West of Africa; we want to connect these two parts of the world, the Anglophone Africa and the Francophone Africa,” says Dr. Karusisi. “Being bilingual and being in the centre of Africa, we believe we can achieve that mission to connect both parts of Africa and trade more amongst those African countries.”

Also, critical to preparing for a future of greater prosperity is the financial sector, which has seen significant improvements in recent years. But despite being well capitalized, it is still quite small  and unable  to  provide  sufficient  financing  for large  projects, according to Dr. Karusisi.

“Rwanda wants to have a big airport, a railway connecting the country to the region’s major ports, but we cannot rely only on Rwandans’ savings. This is where foreign investors come in because this is the  fastest  way  for  us  to  grow our  economy  and  to  reach  our ambitions.”

However, local banks like Bank of Kigali, the largest  commercial  bank in Rwanda and the first to receive an international credit rating, will continue to support development by investing in Rwandan SMEs and the mortgage market.

“Today,  the  bank’s  market  remains  Rwanda,  financing  businesses  and  people  in  Rwanda.  We believe that excelling  in our home market is a prerequisite to do well  in the region and  beyond,” adds Dr. Karusisi adds.

“We want to consolidate our market leadership by continuing to create value for our shareholders with a return on equity of around 20-23%. Our strategy is to continue innovating and to grow in line with  the  country’s  development  ambitions.  We  are  developing  new  services, opening  new branches this year to better serve our existing customers but also to grow our customer base.”

According to another high-profile banker, Robin C. Bairstow, Managing Director of I&M Bank, the Rwandan financial sector is well established and well governed. “The industry has grown and, in fact, outstripped its peers within the East African region and across Africa,” he says. “It has not suffered the contagion of some of the fallout that has been experienced.” He adds that currency has remained resilient to external factors, despite high demand; a testament to a well-controlled financial environment. “The sector is liquid, well capitalized, and, for lack of a better word, in really great shape.”

“The [financial] industry has grown and, in fact, outstripped its peers within the East African region and across Africa. [It] is liquid, well capitalized and in really great shape” Robin C. Bairstow, Managing Director, I&M Bank

Mr. Bairstow explains that from a business point of view, I&M’s decision to enter the Rwandan market was an excellent opportunity to increase its footprint across East Africa, and create connectivity. Being present in Rwanda gives the bank access to trade flows across East Africa – Kenya-Tanzania, Tanzania-Rwanda, Rwanda-Tanzania and Rwanda-Kenya. It has allowed the bank to follow a number of clients across the border, from Rwanda into Tanzania and Kenya, as well as Mauritius. “This interconnectivity created a major synergy from within the group and provided the welcoming environment that the bank received,” he says.  

He adds that Rwanda has been at the forefront of promoting the freedom of movement across the region by supporting the single East African visa. In terms of the African Union (AU), Rwanda is also now responsible for the supervision of all reforms at the AU level. Mr. Bairstow predicts that the region will grow and become even more integrated with support from higher levels, as is being seen through the president’s office.

I&M bank focuses on delivering reliable and robust alternative channels such as enhanced mobile banking and electronic banking. It is also working on rolling out a financial inclusion model, which includes agency banking and other alternative banking channels that will require the bank to work more closely with local telecoms companies. Mr. Bairstow explains that one of the major attractions that drew the bank to Rwanda was the pace of the development that is taking place there, the strong focus on governance, and the environment that is being created by government institutions.

Just as importantly, he senses that the people he works with in Rwanda have a positive work ethic and he is keen to help develop their potential for the benefit of the region. “We want to be in a position where we are exporting talent from Rwanda into the region and into the rest of the diaspora, and we want to see skilled bankers or financiers, engineers, etc. leaving Rwanda and going to work abroad while at the same time extolling the virtues of the country,” he says.

Governor Rwangombwa is on the same wavelength. “I want to create opportunities for our population,” he says. “We have this belief that as our president always says; despite the challenges we face, when you think big, you always achieve big results. We have opportunities to build a successful country and we must take advantage of them.”