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Rwanda: Financial Sector Development Program II
October, 2012
Prepared by:
A. Michael Andrews, Keith Jefferis, Robert Hannah and Paul Murgatroyd
i
Preface
The authors wish to thank the many individuals and institutions who have provided much of the
input and helped the team to crystallize its thinking and present what it understands generally
reflects consensus among the most involved stakeholders on the issues addressed. In particular,
we thank Ministry of Finance and Economic Planning and National Bank of Rwanda officials for
the many of hours of support they provided for this work. We also wish to thank FIRST Initiative
for financing the work necessary to produce the Second Financial Sector Development Plan
(FSDP II) and our task manager, Gunhild Berg of the World Bank who provided overall
guidance and support.
Field work was conducted during missions in March and July-August 2012 and this report
reflects the situation in Rwanda as of those dates. As financial sector reforms and progress are
very fast moving in Rwanda, some proposed actions will have already been implemented and
some aspects of the financial sector may have changed significantly.
As with the original Financial Sector Development Plan, FSDP II is meant to be Rwanda’s plan
for moving the financial sector forward, not the recommendations of the consultant team that
prepared it. FSDP II provides a foundation for the financial sector strategy being prepared as part
of the second Economic Development and Poverty Reduction Strategy, for implementation from
2013/14.
ii
Contents
Executive Summary ..................................................................................................................... viii
I. Introduction and Overview ...................................................................................................... 1
II. The Strategic Framework ........................................................................................................ 7
Progress Under FDSP I ........................................................................................................... 8
Four Main Strategies for FSDP II ......................................................................................... 10
Program 1: Action Plan for Financial Inclusion .................................................................... 11
1. Defining and Monitoring Financial Inclusion ......................................................... 11
i. Defining Financial Inclusion........................................................................... 11
ii. Monitoring Financial Inclusion....................................................................... 12
iii. Creating Incentives to broaden and deepen financial inclusion ...................... 13
2. Action Plan for Financial Education and Literacy .................................................. 14
i. Broadening and deepening financial literacy .................................................. 14
ii. Improving financial education at the nonprofessional level ........................... 15
3. Promoting Products for Financial Inclusion ........................................................... 16
i. Branchless Banking ........................................................................................ 16
ii. Mobile Money Transfers................................................................................. 16
iii. Agent Networks .............................................................................................. 17
iv. Trust/Escrow Accounts ................................................................................... 17
v. Data/reporting ................................................................................................. 18
vi. Formalizing e-money Accounts ...................................................................... 18
vii. Mobile/Internet Banking ................................................................................. 20
viii. Agency Banking.............................................................................................. 20
ix. Micro insurance .............................................................................................. 21
x. Micro leasing .................................................................................................. 21
4. Action Plan for Strengthening the Umurenge SACCO Program ............................ 22
i. Strengthening governance by consolidating Umurenge SACCOs in districts 23
ii. Establishing an effective interface between District SACCOs and branches . 24
iii. Designing strategies to improve District SACCO and branch sustainability . 24
iv. Establishing an overall coordinating system for capacity building ................ 25
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v. Conducting a study to ascertain and design an effective national structure ... 26
5. Action Plan to More Effectively Supervise SACCOs/MFIs................................... 27
i. Reorganizing and Financing BNR SACCO/MFI Supervision ....................... 27
ii. Strengthening the SACCO/MFI legal and regulatory environment ............... 28
6. Strengthen other Entities and Programs to Better Support Access to Finance ....... 29
i. Strengthening AMIR capacity and effectiveness ............................................ 29
Program 2: Developing Institutions, Markets and the Supporting Infrastructure ................. 30
1. Building Capacity in the Financial Sector .............................................................. 31
i. Rwandan Professional Standards and Training .............................................. 31
ii. The Role of Industry and Professional Associations ...................................... 31
2. Banking ................................................................................................................... 32
i. Increasing Competition ................................................................................... 32
ii. New Entrants ................................................................................................... 32
3. Insurance ................................................................................................................. 33
i. Mortality (Life) Tables ................................................................................... 33
ii. Annuity Products ............................................................................................ 33
iii. Taxation .......................................................................................................... 34
iv. Data compilation and publication ................................................................... 34
v. Professional qualification requirements .......................................................... 35
4. Pensions .................................................................................................................. 35
i. Rwanda Social Security Board ....................................................................... 36
ii. Private Pension Plans ...................................................................................... 38
5. Capital Market Development .................................................................................. 39
i. Rwanda Stock Exchange................................................................................. 40
ii. Bond Market Development ............................................................................. 41
iii. Collective Investment Schemes ...................................................................... 45
6. Supporting Infrastructure ........................................................................................ 45
i. Payment System .............................................................................................. 45
ii. Credit Information Reporting ......................................................................... 49
iii. Creditors’ Rights and Insolvency.................................................................... 51
7. Rwanda as a Financial Services Hub ...................................................................... 52
Program 3: Investment and Savings to Transform the Economy .......................................... 53
iv
1. Long-Term Savings ................................................................................................ 53
2. Increasing financing for the private sector.............................................................. 54
i. Reducing obstacles to commercial bank lending in priority areas ................. 54
ii. Increasing small enterprise financing ............................................................. 57
iii. Increasing agricultural financing .................................................................... 58
iv. Increasing finance for housing ........................................................................ 59
Program 4: Protecting Consumers and Maintaining Financial Stability ............................... 62
1. Protecting Consumers ............................................................................................. 62
2. Updating the Regulatory Framework...................................................................... 62
i. Amending Legislation—Banking ................................................................... 63
ii. New and Revised Bank Prudential Standards ................................................. 64
iii. Bank Capital Adequacy .................................................................................. 64
iv. Bank Liquidity Standards ............................................................................... 67
v. Bank Provisioning Requirements ................................................................... 67
vi. Bank Accounting and Reporting Standards .................................................... 68
vii. Amending Legislation—the Central Bank Law ............................................. 68
viii. Insurance—Revising and Enforcing the Regulatory Framework ................... 69
3. Financial Stability ................................................................................................... 71
i. Contingency Planning ..................................................................................... 71
ii. Building Supervisory Capacity ....................................................................... 74
III. Implementing, Monitoring and Evaluating FSDP II ............................................................. 77
Program 1: Action Plan for Financial Inclusion .................................................................... 78
Program 2: Developing Institutions, Markets and the Supporting Infrastructure ................. 81
Program 3: Investment and Savings to Transform the Economy .......................................... 85
Program 4: Protecting Consumers and Maintaining Financial Stability ............................... 86
Appendix: Priority Policy Actions Matrix ...................................................................................... 1
Program 1: Action Plan for Financial Inclusion ................................................................... A1
Program 2: Developing Institutions, Markets and the Supporting Infrastructure .............. A15
Program 3: Investment and Savings to Transform the Economy ....................................... A22
Program 4: Protecting Consumers and Maintaining Financial Stability ............................ A26
v
Acronyms
ABS - Asset Backed Securities
ACH - Automated Clearing House
AFF - Access to Finance Forums
AFR - Access to Finance Rwanda
AMIR - Association of Microfinance Institutions in Rwanda
AML/CFT - Anti-Money Laundering/Countering the Financing of Terrorism
ASSAR - Association des Assureurs de Rwanda
ATM - Automated Teller Machine
BCR - Commercial Bank of Rwanda
BDF - BRD Development Fund
BNR - National Bank of Rwanda
BRD - Rwanda Development Bank
CAMELS - Capital adequacy, Asset quality, Management, Earnings,
Liquidity, Sensitivity to market risk
CAR - Capital Adequacy Ratio
CET1 - Common Equity Tier 1
CIS - Collective Investment Scheme
CMA - Capital Markets Authority
CoP - Certificate of Proficiency
CRB - Credit Reference Bureau
CSD - Central Securities Depository
CSR - Caisse Sociale du Rwanda
DC - Defined Contribution
DB - Defined Benefit
DRC - Democratic Republic of the Congo
DVP - Delivery Versus Payment
EAC - East African Community
East AFRITAC - East African Regional Technical Assistance Centre
EDPRS2 - Second Economic Development and Poverty Reduction Strategy
EFT - Electronic Funds Transfer
ELF - Extraordinary Liquidity Facility
EU - European Union
FSAP - Financial Sector Assessment Program
FSB - Financial Stability Board
FSCC - Financial Sector Coordinating Committee
FSD - Financial Stability Directorate
FSDP I - First Financial Sector Development Program
FSDP II - Second Financial Sector Development Program
FSDS - Financial Sector Development Secretariat
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GDP - Gross Domestic Product
HLSC - High Level Steering Committee
ICAAP - Internal Capital Adequacy Assessment Process
ID - Identification
IFRS - International Financial Reporting Standards
IMF - International Monetary Fund
IT - Information Technology
KCB - Kenya Commercial Bank
KYC - Know Your Customer
LMO - Law on Microfinance Organizations
LOB - Law on Banking
MINAGRI - Ministry of Agriculture
MINECOFIN - Ministry of Finance and Economic Planning
MINALOC - Ministry of Local Government
MINICOM - Ministry of Industry and Trade
MIS - Management Information System
MFI - Microfinance Institution
MMI - Military Medical Insurance
MMT - Mobile Money Transfer
MMO - Mobile Money Operator
MOJ - Ministry of Justice
MTN - Medium Term Note
NISR - National Institute of Statistics Rwanda
NPS - National Payment System
OTC - Over-the-counter
POS - Point of Sale
PPP - Public Private Partnerships
P2P - Person to Person
RAMA - La Rwandaise d’Assurance Maladie
RBA - Rwanda Bankers Association
RBS - Risk-Based Supervision
RCA - Rwanda Cooperative Association
RDB - Rwanda Development Board
REIT - Real Estate Investment Trust
RHA - Rwanda Housing Authority
RIPPS - Rwanda Integrated Payment Processing System
RSE - Rwanda Stock Exchange
RSSB - Rwanda Social Security Board
RTGS - Real Time Gross Settlement
RWF - Rwandan Francs
SACCO - Savings and Credit Cooperative
SFB - School of Finance and Banking
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SITI - Securities Industry Training Institute
SLA - Service Level Agreement
SPV - Special Purpose Vehicle
TCU - Technical Coordination Unit
UPI - Unique Property Identifier
UOB - Urwego Opportunity Bank
UPBR - Union des Banque Populaires du Rwanda
USD - United States Dollar
VSLA - Village Savings and Loan Associations
VUP - Vision Umurenge Program
7YGP - Seven Year Government Plan
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EXECUTIVE SUMMARY
This second Financial Sector Development Program (FSDP II) follows from the highly
successful FSDP I, adopted in 2008, which helped catalyze a dramatic increase from 47 to 72
percent of the population with access to financial services, placing Rwanda well on track to reach
80 percent by 2017, the period covered by this program. Perhaps less noticeably but equally
importantly, since FSDP I the major regulatory and institutional elements of a developed
financial sector have been put in place. A range of bank and non-bank deposit-taking institutions,
insurance companies and capital markets firms are providing an expanding variety of products
and services, positioning the financial sector to contribute to meeting the economic cluster
targets of Vision 2020, intended to transform Rwanda into a middle-income country. Relatively
few of the targets are financial sector specific, but a vibrant financial sector is crucial to
achieving almost all economic and social objectives.
Two main drivers underlying FSDP II are a focus on soundness and stability, and positioning
Rwanda within the prospective common market for financial services in the East African
Community (EAC). The overarching vision of FSDP II continues unchanged from FSDP I: to
develop a stable and sound financial sector that is sufficiently deep and broad, capable of
efficiently mobilising and allocating resources to address the development needs of the economy
and reduce poverty. FSDP II comprises four main programs:
Financial inclusion
Developing financial institutions, markets and the supporting infrastructure
Investment and savings to transform the economy
Protecting consumers and maintaining financial stability
Reflecting prior accomplishments, FSDP II is less about the creation of institutions and markets,
and more about building from a sound base to expand outreach, efficiency and innovation, and
integration in the EAC. Many of the actions and objectives have been derived from the Financial
Sector Assessment Program Update completed in 2011, which provided a useful stock-take and
reform agenda.
1. Action Plan for Financial Inclusion
Defining and Monitoring Financial Inclusion
The FinScope definition of inclusion will be refined and expanded to more fully capture semi-
formal providers such as Village Savings and Loan Associations (VSLA). Monitoring will be
enhanced, where possible to provide disaggregated data by gender and age group.
