2.15. The role of financial
system
Providing payment services
It is inconvenient, inefficient and risky to carry around
enough cash to pay for purchased goods and services. Financial institutions
provide on efficient alternative. The most obvious examples are personal and
commercial checking and check-clearing and credit card services, each are
growing in importance, in the modern sectors at least of given low-income
countries. (O.C.Ferrel, 2006)
Matching savers and investors
Although many people save such as for retirement and many have
investment projects, such as building of a factory or ex-pending the inventory
carried by family microenterprise, it would be only the wildest of coincidences
that each investor saved exactly as much as needed to finance a given project.
Therefore, it is important that savers and investors somehow meet and agree on
terms for loans or other forms of finance.
This can occur without financial institutions, even in highly
developed markets, many new entrepreneurs obtain a significant fraction of
their initial funds from family and friends. However, the presence of banks and
later venture capitalists or stock markets, can greatly facilitate matching in
an efficient manner. Small savers simply deposit their savings and let the bank
decide where to invest them.
Financial systems play a key role in the smooth and efficient
functioning of the economy;
Their most fundamental contribution is to channel resources
from individuals and companies with surplus resources to those with resources
deficit;
The financial system not only mobilizes the savings of the
economy but also facilitates the accumulation of investment capital that is
critical to growth and development. (O.C.Ferrel, 2006)
2.16. Structure of Rwandan
financial sector
Rwandan financial sector is relatively small. It comprises: 8
commercial banks, 3 specialized banks (BHR, BRD and CDHR), one microfinance
bank (UOPB), 122 micro finances institutions, 8 insurance companies, one public
pension fund (CSR), 10 growing private pension funds.(NBR website)
2.17. Recent evolution of
Rwandan banking sector
In the 1980s a deep transformation of Rwandan
financial system began. At that point, Rwandan banks were public-owned and
operated under over-regulatory environment in which both lending and borrowing
rates were determined by the authorities, banks were subjected to a legal
service requirement which presented a compulsory credit to the government (and
was the main instrument of monetary policy conditions as open market operations
did not exist), and system of quotas that placed ceiling on the amount of
credit that banks could provide to specific sectors.
The transformation was initiated with a profound deregulation
effort. Interest rates were liberalized; the legal reserve requirement was
lifted while the central bank was declared autonomous and started to use open
market operations to conduct monetary policy, and cross-ownership restrictions
that prevented the formation of financial groups-were removed.
In addition, in1997 a new law was approved allowing banks to
participate in a wide variety of activities such mutual funds and management
derivatives trading, foreign exchange dealings. This deregulation effort
created the conditions to have a more competitive banking system.
After deregulation, came the privatization process. Rwandan
banks had been created in 1980s, in 2000, a presidential decree
created the special committee for bank privatization.
The process was divided into two stages: 1) all groups
interested in acquiring a bank had to be pre-approved on the basis of technical
capability, financial situation and honorability. 2) All pre-approved groups
sent their economic proposals and bank went to the highest bidders. One
important condition was that, priority was given first to the Rwandan
nationals.
The newly privatized banks have started to provide credit in
an accelerated form. Credit outstanding to the private sector has increased
from 14% of GDP in 2000 to 20% of GDP in 2005. Unfortunately, given the
inexperience of some new bankers, this increase in credit was accompanied by a
steep in the non-performing loans.
Banks in Rwanda are generally well run and provide a range of
most important financial services. There is however room for the expansion of
activities as the economy recovers; there will be scope for other institutions
to enter the market.
European banking institutions have played a major role in the
development of commercial banking in Rwanda. During the last 40 years,
commercial banking has been dominated by three main commercial banks:
Banque Commerciale du Rwanda (BCR) was founded on
9th April 1963 by Banque Bruxelles Lambert, it has a share capital
of two billion Frw as at 31st Dec 2001 and have six branches. BCR is
one of the leading commercial banks in Rwanda. Its head office is located in
Kigali at rue de la revolution. On 2nd Oct 2004 an investment
company owned by Actis Africa fund acquired 80% share in BCR and 19.8% are
still in government hands and the remaining of 0.2% in hands of some private
investors.
Banque de Kigali s.a (BK) created on 22nd Dec 1966
and began its activities on 17th Jan 1967. At the beginning, it had
a share capital of 40 million Frw divided into 20,000 shares.
Fina Bank s.a formerly known as Banque Continentale Africaine
duRwanda (BACAR) established in 1983 by Banque Continentale du Luxembourg. The
bank was liquidated on orders of the national bank of Rwanda (NBR) for it had
provided its insolvency beyond a reasonable doubts and the government of Rwanda
owner of 80% of the shares.
Later the bank's assets were sold to commercial company
dealing in petroleum products called FINA and it renamed FINA BANK. It
continues to carry out commercial activities and it is now being owned
privately.
However, other commercial banks have emerged after the resume
of activities from the 1994 genocide.
Banque de Commerce, de Development et d'Industries (BCDI)
which become Ecobank, established in 1995 with a share capital of 1.1 billion
Frw.
Banque à la confiance d'Or (BANCOR) created in 1995 but
has been acquired by new owners. And then there is a Companie Generale des
Banques (COGEBANQUE) that was created in July 1999.
Throughout the early times of 1980s was a period of
moderate economic growth, total assests of the commercial banks increased by
70% between 1982 and 1986, while the ratio of average total commercial bnks to
GDP increased from 9.2% to 12.6% (NBR, 1996: 143).
Although the Rwandan government has equal participation in all
six commercial banks, their day to day management has been largely the
responsibility of the foreign shareholders. However, Rwandan commercial banks
are undercapitalized and their loan loss provisions are inadequate. This
combined with the excessive concentration in a few priority economic activities
makes commercial banking system quite vulnerable. (Rwanda financial sector
review,2004: 143).
The commercial banking market is characterized by the
concentration of its business activities in Kigali, where between 80% and 90%
of all bank banking transactions are carried out (BNR; 1999: 146). Each bank
strives to win over a core group of approximately 50 major customers, in
respect of both deposits and loans. The three largest commercial banks have
offices outside Kigali essentially to capture deposits transfer funds abroad.
BCDI opened three offices in the border areas, which started operating after
2001. NBR (2001).
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