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Tue dole of National Bank of Rwanda from 1995 to 2010

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par Paterne RUKUNDO
National university of Rwanda - A0 2011

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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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