National Financial Education and Financial Literacy Strategy
Broadening and deepening levels of financial literacy and promoting financial education is a
precondition to achieving the financial inclusion target. Five years ago, at least half of the
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population aged 16 years and over was completely unfamiliar with basic financial concepts and
products including savings accounts and current accounts. The significant increase in outreach
has in part addressed this issue, but there is more to do. Based on soon to be completed studies
and levering off existing initiatives such as the district Access to Finance Forums and the
VSLAs, a nation-wide district-focused financial education and literacy program will be rolled
out to ensure that all Rwandans obtain a basic understanding of financial concepts and products
within five years. This is a key element of the financial inclusion strategy, as having access to
products and services is only one part of financial inclusion. Perhaps more importantly,
individuals require sufficient understanding of financial concepts to make effective use of the
available products to meet their needs.
In addition to the basic financial literacy and education program, an Institute of
Entrepreneurship, Cooperatives and Microfinance will be established to provide mid-level
financial training. There is currently a large gap between the supply of individuals with technical
financial training and the demands throughout the economy. One of the primary constraints to
expanding the financing provided to small enterprises is the small number of entrepreneurs
capable of providing potential lenders with financial records, projections and business plans.
Cooperatives and microfinance institutions (MFIs), particularly savings and credit cooperative
(SACCOs), have an unmet need for cashiers, clerks and loans officers with basic financial
training. These needs will be addressed by the Institute.
Products for Financial Inclusion
A key element of the financial inclusion strategy is creating an enabling environment for
financial institutions and other competitors to provide a broader range of low-cost financial
services to households. This includes savings and deposit products for historically excluded
clients, mobile money transfers (MMT), mobile and internet banking, agent banking, micro
insurance and micro leasing. Much of the innovation has come from non-traditional players—
mobile phone operators, or new entrants to the Rwandan banking market rolling out agency
banking models, which highlights the importance of an outward looking policy.
The rapid growth in MMT agent networks and customers is evidence that the current regulatory
framework is working well. Nevertheless, some further enhancements are required. First,
interoperability—the ability to transfer from one network to another—is required by regulation
but not yet operational. This will ensure that Rwandans can transfer to subscribers of all MMT
networks in the country, and in the longer term, throughout the EAC. Enactment of the Trust
Law will allow greater protection for customer balances in MMT accounts by making more
robust the current escrow account arrangements. In turn, this will facilitate recognizing that
many subscribers use MMT balances as de facto savings accounts.
Agency banking arrangements are now being rolled out across the country, facilitating account
opening for potential customers in areas that may not support a bank service outlet.
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Future Direction of the SACCO and Microfinance Sector
The Unmerge SACCOs, together with older SACCOs and MFIs have contributed substantially to
increasing financial inclusion, mobilizing savings and contributing to financial development. The
first phase of the program for strengthening Umurenge SACCOs focuses on achieving
sustainability and financial soundness in the short term under the intensive oversight of the
National Bank of Rwanda (BNR). Following extensive dialogue with Umurenge SACCO
members, financially sound Umurenge SACCOs are expected to form District SACCOs.
Members of sound older SACCOs will also have the opportunity to also become part of District
SACCOs. This consolidation will establish 30 institutions that will be the focal points for the
development of standardized systems and policies, facilitating the roll-out of a shared
information technology platform to support the sector.
A technical oversight steering committee composed of the key public sector stakeholders will be
established to coordinate capacity building and technical assistance to SACCOs and MFIs. The
committee, supported by a substantial donor-funded secretariat will have responsibility for
designing and implementing the full program. This will provide a crucial contribution to the
success of the District SACCO consolidation, as extensive assistance will be required to support
the development of strategies, business plans, policies and their operational implementation.
Training and capacity building for staff and board members will focus on putting the required
governance structures in place to safeguard member deposits. MFIs and older SACCOs will also
receive support through this coordinated approach, which will encompass programs offered by
the Rwanda Cooperative Association (RAC), the Association of Microfinance in Rwanda
(AMIR), donors and other capacity building and technical assistance to meet specific needs
identified by stakeholders and coordinated through the committee. AMIR, under an appropriate
business plan, can play an important role in assisting MFI members not receiving the intensive
support dedicated to Umurenge SACCOs. Assistance to the District SACCOs to become
financially sound and well managed is the most important element in creating a strong national
SACCO system.
The second phase will result in the establishment of a national structure to link the District
SACCOs. Success is dependent on the District SACCOs themselves demonstrating that they are
financially sustainable as well as an appropriate design for the national structure. It will provide
products and services which the District SACCOs require to better serve their members, without
itself becoming a competitor to the SACCOs. Extensive preparation and planning will be
undertaken to select and implement the most appropriate national structure, which will be
regulated and supervised by the BNR.
Reorganization of BNR oversight and enhancement of the prudential regime is another
component of the program to strengthen the SACCO and MFI sector. BNR support for
Umurenge SACCOs through the stationing of two supervisors in every district will continue
through the consolidation to District SACCOs, and then in a phased manner will transition to
three supervisors in each province, supported by a strengthened off-site supervision function in
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Kigali. Enhanced reporting and analysis, especially as the District SACCOs develop their
governance capacities, will help to streamline supervision while maintaining effective oversight.
BNR will also use transitional rules as appropriate to protect member deposits and maintain
soundness as the consolidation program progresses.
2. Developing Institutions, Markets and the Supporting Infrastructure
Building Capacity in the Financial Sector
The shortage of qualified graduates to enter the financial services industry and of experienced
financial services professionals is a serious constraint to financial sector efficiency and growth.
Although degree programs provide a foundation for entry level positions, graduates require
additional specific training for their profession. Rwandan institutes and associations such as the
Rwanda Bankers Association, the Association des Assurers du Rwanda and the Institute of
Certified Public Accountants of Rwanda have been encouraged to adopt standards and programs
for professional certifications based on existing regional and international programs. This avoids
the complication and expense of developing specific Rwandan standards and programs, and
more importantly results in accreditations recognized elsewhere in the EAC and the world.
Financial sector associations and institutions are encouraged to partner with educational
institutions for delivery of professional programs rather than building separate training institutes.
Common elements in financial sector accreditation programs such as introductory accounting
and financial management can be more efficiently delivered through a small number of partner
educational institutions rather than through sector specific institutes. This also offers the
potential to develop these partner institutions, which could include the School of Finance and
Banking , the faculty of statistics and actuarial science of the National University of Rwanda, the
Kigali Institute of Management and the Centre for Business Studies, into regional players,
potentially drawing students from the Democratic Republic of the Congo, Burundi, and
elsewhere in the EAC.
Banks
The Rwandan banking sector remains liquid and very well capitalized. The BNR will continue to
strike an appropriate balance in its supervision and regulation between protecting consumers and
financial stability, and encouraging innovation. The sector has been growing rapidly, with
consumers benefitting from the very large increase in outreach—over 100 new physical service
locations over the last five years, as well as automated teller machines (ATMs) and card products
and the newly introduced agency banking model. Preference will be given to institutions offering
a new business model—for example a focus on small and medium sized business—or global
reach—in considering potential new entrants to the banking market. New banks using similar
business models to the incumbents may not increase competition, and Rwandan banks need to
build scale to achieve efficiencies to compete within the region and more broadly.
xii
Insurance
Insurance industry performance has improved since the adoption of new legislation in 2009.
Further refinement of the regulatory regime will be introduced to foster its development,
including completion of the separation of life and non-life businesses, and revisions to capital,
solvency and investment rules. Rwanda-specific mortality (life) tables will be developed to foster
development of life insurance and annuity products.
Pensions
Rwanda Social Security Board (RSSB), the largest Rwandan financial institution, will be
provided with enhanced autonomy and accountability to enable it to effectively manage the
investment portfolio. As capital markets develop, the RSSB will become a major purchaser of
bonds and equities, as these long term assets are well suited to its long term liabilities, and more
liquid than the current real-estate dominated portfolio.
Enactment of the Pension Law will establish the basis for private pension plans. This will meet
the social objective of facilitating retirement savings, as well as playing an important role in
mobilizing long-term savings and contributing to capital market development. BNR will put an
appropriate licensing and supervision regime in place to protect consumers and ensure pension
funds are able to meet their financial promises.
Capital Markets Development
The capital markets legal foundation will be virtually complete when the remaining laws and
regulations are put in place within the next year. Creating a government bond market and yield
curve is the most important element of capital market development at this juncture. Therefore
Government will establish a regular bond issuance program. The three elements of bond market
development are introduction regular government bond issues to build a yield curve, broadening
the investor base through the growth of contractual savings such as pensions, and promoting
private sector bond issuance. To this end, large infrastructure projects or private public
partnerships will be encouraged to include a domestic financing component.
New listings and increasing the number of inter-listings on the Rwanda Stock Exchange (RSE)
is also a priority. Listing requirements for a “second tier” to attract smaller firms will be
established by end-2012, and education and information programs are planned, including the
development of an information exchange bringing business and investors together.
Supporting Infrastructure
Most of the elements of the supporting infrastructure for the financial sector are in place. The
major issue going forward is to expand the use of electronic payments—credit and debit cards,
Automated Teller Machines, and point of sale terminals—and the linkage of the Rwandan real
time gross settlement system and securities depository with the other EAC countries. Initiatives
are underway in each of these areas.
xiii
3. Investment and Savings to Transform the Economy
Increasing domestic credit to the private sector from its present 13 percent of gross domestic
product to 27 percent by 2017 is the most fundamentally important financial sector target relating
to credit. Many of the initiatives in FSDP II will indirectly support this objective, particularly
those related to increasing financial inclusion, financial literacy, and the education of potential
entrepreneurs.
In the near term, completion of the electronic land registration process will improve the
availability of collateral, particularly for housing, by facilitating mortgage registration.
Arbitration of disputes over small loans, thus avoiding the court process, will help to reduce the
costs of such loans and enhance the resolution of delinquent accounts. Greater use of the
available guarantee programs will encourage banks to lend to credit-worthy enterprises and
farmers who may lack a track record. Specialized training for lenders in agricultural credit and
housing finance will help to roll out these products through all of the formal institutions.
Increasing the supply of long-term financing, initially from the RSSB and in the longer term
from development of other contractual savings institutions and products and the capital markets,
will stimulate the housing finance market.
4. Protecting Consumers and Maintaining Financial Stability
A new financial sector unit is being introduced in the Office of the Ombudsman. This will
provide consumers with a redress mechanism to deal with the imbalance in power between
financial institutions and their customers.
The regulatory framework will be updated with revisions to the banking legislation and
prudential standards, and the central bank law. The separation of life and non-life insurance
mandated in 2009 will be completed, with regulation revised to fully reflect this separation. The
Microfinance Act will also be revised.
Formalized arrangements for crisis management will be put in place, including development of
contingency plans to deal with the possible failure of a financial institution and more wide-
spread financial sector turmoil. Deposit insurance for banks and MFIs will be introduced, and the
BNR will implement a core training curriculum.
Priorities
All the programs and sub-programs of FSDP II are important, but the most crucial are:
Broadening and deepening financial literacy
The Umurenge SACCO strengthening program
Increasing investment in small enterprises, agriculture and housing
Building capacity in the financial sector
Strengthening RSSB governance, administration, investment and risk management
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Other Critical Initiatives
It is important to flag some relatively small projects with the potential have a major impact in
several key areas. These projects may be overlooked as mere “plumbing,” but the enactment of a
Trust Law will facilitate progress on issues as diverse as expanding the outreach of village
savings programs and the growth of contractual savings such as pensions. Similarly, a project to
create Rwanda-specific life (mortality) tables will enhance the ability of the RSSB to meet its
promises to provide pensions and help to increase the uptake of insurance products by
Rwandans.
Review of tax policy is another topic that cuts across a range of FSDP II programs and
subprograms, with the potential to support diverse objectives including the growth of private
pensions, bond market development and Rwanda’s competitiveness in the EAC and more
broadly.
Implementation and Monitoring
Implementation of FSDP II will follow the highly successful approach of FSDP I. Stakeholders
with primary responsibility have been designated for all of the actions detailed in the appendix.
The Financial Sector Development Secretariat of the Ministry of Finance and Economic
Planning will monitor implementation, providing stakeholders with quarterly progress reports,
and chair quarterly meetings to review progress, and when necessary to revise objectives or
approaches in light of experience.
1
I. INTRODUCTION AND OVERVIEW
1. Rwanda’s long-term development plan, as articulated in Vision 2020, seeks to transform
Rwanda into a middle-income country by the year 2020. Developing an efficient, sound and
inclusive financial sector is crucial to meeting the economic cluster targets of Vision 2020 and
the Seven Year Government Plan (7YPG). Equally importantly, a sound and stable financial
sector provides a foundation for the achievement of social and governance related objectives.
