I.3 STATEMENT OF THE PROBLEM
In the last decade, Rwanda like most other sub-Saharan Africa
countries has religiously followed the economic liberalization program,
privatized the financial sector to reduce financial depression, encourage
market determined prices of financial services, encourage entry of
international players and entrance market competition.In 1999 the national Bank
of Rwanda act (i.e. the Rwanda central bank act) was revised to grant its
independence, to formulate and implement monetary policy and ensure financial
sector stability.
In addition, the central bank supervisory capacity was
strengthened to enhance regulatory frameworks, Reduce regulatory forbearance,
ensure market displine and comply with the basic principles of effective
supervision. However, despite of all the reforms, the Rwandan authorities
recognized that the financial sector's ability to play its role of mobilizing
saving, conducting effective intermediation and financing it's ambitious
economic reform agenda was still far from achievable.
The authorities invited the joint world bank/IMF Financial Sector
Assessment Program (FSAP) with a mission to carry out financial sector
assessment program and make a diagnostic of the sector and make recommendations
for further reforms. The conclusion of the 2005 FSAP report not surprisingly
describes the Rwandan financial sectors as "narrow and shallow» with an
oligopolistic banking sector and very low penetration of insurance services as
well as undiversified financial products. The Financial Sector Assessment
Program (FSAP) further recognized, High interest rate, poor savings rate,
scarcity of long term capital, unregulated pension and insurance sectors and
malfunction of payment system. (Financial Sector Development Program 2008)
In the context of addressing the weaknesses raised in the FASP
and in line with Rwanda's vision 2020, the long term vision for the development
of the country, the government launched the FSDP in 2006.
The overarching vision of the «FSDP» is to develop a
stable and sound financial sector that is efficiently deep and broad, capable
of mobilizing and allocating resources to address the development needs of the
economy and reduce poverty".
The government of Rwanda recognizes the importance of the
financial sector and has made the FSDP one of the key components of the growth
flagship in its Economic Development and Poverty Reduction Strategy (EDPRS
Paper 2006).
The scope of FSDP was to address weaknesses in four areas: access
to finance, capital market development, regulation of non-bank financial
institution ( NBFI ) and payment systems.
Access to banking and other financial services out side Kigali
and other major towns is still very limited. In 2005 the combined branch
net-work of the 7 commercial banks was only 38. In terms of business services
commercial banks accounted for about 75% of total deposits and loans yet only
about 10% in terms of customers. A net work of cooperative and credit union,
union des banques populaires du Rwanda UBPR with a national wide outreach of
148 savings and credit outlets, as well as other financial other MFI accounted
for 90% of customers but only 25% of total deposits and loans.
In addition, Microfinance Institutions (MFI) which should
normally play a significant role in bridging this gap was still weak lacked
adequate financial management systems, had weak internal controls and poor
governance structures.(FSAP paper 2008)
UBPR, the apex body of microfinance institution that controlled
over 97 % of the microfinance sector in Rwanda with about 90 % of all customers
served by Rwandan financial sector, had weaknesses such as inability to offer
full commercial services such as the use of checks, international transfers and
inability to grant long term loans.
The structure of UBPR also reduced its loan granting capacity
because each branch was considered separately , considering the above
weaknesses , these branches needed to be consolidated and transformed into a
bank that has an extended loan granting capacity and offering full range of
banking services in line with FSDP and 2020 vision , hence becoming a
commercial bank. Therefore the researcher wanted to find out the rationale and
the impact of «banques populaires transformation from a cooperative to a
commercial bank».
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