2. A growing and sound financial sector will make direct and indirect contributions to three
of the four thematic areas of the second Economic Development and Poverty Reduction Strategy
(EDPRS 2), under development for implementation from 2013/14:
Economic transformation for rapid economic growth—growth of the financial sector
generates direct employment and expansion of the service component of GDP, and
indirectly supports growth and transformation in other sectors with financing and
transactions services.
Rural development—increased financial sector outreach and access to finance improves
the quality of life in rural areas and lays the foundation for growth.
Productivity and youth employment—adoption of electronic payment and transaction
processing will directly improve the productivity of the financial sector as well as
indirectly supporting all other sectors of the economy by reducing costs and risks; and the
growing financial sector and related capacity building initiatives will expand the
employment opportunities for young Rwandans.
3. This second Financial Sector Development Program (FSDP II) builds on the success of
the first Financial Sector Development Program (FSDP I), adopted in 2008. FSDP I particularly
focused on expanding access to credit and financial services; strengthening the legal and
regulatory regime; enhancing savings mobilization; and mobilizing long-term capital for
investment. Over 90 percent of the policy actions included in FSDP I were implemented, with
the majority of those not implemented having been overtaken by other events. This provides
confidence that the ambitious targets of FSDP II are achievable.
4. FSDP II was developed with feedback and guidance from the Financial Sector Working
Group comprising representatives of the National Bank of Rwanda (BNR), Capital Markets
Authority (CMA), financial institutions and related organizations, and development partners, and
chaired by the Financial Sector Development Secretariat (FSDS) of the Ministry of Finance and
Economic Planning (MINECOFIN). Many of the specific policy actions address stability or
development weaknesses identified in the 2011 Financial Sector Assessment Program (FSAP)
update undertaken by the International Monetary Fund (IMF) and World Bank.
2
Box 1. Key Recommendations From the 2011 FSAP Update
Address shortage of qualified labor in financial sector including through dedicated professional training.
Encourage greater contestability in the retail market segment.
Develop appropriate regulatory environment for mobile banking and payments.
Finalize and implement pending banking regulations, particularly those relating to credit classification and
provisioning, minimum internal audit standards in banks and foreign exchange.
Implement central information storage and archiving to ensure that all supervisory actions toward banks
are well documented and easily accessible.
Increase frequency of on-site examinations with a view to have at least the largest banks on a 12-month
cycle.
Ensure adequate resourcing and continuing development of the skills of supervisory staff.
Promote deepening of the interbank foreign exchange and money markets.
Build additional capacity to improve liquidity forecasting.
Clearly define the objectives and policies in the National Payment System Vision and Strategy.
Establish a “policy and strategy” unit for continual pulling of data and analysis of payment system
developments.
Develop a coherent strategy with regard to the role of SIMTEL.
Define contingency planning framework with transparent policies/procedures for government financial
support.
Review insolvency legislation with a view to introducing a stay for secured creditors’ actions.
Leverage the experience and capacity of existing institutions, in particular Rwanda Cooperative Agency
and AMIR to build capacity with the SACCOs.
Develop a sustainable and effective model for the monitoring and supervision of SACCOs. Train SACCO
supervisors so that institutional capacity building is enhanced as well. Pursue the creation of an apex
institution without banking functions to facilitate SACCO supervision and regulation.
Review the BRD Development Fund Company’s guarantee scheme drawing on experience in other
countries.
Develop a house price/land price tracking system using transaction data from the National Land Center.
Create a one-stop shop for the registration of land and mortgages at the National Land Center.
Clean up and dispose of the Housing Bank of Rwanda loan portfolio and wind down operations.
Prepare a medium-term government debt strategy and–consistent with fiscal sustainability–increase the
issuance of government bonds, concentrating on key maturities up to five years.
Increase availability of long-term funds via RRSB-term deposits in the banking system (reverse auction).
Enforce insurance companies’ compliance with reporting requirements, corporate governance, and audit.
Strengthen supervisory capacity in insurance and further develop skills in off- and on-sight inspection.
Amend investment guidelines to take into account different investment horizons between life and non-life
business
Revisit the decision to merge RAMA and CSR due to potential negative consequences regarding the
operation of the two institutions with very different mandates and on monopolization of the local
institutional investor base.
Draft corporate governance regulation to be followed by the CSR, draft investment guidelines for the CSR,
and take measures that CSR maintains adequate liquidity
3
5. The institutional elements of a vibrant financial sector are now in place in Rwanda, with
bank and non-bank deposit-taking institutions, insurance companies and capital markets firms
providing an expanding range of products and services (Table 1.)
Table 1. Rwandan formal financial sector, end-2011.
Number Assets
(RWF billions)
Assets
($ millions)
Assets
(percent of GDP)
Banks 13 1,083.3 1,793.5 29.2
Foreign-owned commercial banksa 6 374.3 619.7 10.1
Local privately owned commercial banksb 2 361.7 598.8 9.7
Cooperative bankc 1 156.7 259.4 7.0
Microfinance banksd 4 100.3 166.1 2.7
Development banke 1 90.1 14.9 2.4
Microfinance institutions (MFIs) 497 77.4 128.1 2.1
SACCOs 486 55.0 91.1 1.5
Of which, Umurenge SACCOS 416 29.1 48.2 0.8
MFIs 11 22.3 36.9 0.6
Insurance companies 8 143.7 237.9 3.9
Public insurersf 2 -- -- --
Private insurersg 6 -- -- --
Insurance brokers 5 -- -- --
Insurance agents 102 -- -- --
Insurance adjustors 4 -- -- --
Pension schemes 41 189.4 313.5 5.1
Rwanda Social Security Boardh 1 211.6 350.3 9.4
Private 40 -- -- --.
Listed companies (market capitalization)i 4 255.5 423.0 6.9
Stock brokers, dealers 8 -- -- --
Capital markets advisory services 2 -- -- --
Members of the Over-the-Counter Market 7 -- -- --
a. Access Bank, Banque Commercial du Rwanda, Ecobank, Equity Bank, Finabank, Kenya Commercial Bank.
b. Bank of Kigali, Cogebanque,.
c. Banque Populaire du Rwanda.
d. Urwego Opportunity Bank, Ageseke Bank, Unguka Bank, Zigama CSS.
e. Banque Rwandaise de Développement.
f. Military Medical Insurance, Rwanda Health Insurance Fund.
g. SONARWA, SORAS AG, SORAS Vie ltd., CORAR, COGEAR, Phoenix Assurances of Rwanda.
h. Total RSSB assets includes the medical insurance fund in addition to pension assets.
i. Bank of Kigali, Brasseries et Limonaderies du Rwanda, Kenya Commercial Bank, Nations Media Group. Market
capitalization excludes cross-listed Kenyan companies.
Note: end-2011 nominal GDP = RWF 3,709 billion; 1$ = RFW 604.
Sources: BNR, CMA, RSSB.
6. The sector remains bank-dominated in terms of total assets, mobilizing savings and
lending, with microfinance institutions (MFIs), particularly savings and credit cooperatives
4
(SACCOs), playing an important outreach role in bringing formal financial services to Rwandans
not previously served by the banking sector (Table 2). The Rwanda Social Security Board
(RRSB) is dominant in long term savings. In common with all of East Africa, the Rwandan
insurance sector remains at an early stage of development. Private pension schemes have begun
to develop in anticipation of the introduction of the legal framework, with the pending enactment
of the new pension law expected to provide greater certainty and a foundation for expanding
contractual savings. Enactment of the Trust Law currently being considered by Parliament will
facilitate unit trusts as well as the growth of the funds management business. The Rwanda Stock
Exchange (RSE) has four listed companies as well as one corporate bond issue and four issues of
government treasury bonds.
Table 2. Outreach by deposit-taking institutions, end-June 2012.
Service points Number of deposit
accounts
Number of borrowers
Banks 301 1,283,466 357,971
Of which, Banque Populaire du Rwanda 118 842,831 143,374
Microfinance banks 47 98,574 84,436
Microfinance institutions 683 1,775,533 176,987
SACCOs 608 1,468,063 156,972
Of which, Umurenge SACCOs 513 1,211,726 43,433
MFIs 75 307,470 20,015
Note: Numbers of accounts and borrowers include an element of double counting as individuals and companies may
have multiple accounts.
Source: BNR.
7. The BNR is the prudential supervisory authority with responsibility for banks,
microfinance institutions, insurance and pensions. The Capital Markets Authority (CMA)
evolved in 2011 from the capital markets advisory committee into a full-fledged market conduct
regulator. The legal and regulatory framework for the financial sector is largely complete, with
work ongoing on the still outstanding elements such as the law on pensions and the trust law.
Experience to date has identified some areas where refinements to the legal and regulatory
framework are required, and these are addressed as policy action items under FSDP II. In
addition, a range of regulatory revisions have been identified for implementation as part of the
East African Community (EAC) harmonization initiatives.
8. The BNR has played a key role in financial sector development in addition to its
monetary policy and prudential oversight role. The BNR took the lead in the development of
FSDP I, and had primary responsibility for implementation of many of the key policy actions.
The BNR continues to play a broader role than most central banks in policy development,
directly shaping the evolution of the Umurenge SACCOs and drafting financial sector legislation
5
such as the deposit insurance law. MINECOFIN is also a key public policy player in financial
sector development, steering FSDP II, preparing policy, and overseeing financial sector
legislation in areas outside of the BNR’s competencies such as capital markets. Rwanda
Cooperative Association (RCA), an agency of the Ministry of Industry and Trade (MINICOM),
has an ongoing oversight and policy role with SACCOs as part of its broader mandate for
cooperatives, and Rwanda Development Bank (BRD) also plays a significant role.
9. Previously identified weaknesses in financial sector industry associations in Rwanda are
being addressed. The Rwanda Bankers Association (RBA) has been revitalized as has the
Association de Assureurs de Rwanda (ASSAR), while the Institute of Certified Public
Accountants of Rwanda (ICPAR) has been considerably strengthened. The Association of
Microfinance Institutions in Rwanda (AMIR) has struggled to find a sustainable business model
in the rapidly evolving microfinance sector.
10. Development partners have made important contributions to financial sector
development, particularly in providing technical assistance for the implementation of policy
actions under FSDP I and other initiatives. One of the key challenges is coordination to ensure
that various projects do not work at cross purposes. FSDP II will play an important role in
aligning all financial sector technical assistance with agreed policy objectives.
11. The next chapter outlines the strategic framework and policy actions organized into four
programs. All of the programs and subprograms of FSDP II are important, but the most crucial—
because of their expected contribution to achieving Rwanda’s financial sector goals and
targets—are highlighted in Box 2. The final chapter provides an overview of the implementation,
monitoring and evaluation approach for FSDP II, which is modeled on the highly successful
approach of FSDP I. The priority policy actions matrix included as an appendix prioritizes all the
actions required to implement FSDP II, with designation of responsibility for completion and
indicated timeframes.
6
Box 2. Priorities
Two sub-programs of the Action Plan for Financial Inclusion have a particularly wide reach and thus are
crucial if 80 percent of the adult population is to access financial services by 2017. They also link to the rural
development thematic area of EDPRS2, and achieving the gross national savings rate target of 20 percent of
GDP.
Broadening and deepening financial literacy is of paramount importance. Access to financial services
is a crucial first step, but making effective use of financial services requires a minimum level of
financial literacy, which is currently at much lower levels in rural areas.
The Umurenge SACCO strengthening program is vital to consolidate the contributions made so far by
SACCOs to increasing financial inclusion, mobilizing savings and supporting economic development,
particularly in rural areas not yet well served by other institutions.
The program for Investment and Savings to Transform the Economy relates directly to the objective of
increasing domestic credit to the private sector to 30 percent of GDP. Two of the sub-programs are especially
important in supporting thematic areas of EDPRS2—economic transformation for rapid economic growth,
rural development, and productivity and youth employment—and a third is central to the policy objectives of
expanding the stock, quality and availability of housing for Rwandans.
Increasing finance to small enterprises, which currently employ about one-third of the private sector
work force, is central to achieving rapid economic growth and providing employment opportunities
for young Rwandans.
Increasing agricultural financing is vital to rural development, economic growth and employment as
the sector comprises almost 32 percent of GDP and 30 percent of exports.
Increasing financing for housing through the formal financial sector will support commercially viable
rental housing, developer schemes and incremental financing for small-scale renovation and
expansion, indirectly contributing to meeting affordable housing demand by increasing the total stock.
Few of the objectives of EDPRS2 can be achieved without a sound and vibrant financial sector, but the sub-
program to build financial sector capacity is especially important in a regional context and to meeting growth
and employment targets.
Building capacity in the financial sector is vital to position Rwandan institutions and markets to
compete within the EAC, to provide employment opportunities for young Rwandans, and to achieve
the targets of 13.5 percent annual growth in the service sector and increasing the services contribution
to GDP to 55 percent.
The sub-program to strengthen the largest financial institution, the RSSB, is vital to ensuring pension promises
are kept and that the RSSB plays an appropriate role in financial and capital market development.
Strengthening RSSB governance, administration, investment and risk management.
Two relatively small initiatives which cut across many of the financial sector programs and sub-programs will
make a disproportionate contribution to broader objectives.
Enactment of the Trust Law will facilitate progress on issues as diverse as expanding the outreach of
village savings programs, better safeguarding funds held by mobile money operators, the growth of
pensions, introduction of collective investment schemes and development of securitization.
Creating Rwanda specific life (mortality) tables will enhance the ability of the RSSB to meet its
pension obligations, increase the uptake of insurance products by enabling better pricing of life
insurance, and the introduction of annuity products to help Rwandans provide for their retirement.
7
Review of tax policy can contribute to many of the programs and sub-programs of FSDP II, including growth
of private pensions, expanding insurance coverage for Rwandans, bond market development, and Rwanda’s
competitiveness in the EAC and more broadly.
II. THE STRATEGIC FRAMEWORK
12. The FSDP II overarching vision continues unchanged from FSDP I: to develop a stable
and sound financial sector that is sufficiently deep and broad, capable of efficiently mobilising
and allocating resources to address the development needs of the economy and reduce poverty.
This provides a foundation for the contribution of the financial sector to the objectives of Vision
2020 and the 7YGP. Relatively few of the indicators and targets relate specifically to the
financial sector (Table 3). However, very few of Rwanda’s goals and objectives, whether
economic, social or governance related, can be achieved without a sound and well developed
financial sector.
Table 3. Financial sector related indicators and targets.
Indicator Status
in 2000
Current
Status*
Vision
2020 target
7YGP
Target
New Target*
4. Growth rate of the service
sector (percent)
7 10.5 (average
2000-2010)
11 None 13.5, and equal to
55 percent of GDP
5. Domestic credit to private
sector (percent of GDP)
Not
available
12.8 None 27 30
6. Gross national savings
(percent of GDP)
1 10.5 6 None 20
7. Gross national investment
(percent of GDP)
18 21 30 None 30
10. Percentage of adult
population accessing financial
services
Not
available
71.8 None None 90
11. Percentage of payment
transactions done
electronically
None 41.5 None None 75
*From the Guidelines for the Development of Sector Strategies, 2012.
Source: MINECOFIN.
13. The objectives of soundness and stability have guided the preparation of FSDP II. Recent
events in Europe are a reminder that a financial sector with inadequate capital and liquidity or
weaknesses in prudential oversight is ill-equipped to effectively intermediate savings to support
economic growth. Thus, while few of the policy actions outlined in FSDP II relate directly to the
thematic areas of EDPRS 2, insufficient focus on the key foundation issues—the legal and
regulatory framework, prudential standards and effective supervision, market conduct and
consumer protection—would undermine the financial sectors’ direct and indirect contribution to
achieving the country’s goals.
8
14. Rwanda’s place in the emerging EAC, and particularly the prospective common market
for financial services, has been another key driver for FSDP II. In many respects, the relatively
recent establishment of the Rwandan legal framework and government institutions has been an
advantage, as much of the Rwandan framework does not require substantial revision to reflect
evolving international best practices. While technical revisions are required in many areas, the
overall approach is generally sound. Nevertheless, there is a significant agenda ahead to achieve
legal and regulatory harmonization, mutual recognition of supervisory authorities and
professional accreditations, integration of the supporting infrastructure, and development of true
regional markets.
15. Building on the foundation of FSDP I, FSDP II comprises four main strategies:
Financial inclusion;
Developing financial institutions, markets and the supporting infrastructure;
Investment and savings to transform the economy; and
Protecting consumers and maintaining financial stability.
Progress Under FDSP I
16. The Rwandan financial sector has grown impressively since the adoption of the first
Financial Sector Development Plan in 2008. Over the intervening years:
Rwandans accessing financial services increased from 47 to 72 percent of the population
416 Umurenge SACCOS have been established
Four microfinance institutions have grown into microfinance banks
110 new bank service locations have been opened, an increase of almost 60 percent
2 new commercial banks have entered the market
Government divested a majority ownership stake in Bank of Kigali through an initial
public offering,
A new electronic payment and settlement system has been introduced
Automated teller machines (ATMs) offering local interoperability and international
network access have been introduced
The CMA and RSE and Central Securities Depository (CSD) have been created
17. The legal framework for financial sector oversight was modernized under FSDP I and is
now largely complete with the enactment of statutes including:
Law Governing the Central Bank of Rwanda, 2007
Law on Banking (LOB), 2008
Law on Microfinance Organizations (LMO), 2008
Insurance Law, 2009
Anti-Money Laundering Law, 2009
9
Law Concerning the Payment System, 2010
Capital Markets Authority Law, 2011
Capital Markets Law, 2011
Law on Collective Investment Schemes, 2011
18. The remaining major legislation required includes the pensions law, currently under
review in draft; the deposit insurance law; trust law; and leasing law. In addition, experience to
date with existing legislation and evolving best practices has identified the need for revisions to
the LOB and LMO, and the National Bank Law, now planned as part of FSDP II.
19. Since the adoption of FSDP I, the size of the banking system has almost tripled in
nominal terms, and increased by half relative to GDP (Chart 1). This is an especially remarkable
achievement given the high nominal GDP growth over the period, which illustrates the symbiotic
relationship between financial sector development and economic development more broadly.
Chart 1. Banking sector total loans, deposits and assets (RWF millions-left scale)
Source: BNR, IMF.
20. Banking sector expansion is in part due to organic growth—existing banks, have grown
larger—but is also due to new entrants. Kenya Commercial Bank and Equity Bank entered the
market in 2008 and 2011 respectively, reflecting the increasing attractiveness of the Rwandan
market to foreign investors, particularly from within the EAC. The entry of these banks was a
particularly welcome development due to the innovative agency banking model which is being
rolled out through a network of branches and agents across the country.
21. The Union des Banque Populaires du Rwanda (UPBR) was converted into a cooperative
bank, Banque Populaire du Rwanda (BPR), in 2008. Urwego Opportunity Bank (UOB) was
licensed as a microfinance bank in 2007 after more than a decade of smaller scale operation in
10
Rwanda. In 2010, three of the larger microfinance institutions—Ageseke Bank, Unguka Bank,
Zigama Credit and Savings Society—obtained banking licenses. The legal, regulatory and
institutional framework for the capital markets was largely completed, with the over-the-counter
(OTC) market transformed to a full-fledged stock market. The infrastructure for financial
services has been transformed through the implementation of the National Payments System
Strategy, introducing electronic payments, ATMs, credit cards and point-of-sale (POS) terminals.
Four Main Strategies for FSDP II
22. The highly successful implementation of FSDP I has transformed the Rwandan financial
services sector, providing a strong foundation for the next steps in its evolution. FSDP II is less
about the creation of institutions and markets, and more about measures to expand outreach,
efficiency and innovation. Fewer new laws and regulations are required—the focus is more on
completing the gaps in the framework, fine-tuning in light of experience, and revising to keep
pace with evolving best practices and the emphasis in EDPRS2 on aligning the Rwandan regime
with EAC standards. With the basics already in place, the emphasis under FSDP II will be on
implementation and capacity building.
23. An important lesson from FSDP I is that the rapid pace of change imposed significant
burdens on the BNR and government ministries for the drafting of laws, regulations and the
concomitant stakeholder consultations. In some cases drafting and enactment has outpaced the
needed consultation and coordination, with the result that some laws, for instance the Mortgage
Law, required revision soon after enactment. A key element of FSDP II is ensuring that
stakeholders are fully consulted prior to finalization of laws, regulations and strategies affecting
the financial sector to help insure that progress on a specific policy action is not undermined by
unintended consequences. This will be particularly important as the EAC harmonization process
continues, as law and regulations are increasingly affect by EAC requirements.
24. There are a number of relatively small initiatives, which may sometimes overlooked as
“plumbing,” that will be instrumental to progress in many areas. Each is discussed in more detail
in the relevant programs and sub-programs, and is included in the policy action matrix, but are of
such importance that they are flagged here as high priority issues. The enactment of a Trust Law
will facilitate progress on issues as diverse as expanding the outreach of village savings
programs, protecting Rwandans holding mobile money balances with MTN or Tigo, the
introduction of mutual funds, and the growth of contractual savings such as pensions. Similarly,
a project to create Rwanda-specific life (mortality) tables will enhance the ability of the RSSB to
meet it promises to provide pension, spur the development of annuity products for private
retirement savings, and enhance the ability of life insurance companies to offer appropriately
priced products, leading to increased insurance coverage and growth in long term savings.
11
Program 1: Action Plan for Financial Inclusion
25. Progress under FSDP I in increasing financial inclusion has positioned the country to
reach the target of 90 percent by 2020. The major subprograms are: defining and monitoring
financial inclusion; and the action plan for financial education and literacy.
1. Defining and Monitoring Financial Inclusion
26. Increasing financial inclusion to 80 percent by 2017 (the 5 years covered by this
program) and to 90 percent by 2020, as stated in Vision 2020 is a very high priority. Progress
toward reaching this target to date has been excellent, with an unprecedented increase of the
financially included from 47 percent in 2008 to almost 72 percent as measured by the soon to be
released FinScope 2012 study.1 Nonetheless, further increases beyond this level become
increasingly challenging as much of the additional outreach required will need to target the two
lowest ubudehe categories. The policy is to utilize ongoing reporting and monitoring on the
supply side, creating goal-directed incentives at the district level related to overall financial
inclusion with special emphasis on reaching out to women and youth, and evaluating demand-
side results by conducting periodic surveys at the district and umurenge level. Financial inclusion
objectives must be clearly defined, effectively monitored on both an ongoing and post evaluation
basis, and built into the incentive strategies for those financial institutions that are most directly
relevant to meeting the objective.
i. Defining Financial Inclusion
27. FinScope studies use a standardized methodology for defining financial inclusion which
will be retained for comparative purposes. However, this definition will be further refined and
expanded to more fully capture the supply-side aspects of financial inclusion to better support
efforts to effectively monitor improvements on a quarterly basis. This monitoring will help to
create incentives for financial institutions to enhance their strategies to broaden financial
inclusion.
28. The informal tontines, ikimas, and Caisse d’entrée groups will be classified separately
within a semi-formal and informal category. A new semi-formal category will include those
Village Savings and Loans Associations (VSLAs), presently involving five programs2, which
have registered with Ministry of Local Government (MINALOC) district authorities, and are
able to prepare detailed data on “depositors” (number of participants and RWF amounts),
borrowers, and number of transactions on a quarterly basis, and do or can provide this data to the
districts. The new Trust Law will remove a legal obstacle making it difficult for VSLAs and
informal entities to establish bank accounts in their own name.
29. These five VSLA programs, all supported by donors, already make substantial
contributions to financial inclusion. Program sources indicate that on a combined basis they
already involve 330,000 saver participants (nine percent of the population over 18) and 200,000
1 This progress has moved Rwanda into the top league of other African countries including South Africa
(73 percent in 2011) and based on 2009 data, Uganda (70 percent), Kenya (67 percent) and Tanzania
(44 percent). 2 These include Care, Norwegian People’s Aid, CHF (formerly Cooperative Housing Foundation), Plan,
and Catholic Relief Services.
12
borrowers. Many of these participants are unlikely to have an individual account with a formal
financial institution because they are often located in villages relatively hard to reach from the
Umurenge. Moreover, these programs combine the financial aspects with significant emphasis
on deepening financial literacy. For example, one such program utilizes 48 organizer/trainers to
provide a 10 month training program to all participants.
Policy actions— bringing qualified VSLAs more fully into the financial inclusion strategy
Broaden the BNR Umurenge financial mapping to include the semi-formal VSLA programs that
can report VSLA MIS data to the districts
Provide BNR with a copy of the quarterly data provided to the districts by qualified VSLA
programs
Encourage establishing a donor-funded small central unit to continue to monitor data and provide
limited assistance for individual village VSLA programs when the donors move on to other
villages
30. Other supply side financial inclusion indicators that will monitored by the BNR, broken
down by gender to the extent feasible on a quarterly basis by district, include: i) number of active
depositors and borrowers at BNR registered institutions; ii) number of cellphone banking
participants; iii) number of insurance policies (including micro-insurance): iv) value of combined
financial institution deposits and loans; v) number and value of small enterprise and agricultural
loans (needed for another purpose); and vi) number of financial institution deposit transactions.
BNR will take steps to ensure that all licensed financial institutions (including Umurenge
SACCOs and MFIs) will have the ability to provide the required data when it can be produced
without adding significant cost.
ii. Monitoring Financial Inclusion
31. BNR will take steps to ensure that all licensed financial institutions (including Umurenge
SACCOs) and qualified semi-formal VSLA programs submit the required data no less often than
quarterly. BNR will prepare a summary on the monitored indicators quarterly and submit it to
MINECOFIN and MINALOC.
32. As the quality of financial inclusion is an important dimension, using an account is just as
important as having one. However, measures of quality are difficult to capture on a regular
ongoing basis. The number of financial institution deposit transactions is an indicator of the
quality of inclusion that can be monitored on a regular basis given existing and planned financial
institution management information system (MIS) capabilities.
Policy actions— post-evaluation of broadening and improving the quality of financial inclusion
13
Analyze results of FinScope 2012 from a policy perspective as well as to measure changes in
access since 20083
Expand focus of 2015 FinScope to break out semi-formal from informal institutions and to better
address quality of financial inclusion aspects
Utilize future household surveys to examine data relevant to quality of financial inclusion
iii. Creating Incentives to broaden and deepen financial inclusion
33. District quarterly reports on financial inclusion by type of financial institution will
include carefully selected data related only to broadening financial inclusion. They will be
reviewed each quarter by district Access to Finance Forums, with a focus on ideas for improving
results. Confidentiality will be respected so no data allowing the identification of individuals will
be used for monitoring purposes and in the discussions on progress.
34. Those indicators associated with deposits and saving should be particularly emphasized
as they are the most important element in financial inclusion for the majority of participants. The
value of loans and, if necessary to preserve secrecy, value of deposits will be provided only for
the district as a whole, not by financial institution. Any pressure to create incentives for
individual financial institutions to expand the value of loans will be avoided as it creates
potentially serious risks associated with NPLs, especially for institutions whose credit
administration skills are still being developed. Performance contracts for SACCO managers will
include progress on financial inclusion indicators other than the value of loans to provide
incentives to focus on this arena. A report on progress by district and province toward financial
inclusion targets will be prepared by MINECOFIN on an annual basis.
35. The district-based Access to Finance Forums (AFF), while an important initiative, are not
yet fully operationalized. As they will be playing a key link in implementing the strategies for
both deepening financial inclusion and delivery of financial literacy outreach, the program needs
technical support to establish the AFF organizationally on an effective basis, design a modus
operandi for their meetings and activities, and prepare terms of reference that assign them
responsibility and accountability with respect to contributing to achieving district targets in these
areas. Moreover, training will be needed for obtaining and using data necessary for
implementing this role. Where appropriate, subcommittees may need to be formed
Policy actions— achieving 80 percent inclusion by 2017
Focus financial inclusion progress measurement broken down by male, female and youth on
supply side activity
Define and monitor financial inclusion to include qualified semi-formal VSLAs and their activity
Prepare quarterly district financial inclusion reports and make them available to MINECOFIN
and MINALOC district authorities
Utilize financial inclusion reports for discussion in Access to Finance Forums, and performance
contracts for Umurenge SACCOs to create incentives for financial institutions to increase focus
3 FinScope data will not match supply side financial inclusion because supply side data will include
double counting to the extent that customers have more than one financial institution relationship.
14
on their contributions to broadening financial inclusion
Utilize FinScope 2015 and household surveys to measure demand side financial inclusion and its
quality
Utilize technical assistance to provide support for strengthening the district Access to Forum
committees and their ability to assist in expanding financial inclusion, etc
2. Action Plan for Financial Education and Literacy
i. Broadening and deepening financial literacy
36. Broadening and deepening levels of financial literacy and promoting financial education
is also a high priority. It is of paramount importance as an input for achieving the 80 percent
financial inclusion target for 2017 and assisting the newly financially included in understanding
how best to use their new status. The 2008 FinScope4 study indicated that at least half the
population aged 16 and above had never heard of basic financial concepts such as savings
accounts, current accounts, interest, debit cards, or ATMs. Seventy-five percent of the population
live in rural areas, where levels of financial illiteracy are higher than in urban areas.
37. A policy and strategy will be developed based on an ongoing national financial capability
baseline study and a financial literacy and education study about to begin. These studies will be
used to: i) finalize a national financial education literacy policy and strategy; ii) create a plan for
implementing the strategy and monitoring implementation at the district and Umurenge level; iii)
develop clear objectives, priorities, stakeholder roles, and key messages targeted at different
consumer segments; and iv) establish a roadmap to achieve the objectives over the next 5 years.
38. The study, among other approaches developed by the consultants, will examine the
following possible elements:
Establishing a financial literacy unit/function in MINECOFIN and a task force composed
of representatives of the most relevant financial institutions5
Providing institutional task force members with specific tasks and implementation targets
Coordinating and implementing a national district-focused financial and educational
literacy program
Centralizing preparation of financial literacy substantive content focused on two or more
segments defined by level of education and depth of present involvement with financial
institutions and ability to learn
Focusing phase one training on existing clients of financial institutions who are
immediately able to utilize new understanding in real world transactions
4 Comparable data from the 2012 FinScope study are not yet available.
5 This same task force should provide parallel support for the closely related implementation of the
financial inclusion action strategy.
15
Utilizing existing VSLA program trainers and content already used to train all new
participants in four of the biggest programs
Utilizing existing AFF district committees and RCA membership training to support
delivering literacy strategy programs
Studying the Vision Umurenge Program (VUP) for lessons to be learned
Designing a methodology to evaluate the effectiveness of the phase one financial literacy
roll out program and to redesign the approach and/or content as needed.
ii. Improving financial education at the nonprofessional level
39. An Institute of Entrepreneurship, Cooperatives and Microfinance will be established
under MINICOM auspices. The institute will focus on educating and assisting appropriately
qualified individuals with an expressed interest in three areas in which far too few individuals at
present have the necessary specific training and skills. Qualified individuals will be trained to
effectively perform functions that are critical to managing SACCOs and MFIs and significantly
expanding credit for small scale entrepreneurs.6 Consultants will be retained to design the
structure, curriculum, modus operandi and financial plan for the institute, which is expected to be
launched in phases, using pilot programs where appropriate.
40. Rapid growth in the cooperative and microfinance sectors has created great demand for
trained individuals to serve as officers and managers. There is a particular need for qualified
individuals living in rural Umurenges to staff SACCOs and other cooperatives. The nation’s
cooperatives, of which SACCOs are a relatively small part, have a need to train many potential
officers in how to take cooperative principles into account in the management and governance of
their organizations. Finally, a number of financial institutions would like to make more small
scale enterprise loans than they do but find as the primary constraint the small number of
entrepreneurs capable of providing records, plans, and understanding of their business from a
management and financial perspective. Usage of existing physical infrastructure in the School of
Finance and Banking (SFB) or other institutes will be explored.
Policy actions— strengthening financial literacy and education
Develop a national education policy and strategy based on a soon to be completed financial
literacy and education study
Develop clear objectives, priorities, stakeholder roles and targeting associated with this strategy
Create a plan for implementing the strategy and monitoring its impact that inter alia involves
MINECOFIN, the relevant financial institutions, utilizing already available training resources and
a focus at the district level
Create an Institute of Entrepreneurship, Cooperatives and Microfinance
6 The strategy to address serious financial education needs at the professional level, i.e., banking,
insurance, accountants and actuaries utilizing existing institutions such as the School of Finance and
Banking is presented in Program 2.
16
3. Promoting Products for Financial Inclusion
41. Over the next five years, policy will focus on encouraging financial and non-financial
institutions to provide a broader range of low-cost financial services to households beyond the
reach of branch networks. This will include mobile money transfers (MMT), mobile and internet
banking, agent banking, and micro insurance.
i. Branchless Banking
42. Using appropriate technological platforms opens up new forms of delivery channels that
can be low cost and hence of more relevance to low-income households. To be most effective,
improving financial access for low-income households involves not just new delivery channels
but designing new financial products and services that are particularly suited to their needs.
Much of the innovation in this field is coming from institutions other than traditional banks and
insurance companies – from entities such as mobile network operators (MNOs). In promoting
branchless banking, it is therefore helpful to focus on the nature of the products and services
offered rather than on institutions. This has important implications for the appropriate regulatory
approach.
ii. Mobile Money Transfers
43. One of the most important innovations in branchless banking in recent years has been the
introduction of mobile money transfers (MMT). There are two MMT services currently
operating, MTN Money (launched in 2010) and Tigo Cash (launched in 2011), while the third
mobile network operator (MNO), Airtel, is in the process of introducing a MMT product. The
core MMT product is money transfer between mobile phone subscribers, based around a network
of cash-in/cash-out agents. MMT therefore involves the exchange of cash for electronic money
(e-money), the transfer of that e-money, and its exchange for cash. Although the core MMT
product is person-to-person (P2P) transfers, this is quickly evolving to include transactions
between individuals and businesses. This includes payment of wages and allowing people to
make payments at stores for the purchase of goods and services.
44. The use of MMT for transactions between individuals and businesses will be encouraged
as it provides a cheap, safe convenient method of making payments. To facilitate this, different
categories of MMT subscribers will be introduced, distinguishing between individual and
corporate/business customers. These will be distinguished by different due diligence
requirements on account opening, and higher transaction and account balance limits for
corporate subscribers, effectively adopting a risk-based approach for customer due diligence.
MMT service providers will also be encouraged to provide cross-border remittances as well as
domestic transfers, subject to the introduction of suitable risk mitigation procedures.
45. MMTs are licensed by the BNR under payments legislation. In order to safeguard the
interests of subscribers, the BNR – in common with regulators in other countries - requires that
all e-money created by MNOs must be backed by an equivalent balance held in a trust or escrow
account at a licensed bank. The two existing licensees are both MNOs. Licensed banks do not
need an additional license to offer MMT products. The license imposes a cap on the value of
17
transfers that may be made by individual subscribers, with lower limits for domestic transactions
than for international transactions. Experience has shown that the existing limits may inhibit the
growth of MMT services and the ability to offer a wider range of products and services. In order
to support innovation, the transfer limits will be changed by harmonizing the domestic and
international transfer caps (effectively increasing the limit on domestic transactions).
Policy actions — facilitate the extension of MMT product offerings
Harmonise transaction limits for domestic transfers with those in international transfers
Introduce “individual” and “corporate” categories of MMT subscriber accounts, with different
due diligence requirements and value caps on transactions and balances
iii. Agent Networks
46. Agents provide cash-in/cash-out services and also register new customers (account
opening). Agent networks are an important aspect of MMT – the usefulness of the facility to
subscribers depends on having ready access to cash-in and cash-out agents. The number of
agents – 2,734 in June 2012 – is growing fast, but needs to be expanded further in order to
provide a reliable and functional MMT system with outreach that encompasses the majority of
the population.7 BNR regulations prohibit exclusivity arrangements with agents (hence a single
agent can represent more than one MMT provider). The regulations also require interoperability.
This is not yet in place, i.e. a transfers can only be made to other subscriber accounts on the same
network (or to non-subscribers as cash), but cannot be made to subscriber accounts of other
MMT providers, or to bank accounts. The technical capability to deliver interoperability will be
developed and implemented by providers under BNR oversight.
Policy actions — extending MMT agent networks
Facilitate an increase in the number of agents and super agents
BNR to ensure that service providers develop a programme for the implementation of the
interoperability requirements, including introducing the ability to transfer funds to accounts on
other service providers’ networks and to bank accounts
iv. Trust/Escrow Accounts
47. BNR regulations require that MMT operators maintain an escrow account at a licensed
bank. This is a separate bank account segregated from a payment service provider's own funds,
in which the payment service provider is required to deposit all funds collected for clients. In the
absence of a Trust Law in Rwanda this segregation is unlikely to be effective in the event of an
MMT provider experiencing financial problems.
48. A number of reforms will be introduced to ensure that this segregation is effective. A
Trust Law will be introduced that, among other things, will provide a legal basis for such
arrangements. The Law on Payments Systems will amended to enable the “ring-fencing” of such
7 For instance, Safaricom in Kenya has 23,000 M-PESA agents – admittedly for a country that is larger
than Rwanda both physically and in terms of population, but nevertheless the contrast is sharp.
18
balances so that they are not subject to claims from general creditors of the service provider. A
similar provision exists in respect of payments processed through the RIPPS.
49. At present, both MMT providers hold their trust accounts at BCR, which creates an
element of concentration risk. MMT providers will be required to split their trust accounts across
banks once they a size to be determined, in order to minimise such risks. As at mid-July the total
balance in MMT escrow accounts was RWF 2,839 million, equivalent to around 0.5 percent of
the local currency deposit base of the banking system, and about 3 percent of BCR’s deposit
balances. While this does not at present represent a high concentration risk, it may be necessary
in future to require MMT service providers to split escrow accounts across banks once they reach
a certain size.
Policy actions — strengthening trust arrangements for MMT escrow accounts
Introduce a Law on Trusts
Amend Law on Payment Systems if necessary to segregate MMT escrow accounts from general
bank deposit liabilities.
Require MMT service providers to split escrow accounts across multiple banks once they reach a
certain size
Allow banks to pay interest on MMT escrow/trust accounts
v. Data/reporting
50. BNR regulations currently require service providers to provide monthly reports on the
value and volume of transactions. A broader range of data is required for effective monitoring
and supervision of MMT services. In particular data are required for monitoring the impact of
branchless banking services (in terms of growth and outreach), the extent of mobile e-money (in
relation to monetary aggregates), the distribution of trust account funds, and quality of service.
The reporting framework for MMT service providers will be extended to include all of these
variables. In addition, MMT service providers will be required to provide information on the
number and value of transactions in different size bands, especially if the transactions cap is
lifted and business accounts are introduced.
Policy actions — improve data reporting for MMT services
Extend the reporting framework for MMT service providers to include:
o Number of subscribers
o Number of agents (direct, sub- and super-agents)
o Number of transactions, classified by size bands
o Value of transactions, classified by size bands
o Total value of e-money in issue
o Value of trust account balances at individual banks
o User complaint logs and resolution
vi. Formalizing e-money Accounts
51. Although MMT products are based around remittances, evolution into stored value
products resembling bank accounts is almost inevitable. For unbanked individuals in particular,
19
this represents a good value proposition, even if no interest is received on these balances, as
storing idle balances in the form of e-money is safer than holding cash.
52. E-money deposits will be explicitly provided for through a new licensing category or
through extending the MMT licensing category. This will facilitate the entry of non-banks into
the provision of e-money deposit services to the public, in recognition that they can provide
financial products and services that may be unattractive to conventional banks. This will
encourage innovation, improve efficiency, and help extend the “frontier of access” of financial
services to the unbanked and financially excluded. The licensing category will be flexible
enough to accommodate MNOs as well as other specialized technology or payments companies.
Effectively, this new licensing category will be for a limited scope financial institution that
takes deposits but is not permitted to lend, and represents a blend of existing banking and
payments functions.
53. The new license for entities in the e-money deposit business will have several
requirements. These will include i) requiring the financial service provider to be a legally
separate entity and permitting that entity to be owned by a non-bank; ii) requiring normal
corporate governance and “fit and proper” tests for the directors and senior managers; iii)
permitting both money transfer/remittance services and opening e-money deposit accounts for
customers (e.g., on a phone or a smartcard); iv) permitting both individual and corporate
(registered company) customers; v) requiring that all electronic balances are backed one-for-one
by a trust account deposit at a licensed commercial bank (or banks); vi) requiring the entity to
have an acceptable service level agreement (SLA) with a partner bank; vii) permitting the
outsourcing of functions (e.g. the messaging platform, provided by a parent MNO), subject to an
acceptable SLA; viii) permitting the appointment of agents to handle account opening, conduct
customer KYC checks, and provide cash-in and cash-out services; ix) providing for regulatory
oversight of operational and technological processes and risk management procedures; these
would mainly relate to system security and integrity, record-keeping, accreditation of agents,
management of the agent network and liquidity, customer service and anti-money laundering
requirements; x) prescribing procedures for dealing with dormant accounts; and xi) permitting
the payment of interest on e-money/mobile money balances, using the proceeds of interest paid
on trust account balances, as this would permit a broader and more attractive range of products to
be offered.
54. E-money deposit takers will be permitted to open accounts for both individuals and
businesses. For individuals, the account opening process will be straightforward, and the only
KYC requirements will be verification of the customer’s identity using the national identity (ID)
system. For business e-money deposits, normal bank KYC requirements will apply. There will
be a cap on the value of balances that can be held in e-money accounts (a suggested limit is the
equivalent of USD10,000), and the individual transactions limits applicable to MMTs will apply.
55. The license will not permit e-money deposit-takers to intermediate funds, i.e. lending
(credit) will not be permitted. As with existing MMT providers, the entire electronic value held
20
on the system (in customer accounts) will be fully backed by a trust account deposit in a licensed
and prudentially regulated bank (or banks). This approach effectively eliminates the risk that
arises from intermediation – so there is no prudential or liquidity risk. Hence regulatory and
supervisory concerns can be focused on operational and technology risks.
56. While it is likely that the proposed new licensing category would be mainly of interest to
MNOs in the provision of mobile banking products, it should have a broader relevance. For
instance, other providers may be interested in providing card-based e-money accounts, where the
balances are held on smartcards and accessed through ATMs or POS machines.
Policy actions — extend MMT products to allow for deposit products
Extend licensing to non-banks to cater for e-money deposits
Allow selected non-banks to offer interest-bearing e-money accounts
Allow banks to pay interest on MMT escrow/trust accounts
Require all e-money deposit takers to hold balances in a trust account at a licensed bank, and
prohibit them from offering credit products
Allow business e-money deposit accounts to be opened on the basis of normal bank KYC
requirements
Impose a cap on the value of balances that can be held in individual e-money deposit accounts
vii. Mobile/Internet Banking
57. Banks will be encouraged to continue extending their mobile and internet banking
services, including by developing links with agency banking. Mobile banking and internet
banking services are distinct from MMT services and are mainly being introduced by banks as an
alternative means for existing customers to access accounts and carry out transactions. Several
banks have introduced mobile phone and/or internet banking, or have announced plans to do so.
These platforms, especially mobile phones, could be used as a means of extending the reach of
banking services to the unbanked, depending on how products are designed.
viii. Agency Banking
58. An important channel for improving access to banking and meeting the needs of the
unbanked population will be through agency banking. This involves banks appointing
independent entities as agents to conduct a range of banking services on their behalf. Although
there has been little roll-out of agency banking to date in Rwanda, several banks are on the brink
of rolling out agency networks. By the end of 2012, there are likely to be several hundred
banking agents in operation.
59. The BNR approved “Guidelines on Agent Banking” in September 2011. These will be
formalized as Regulations in the near future. These permit banks to operate agent banking
networks, with the BNR’s permission. Contracts between banks and their agents may not be
exclusive (i.e. an agent can act for more than one bank). Individual agents must all be approved
by BNR, and must be limited companies, co-operatives or public entities (i.e. individuals are not
21
permitted to become agents) and must have been in operating as a business for at least 18
months. The bank must accept liability for all actions carried out on its behalf by its agents.
60. Agent banking is a new experience and the guidelines/regulations will be revised as
necessary to support the rollout of agent banking. The expansion will be closely monitored and
data will be collected and published as necessary to facilitate such monitoring. The impact of the
prohibition of individuals (sole traders) from becoming agents will be reviewed, as this will
restrict the range of potential agents, given that many rural enterprises operate as sole traders.
Policy actions — promoting the development of agent banking
Formalise Agency Banking Guidelines as Regulations
Encourage, but closely monitor roll-out of mobile banking and agent banking networks
Develop an appropriate data reporting template and publish statistics in BNR publications and on
BNR and NISR website
ix. Micro insurance
61. Improving access to finance involves not just access to savings, credit and transactions
products, but also providing low-income households (including farmers) and small and micro
enterprises with the ability to insure against risks. Indeed, vulnerability to uninsured risks can
help to keep households poor and enterprises small. Micro-insurance comprises products that are
specifically designed to meet the needs of low-income households and small firms, using low-
cost distribution methods. The promotion of micro-insurance in Rwanda requires change to the
regulatory structure. The minimum capital requirement (RWF 1billion) is too high for any
specialised micro-insurance company to enter the market, although it would not stop an existing
company from adding micro-insurance products to its range. A regulatory “second tier” will be
considered for micro-insurance, that might have lower minimum capital requirements, permitting
both short-term and long-term products to be offered by the same insurer, with less onerous
corporate governance and reporting requirements, and allowing for a variety of distribution
channels. There would be restrictions on the size of risks that micro-insurers will be allowed to
insure, in line with the less onerous regulatory requirements. Specifics of the regime will be
finalized following consultation with stakeholders.
62. A pilot study on livestock insurance is being carried out by MicroEnsure, and a
feasibility study on a crop yield and livestock micro-insurance product is being carried out by
Syngenta Foundation (based on a similar product in operation in Kenya), in both cases in
collaboration with MINAGRI. These pilot studies will help to determine commercial viability
and in refining product design
x. Micro leasing
63. Enactment of the leasing law will, among other things, provide a legal and tax foundation
for micro-leasing. Leasing of small equipment is an alternative financing vehicle for farmers and
small enterprises.
22
Policy actions — micro insurance and micro leasing
Consider regulatory reforms to create a “second tier” suitable for micro insurance providers
Review results of the MicroEnsure and Syngenta pilot studies and consider regulatory reforms to
improve product viability while retaining sufficient consumer protection.
Enact the leasing law
4. Action Plan for Strengthening the Umurenge SACCO Program
64. The recently established Umurenge SACCOs, as well as other existing MFIs, have
already contributed substantially to the objectives of increasing financial inclusion, mobilizing
more savings and supporting economic development at the grassroots level. At this early stage,
they also seem to be off to a good start financially. Nonetheless, the experience of the older
SACCOs and MFIs demonstrates that it is not easy to run institutions of this type in a financially
sustainable way. BNR has played a key role in supervising these SACCOs to date, sharply
limiting their lending until they have met initial criteria that indicate they are sufficiently
prepared to implement a lending program successfully. The BNR has also placed supervisors in
every district to closely monitor performance, identify problems quickly, and assist in addressing
causes underlying those problems. The individual SACCOs are also being supported with
capacity building inputs from several different sources. However, this combined program is a
temporary high-cost-to-implement response that cannot be continued beyond a relatively short
period of time.
65. The Umurenge SACCOs contributions to national objectives can only be maximized if
the primary objective is ensuring overall program and individual SACCO stability and
sustainability, with their contribution to economic development objectives as a byproduct. It is
essential that the vast majority of individual Umurenge SACCOs achieve sustainability so that
the system continues to contribute substantially toward achieving its primary objectives. In phase
one, this requires that actions be taken to:
Strengthen governance by consolidating Umurenge SACCOs at the district level
Establish an effective interface between District SACCOs and Umurenge branches to
achieve stability and control, while preserving cooperative culture elements
Design strategies to improve sustainability of the District SACCOs and their Umurenge
branches
Establish an overall system and strategy for overseeing and coordinating SACCO/MFI
support and capacity building
23
Conduct a study to ascertain the most sustainable, effective national entity to unify
financially sound District SACCOs and finalize a detailed study to plan its governance
and operating modus operandi before its establishment
i. Strengthening governance by consolidating Umurenge SACCOs in districts
66. District SACCOS will be established in each of the 30 districts and will operate as
cooperatives with branches by the end of 2013. All Umurenge SACCOs and older SACCOs that
meet BNR established sustainability and capacity criteria will be encouraged to merge into the
districts and will become branches.
67. A nationwide marketing and public relations campaign will be conducted to promulgate
to Umurenge SACCO members the benefits of District SACCO membership. It is essential that
the merger process is voluntary and that eligible Umurenge SACCOs take advantage of this
opportunity. The benefits include i) significantly reducing risk for the program by eliminating the
possibility that one small Umurenge SACCO (some of which have no physical facilities or
electricity) could collapse, thus undermining public confidence in the whole program; ii)
significantly increasing the ability to make larger loans needed by agricultural and other
cooperatives because of larger capital and total deposit positions; iii) providing the Umurenge
SACCOs with better access to payment system and interbank services; and iv) increasing safety
by allowing BNR to better leverage and focus its supervision and phasing out a conflict of
interest between its supervision role and its direct role in providing technical support.
68. For those SACCOs that are amalgamated and become branches, it is anticipated that their
members will exchange their shares for shares in the District SACCOs which will become the
legal cooperative entity directly supervised by BNR. They will have primary accountability and
responsibility for the entire SACCO inclusive of the branches. Other district-based cooperatives
will be allowed to become members on a one member one vote basis with a maximum 40
percent of the membership, to increase the capital base and potential credit outreach.
69. Nonetheless, Umurenge SACCO branches will retain a considerable element of the
cooperative culture and a grassroots orientation to its customer basis through i) retaining
advisory boards at the Umurenge level; ii) conducting “rolling” annual assembly meetings that
begin at the Umurenge level before being consummated at the district level; iii) establishing
uniform system policies and procedures that allow significant independence in decision-making
for branches that perform well; and iv) producing branch level balance sheets and income
statements which will be used to monitor branch performance.
70. District SACCOs and their branches will have system-wide uniformity in terms of i)
standard policies, procedures manuals, and risk management policies and practices; ii) standard
hardware,8 accounting internal controls and reporting; and iii) MIS systems that inter alia,
facilitate the capability for all SACCOs and their branches to fully comply with credit
8 Branches that might not have electricity will have a harmonized manual reporting system during a
period of transition until they do.
24
information requirements, monitoring needs relating to financial conclusion; and district level
monthly reports that include balance sheet and income statement by branch. This will be
achieved under the leadership of a technical steering committee.
71. Umurenge and older SACCOs will not be allowed to amalgamate with District SACCOs
unless they are financially sustainable and have a demonstrated capacity to perform
satisfactorily. It is of paramount importance that District SACCOs, themselves are sustainable
and can focus their initial management attention on their own governance, establishing the
culture and branch management interface, and emphasizing the growth of good business and
soundness rather than the distraction caused by branches that are performing unsatisfactorily.
Therefore, SACCOs for which achieving sustainability is doubtful will be converted into
“outlets”9 or, where appropriate, merged with older SACCOs that are willing to accept them
provided the value of merged assets net of all required provisions is 15 percent higher than
merged liabilities.
ii. Establishing an effective interface between District SACCOs and branches
72. Highly qualified consultants will be quickly retained, working under the oversight of the
Steering Committee to prepare District SACCO organization charts, the proposed interface
between the district and its branches, branch level decision-making policies, initial staffing plans
and compensation policies, and finalizing standard operating policies, procedures, IT, MIS and
accounting systems, credit administration and risk management. It is desirable, to the extent
feasible, that this work be completed before the first District SACCO is established such that
they will be “given a running start” when they begin operations.
73. While all aspects of this preparation work are important, particular emphasis will be
placed on compensation levels and policies as key staff quality, training and incentives may well
play the single most important role in contributing to system-wide performance. Key District
SACCO officials and branch managers will be paid at a level that facilitates recruiting and
retaining capable staff. Moreover, individual performance should be rewarded through
promotion policy and incentives associated with meeting the most important goals, i.e.,
mobilizing deposits, minimizing NPLs and sustainability-related financial performance.
iii. Designing strategies to improve District SACCO and branch sustainability
74. Umurenge SACCO system success, regardless of how unified at the national level,
depends more on the strength of District SACCOs, the quality of their management, their success
is growing commercially viable business, and their profitability than on any other factor. A
national cooperative system with a significant number of weak District SACCOs is unlikely to,
itself, be strong. Therefore, consultants (possibly the same consultants retained for the earlier
9 BPR has implemented a parallel process in which they have established “outlets” in smaller and more
remote markets which provide a point for financial services in the form of one person who can collect
and distribute cash on behalf of BPR as a convenience to clients, but has no decision-making power and
incurs no administration cost other than salary and electronic communications support.
25
District SACCO establishment design) will be retained, again working under the oversight of the
Steering Committee.
75. These consultants will, working with District SACCOs to the extent that they are already
established and on a pro forma basis where they are not, will prepare a business plan, a one year
budget, and three year projections for each district. Initially, this will require a consolidation of
budgets for the actual or prospective branches.10
The emphasis will be on achieving financial
soundness and profitability in this planning and budgeting exercise. The consultants will be
asked as a first step, prior to developing District specific budgets and plans, to propose an initial
business strategy most likely to lead to profitability at both the branch and district level. Sub-
strategies for improving sustainability that will also be examined.
iv. Establishing an overall coordinating system for capacity building
76. The 416 Umurenge SACCOs, 30 eventual District SACCOs, 70 older SACCOs, and 11
licensed MFIs11
play an extremely important role in national objectives relating to financial
inclusion, savings mobilization, broader access to credit, and sectoral financing objectives,
especially those related to small scale enterprise and agriculture. . A number of government and
donor-financed inputs, as well as commercial bank initiatives, are already available on a
somewhat uncoordinated basis, and more are anticipated given the importance and urgency
associated with this effort.
77. A technical oversight steering committee is being formed to work under the already
established Higher Level Steering Committee (HLSC) to directly oversee and coordinate the
capacity building and technical assistance support from all existing and future donors for
SACCOs and MFIs over the next three to five years. High level officials, e.g., director-level,
from MINECOFIN, BNR, AMIR and RCA will be appointed to this committee and it will meet
regularly to review, modify as needed, and approve proposals and plans prepared for it by an
executive secretariat composed of consultants from a highly qualified firm. The future RCA and
AMIR support programs, even when separately funded, will be mapped and become a part of the
overall coordinated program and AMIR will change its strategy such that it will facilitate raising
donor capacity building support for its members.
78. The consultants in the executive secretariat will assist in designing and, following
steering committee approval, implementing an approved overall capacity building strategy
establishing priorities and needs, identifying program inputs, and designing a coordinated
implementation program. It will prepare an overall one year and three year capacity building
strategy and program based on an inventory of need identified by financial entity and
individually for key staff. Thereafter, it will monitor implementation, keep a detailed record of
10
District SACCOs will be required to perform this same exercise annually after the first year of
operation. 11
Existing SACCOs and MFIs participate in the same business that Umurenge SACCOs do, have a
similar and large clientele, and have a parallel need for continued capacity building and technical
support.
26
training, other capacity building inputs, and technical support to identify gaps that need to be
filled, and reduce costs associated with possible duplication . Commercial bank capacity building
initiatives will continue to be welcomed if they are satisfactorily harmonized with uniform
standards and systems.
79. Highest priority will be placed on addressing the needs of District SACCOs and,
secondarily on those entities (whether SACCOs or MFIs) that are the largest in terms of total
assets and the weakest as identified by BNR through its onsite and offsite supervision. Most
capacity building and training will focus on those aspects that are most directly relevant to
operating on a financially sustainable basis, while RCA will continue to provide training
necessary for the district and Umurenge branch level entities related to cooperative principles,
regulations and governance. Board and advisory board members will be trained both with respect
to achieving financial viability and following cooperative principles. The technical secretariat
may also propose and pilot test innovative lending product ideas appropriate for these
institutions.
80. The executive secretariat to the technical steering committee will also include a very
small highly skilled workout unit, possibly under the same consulting contract. This unit will,
when necessary, do the analysis necessary for financially troubled SACCOs, Umurenge branches
and MFIs, to i) ascertain the detailed causes of poor performance and what would need to be
done to address these causes; ii) the ability and capacity of the entity and its staff to respond
satisfactorily; iii) recommend a detailed strategy for resolution, e.g., financial restructuring,
replacing management, merger, or winding up; and iv) assist as needed in overseeing
implementation of the approved resolution strategy.
81. Government subsidies will be phased out for Umurenge SACCOs and branches as of
December 2013 and for District SACCOs by December 2014. The cost of provisions expense to
the extent that it is created by NPLs of over 10 percent will be deducted from subsidies to send a
clear signal that high NPLs will not be tolerated.
v. Conducting a study to ascertain and design an effective national structure
82. In Phase Two, the District SACCOs will be unified at the national level in line in with the
existing concept paper. It is, of course, imperative that it be structured in the best possible way to
avoid the problems12
that most national cooperative banks in Africa and other developing
countries have experienced, while maintaining significant cooperative culture aspects. Highly
qualified consultants will be retained shortly after all 30 District SACCOs have one year of
audited financial statements to examine alternatives for how best to unify at the national level
with a detailed analysis of advantages, disadvantages and implantation feasibility. A decision
will then be made, with the active participation of the key stakeholders (including the 30 District
SACCOs) as to what alternative will be pursued.
12
One such problem for example is caused when national level cooperatives engage in the same lending
and deposit mobilization business as their SACCO members and, hence, compete with them resulting in
conflicts.
27
83. Thereafter, the consultants will prepare a detailed design for the national entity, including
i) an organization chart; ii) the legal and operational interface between the District SACCOs and
the national entity; iii) its level of required capitalization and how it will be mobilized; iv)
policies and procedures; v) an IT, accounting and MIS system fully harmonized with that of the
districts; and vi) services, if relevant, that will be provided on behalf of the districts; e.g.,
management of funds, technical support, audits, etc.
84. The national cooperative structure will be licensed and regulated by BNR under the
Banking Act and/or other relevant legislation. It will also be supervised, although a decision as to
whether or not BNR will also supervise at the District SACCO level will be deferred until the
national cooperative structure has operated for at least one year. Implementation of the
MFI/SACCO deposit insurance program will be deferred until all District SACCOs have been
licensed, all Umurenge and existing SACCOs that may need to be merged or closed have been
resolved; and iii) the decision with respect to the national structure has been taken such that the
ongoing legal structure of the District SACCOs will be known.
5. Action Plan to More Effectively Supervise SACCOs/MFIs
85. Consolidating the 416 Umurenge SACCOs into 30 District SACCOs will, after a
transition period, reduce the present heavy burden on supervision. Effectively completing the
transition will take some time and will still represent a large additional supervisory burden
relative to the requirement prior to establishing Umurenge SACCOs. Therefore, BNR intends to
reorganize the department responsible for supervising these institutions and make some changes
in the regulatory environment, focused in particular on the transition period.
i. Reorganizing and Financing BNR SACCO/MFI Supervision
86. The deployment of two BNR supervisors in Technical Coordination Units (TCUs) in
every district, despite its high cost, has played an essential role in supporting the initial
successful performance of the Umurenge SACCOs. Therefore, the TCUs will be continued with
two inspectors in each district throughout the earlier of when most of the District SACCOs
operating are soundly or until the District SACCO subsidy runs out. However, their
responsibilities are being broadened, where appropriate, to cover existing SACCOs and district-
based MFIs. When phase one has been largely completed, the number of inspectors in the field
will be reduced from 30 to about 15 with 3 inspectors based in each provincial capital.
87. The existing small off-site departmental supervision function based in Kigali will be
strengthened by adding one staff member and a consultant who will provide training and assist in
developing better, more risk-based and peer group-oriented monitoring techniques and
reporting.13
This team, using the same report provided to BNR at the district and later provincial
13
Some existing SACCOs and MFIs have not completed computerization to the extent necessary to
promptly and accurately submit reports necessary to easily include them in the peer group analyses and
to meet requirements associated with participation in the credit reference bureau process. Attention to
this issue will be scheduled relatively early in the SACCO/MFI capacity building implementation
program.
28
level will provide analytical reports on a monthly basis by individual SACCO and MFI to
inspectors in the field and in summarized formats to BNR departmental and higher level
officials.
88. The off-site supervision function will, inter-alia, prepare a monthly peer group analysis
using the risk-based schedule in BNR’s onsite supervision manual and key CAMEL-related
indicators to rate existing and Umurenge SACCOs and, when formed, District SACCOs as well
as their branches for placement in performance quintiles. The focus of on-site supervision will be
directed most intensively toward those entities identified as the weakest performers and those
with the largest total assets. As it may take considerable time for District SACCOs to develop the
capacity to effectively oversee and monitor all of the to-be-consolidated Umurenge branches,
BNR will continue to monitor and directly supervise the weaker Umurenge branches as it thinks
necessary throughout phase one.
89. The cost of supervising SACCOs and MFIs is unusually high as a result of the
incremental cost associated with supervising and providing technical support for 416
geographically widely scattered Umurenge SACCOs. Supervision fees to be paid by SACCOs
and MFIs will be based on an identical formula to create an equal playing field as they are
competitors. Therefore, during phase one Government will provide BNR with a subsidy
sufficient to reimburse them for 50 percent of this cost and, until the District SACCOS are fully
established on a sound basis, BNR will not charge these entities a fee for supervision. When fully
established, District SACCOs, existing SACCOs and MFIs will be charged a supervision fee
based on a formula that gives a weight of 75 percent to total assets and 25 percent to the level of
NPLs.
ii. Strengthening the SACCO/MFI legal and regulatory environment
90. Umurenge SACCOs, existing SACCOs, MFIs and, subsequently, District SACCOs, will
all be subject to the existing laws and regulations, appropriately amended or revised as needed.
While relatively few changes are needed, the MFI and Cooperative laws will be reviewed and
amended, drawing in particular on the need for harmonization between them relating to SACCOs
as well as changes recommended 14
in the recent Rwanda SACCO Sustainability Study and the
SACCO supervision analysis completed in July by a First Initiative Consultant.
14
Among recommended amendments to the LMO and the Law on Cooperatives are i) revising Article 21
to eliminate reference to prior approval of directors and managers, while leaving the requirement of
notification as detailed in Article 11 of the MFI regulations; ii) removing the requirement in Article 37
of the Law to remove the prohibition on directors serving as a director of another enterprise provided
the entities do not directly compete; iii) revising Article 97 of the LMO and Article 66 of the Law on
Cooperatives to protect board members from liability for actions taken in good faith and limit personal
liability to cases where a breach of fiduciary duty has been established; iv) revising Article 10 of the
Law on Cooperatives to allow membership in more than one SACCO in the same area to allow for
more competition and consumer choice; v) reviewing the MFI/SACCO categories with a view to
reducing or eliminating them to move toward greater uniformity; and, revising Chapter VI of the LMO
to provide all elements of an effective resolution regime.
29
91. BNR will review its Regulation on the Organization of Microfinance Activity with a
view to strengthening the requirements in a few areas including requiring that i) all SACCOs and
MFIs report all loans to the credit reference bureau (CRB) as soon as MIS systems make this
feasible; ii) all SACCOs and MFIs use credit reports in line with the LMO and CRB
requirements; iii) all government funds channeled temporarily through SACCOS and MFIs for
onward grants and loans under VUP and similar programs that involve no risk for intermediaries
be separately identified and not included in balance sheets for purposes of monitoring
compliance with capital and liquidity requirements or calculating total assets, cash and deposits;
and iv) all SACCOs and MFIs that are legal entities, with the exception of Umurenge SACCOs
destined to become District SACCO branches submit external audits conducted by auditors
approved by BNR.
92. Within the Umurenge SACCO program, BNR will focus on the regulation and
supervision of District SACCOs in the same way they will regulate and supervise existing
SACCOs and MFIs.
93. Umurenge SACCOs are too new to enable conclusions to be drawn regarding the
possible migration of credit quality over time. The biggest risk to not achieving sustainability
faced by most Umurenge SACCOs is the risk that they will expand lending quickly before they
have developed the necessary policies, systems, controls and staff experience to ensure that most
lending decisions are sound. Moreover, they may need to deal with some pressures from
members generally, influential businessmen at the local level and possibly local political
authorities to increase the volume of lending quickly.
94. A technical secretariat, under the auspices of the steering committee for coordinating
capacity building will develop uniform policies and procedures as well as MIS systems and
controls for District SACCOs and their branches. BNR, as a continuation of its present role, will
continue to directly monitor Umurenge branches using rules until these policies are in place and
District SACCOs have developed the ability to manage their branches effectively. The rules
focus primarily on significantly reducing the risk that Umurenge branches will, over the next
year or two, substantially expand high risk lending resulting in high NPLs which can seriously
undermine their eventual sustainability.
6. Strengthen other Entities and Programs to Better Support Access to Finance
i. Strengthening AMIR capacity and effectiveness
95. AMIR’s mandate includes functions and roles that remain essential to the development of
a robust microfinance industry. However, the strategy that it has tried to implement in recent
years has been broader and more ambitious than what can be realistically accomplished given the
constraints it faces. AMIR has a very small staff and its available funding has dropped
significantly with the end of government subsidies and a decrease in donor financial support.
96. AMIR has an existing 2009-2013 strategic plan which effectively focuses on its mandate
and key roles needed to fulfill that mandate. It identifies the needs of the microfinance sector
30
associated with those roles but does not adequately address AMIR’s current ability to fulfill
them. Therefore, AMIR will revise that strategic plan to narrow the scope of its activities to
better fit the staffing and funding it now has.
97. The existing plan calls for AMIR to become a strong and sustainable professional
association of MFIs which provides support for its members (and the industry) in the areas of i)
advocacy and co-ordination; ii) research and development; and iii) provision of capacity building
services. AMIR is uniquely placed to provide advocacy, co-ordination, and research to its
members and all the industry, functions that are critical to the long-term development of the
industry, so it will focus primarily on these roles. However, in recognition of its constraints and
the leading role the technical steering committee and its staff will play in capacity building over
the next 3 to 5 years, AMIR intends to focus its capacity building on assisting members,
particularly its MFI members who might otherwise be largely ignored, in the search for donor
financing, directly and through its role on the steering committee. It will essentially end
involving itself in the implementation of capacity building during this time period, an often staff
and funds intensive role.
98. If resources are available, AMIR is considering a strategy that focuses on i) acting as a
conduit for information on the industry, publishing and lobbying for members’ interests; ii)
strengthening AMIR’s capacity in communications and marketing; iii) developing a more highly
focused research and development program based on members’ highest priority needs; iv)
developing an AMIR MIS system for tracking and benchmarking MFI/SACCO industry data; v)
conducting a program for capacity building for AMIR’s own staff; and v) coordinating with the
EAC Microfinance Network to further harmonize the enabling environment and improve
coordination and consumer protection.
99. AMIR will continue to publish an industry benchmark report on MFIs and SACCOs bi-
annually, continue its national award program for best MFI and best SACCO, organize an annual
Rwanda Day of Microfinance workshop, and expand its AMIR “Fact Sheet” for members wish
to use it in addition to their required BNR reporting.
100. AMIR will seek to build a more formal twinning relationship with another similar
association in the EAC or elsewhere in Africa and will expand its member base and membership
fee income. When AMIR submits a strategy and financial plan acceptable to MINECOFIN,
Government funding will be made available to raise total AMIR funding to levels, if necessary,
to implement the strategy.
Program 2: Developing Institutions, Markets and the Supporting Infrastructure
101. Under FSDP I all the major institutional elements were put in place for a developed
financial sector. This foundation will be refined and expanded under FSDP II. A particular focus
is on building the human capital required by the growing financial sector.
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1. Building Capacity in the Financial Sector
102. Recent growth in the financial sector has created demand for qualified graduates to enter
the financial services sector as well as for experienced financial services professionals. Future
growth is dependent on meeting the current demand for human resources, which in turn will
generate additional demand. The SFB, the faculty of statistics and actuarial science of the
National University of Rwanda, the Kigali Institute of Management and the Centre for Business
Studies will play a key role in meeting this demand. Introduction of licensing and continuing
education requirements for financial sector professionals will encourage individuals to further
their own qualifications, and for their employers to support these endeavors. In the short term,
skills gaps can be filled through recruiting expatriates and from the Diaspora. Foreign-owned
firms contribute to local market development by bringing expertise, systems and training
opportunities.
i. Rwandan Professional Standards and Training
103. Licensing requirements such as proficiency standards for insurance agents and brokers,
capital markets participants and professional accreditation programs adopted by the Rwandan
financial sector institutions and associations, will be based on existing regional and international
standards and programs. Rwandan standards will take into account the results of the currently
ongoing EAC professional qualification harmonization and mutual recognition projects. This
avoids the complication and expense of developing specific Rwandan standards and programs,
and more importantly will result in programs and accreditations that are recognized elsewhere in
the EAC and the world.
104. Efficiencies will be gained through the financial sector associations and institutions
partnering with educational institutions for delivery of professional programs. Common elements
in financial sector accreditation programs such as introductory accounting and financial
management can be more efficiently delivered through a small number of partner educational
institutions rather than through sector specific institutes. This also offers the potential to develop
these partner institutions into regional players, potentially drawing students from the DRC,
Burundi, and elsewhere in the EAC. To facilitate this, industry associations and their educational
partners will indentify key areas of comparative advantage relative to other regional providers of
professional training and development.
ii. The Role of Industry and Professional Associations
105. It would be costly and inefficient for each part of the financial sector to establish its own
training institute. Accordingly, each will be encouraged to play a leading role in setting standards
and adopting a curriculum based on existing regional or international programs, and partnering
with Rwandan educational institutions for delivery of the required courses. The RBA and
ASSAR have been revitalized, and now play an active role in consultation and advocacy. Each is
considering how best to support professional development within their sectors. In addition, there
has been discussion of establishment of a microfinance institute, and the Institute of Chartered
Public Accountants of Rwanda (ICPAR) has its accreditation program.
32
106. Training for capital markets professionals is currently available through the Securities
Industry Training Institute (SITI), based in Uganda and serving the EAC. The CMA, together
with the securities exchanges in Kenya, Uganda and Tanzania participated in the development of
the curriculum. Currently the 20 modules of the core curriculum and various training programs
are delivered by SITI. As demand increases in Rwanda, the option of partnering with local
educations institutions for delivery of the program will be explored, with SITI retaining control
over the examination process.
Policy actions
Require Certificate of Proficiency for insurance professionals
Provide five years for industry incumbents to obtain certificate
ASSAR to adopt professional program based on UK Chartered Insurance Institute or equivalent
ASSAR to partner with local institution to deliver curriculum
RBA to affiliate with UK Chartered Bankers Institute (or other recognized institute)
RBA partner with local institution to deliver curriculum
Explore possibility of SITI partnering with Rwandan educational institutions for course delivery
Institute of Entrepreneurship, Cooperatives and Microfinance to partner with existing institutions
such as SFB, to deliver curriculum
2. Banking
107. The BNR will continue to strike an appropriate balance between protecting consumers
and financial stability, and encouraging innovation. The strong prudential standards established
and enforced under FSDP I help to protect depositors, while an enabling regulatory approach to
innovations such as agent banking has fostered strong growth in both traditional and non-
traditional banking products.
i. Increasing Competition
108. The number of competitors and range of products and services in the banking sector has
increased dramatically due to the strong economic growth of the country, good and improving
conditions for doing business, and an appropriate regulatory environment. The principal benefit
to consumers from this competition is from expanded outreach—bringing people previously
excluded into the banking market; product enhancements such as accounts with no transactions
fees; and product innovation such as the introduction of credit and debit cards.
ii. New Entrants
109. Considering that Rwanda now has a large number of banks relative to the size of the
economy, a key consideration in evaluating future applications for de novo licenses or the
possible acquisition of an existing bank will be whether the new bank will bring a new business
model, strategy or capability to the market. New entrants with innovative business models such
as KCB’s agent banking network and Equity Bank’s products targeting the lower-income end of
the market have had a particularly dramatic effect on increasing competition.. More banks doing
33
the same thing will not increase competition, but an international bank could bring global scope
to the Rwandan market, while an example of a possible innovative business model would be a
bank with an SME lending focus.
3. Insurance
110. The performance of the insurance industry has improved since the adoption of new
legislation in 2009 and the transfer of responsibility for regulation and supervision to the BNR.
Further refinement of the regulatory regime is required to foster the development of the sector
while ensuring that it has the financial strength required to safeguard individuals’ savings and to
meet the protection promises at the core of insurance policies. Development of the life sector is
particularly important for the development of additional pools of domestic capital for long term
savings and investment. Updating the regulatory framework for insurance is discussed in
Program 4.
i. Mortality (Life) Tables
111. The lack of mortality (life) tables is a significant impediment to the introduction of new
products such as annuities and expansion of the provision of life insurance. This means that long-
term insurance risks – and hence appropriate premium levels - cannot be correctly calculated.
Life companies respond to this uncertainty by loading premiums to cover their risks, which may
make life insurance unreasonably expensive. This will be addressed through a project
spearheaded by the BNR, and involving the RSSB and insurance industry. Donor funding will be
sought, but should this be unsuccessful, a proposal will be developed to share the cost among the
interested parties—the BNR, RSSB and industry. Besides benefitting individual entities (such as
the private life insurance companies and the RSSB), the life tables will be of general benefit, and
there is a “public good” component to their origination.
ii. Annuity Products
112. Rwandans will have a much greater need for annuity products as a consequence of the
new pension law, and more generally to meet the need for retirement income. This will become a
major new business opportunity for Rwanda’s life insurance companies and will be further
expanded to the extent that Rwanda moves over time toward Defined Contribution (DC) pension
funds, in line with worldwide trends.
113. Life insurance companies in Rwanda are permitted to provide annuities but do not yet do
so, in part because of the limited demand. However, there will be a demand for such products as
the pension sector develops. The new Pension Law makes provision for the establishment of
private pension schemes, and tax incentives will be introduced to encourage pension provision
and participation by employees. Life companies will therefore need to develop the capacity to
sell annuity products, or else the public policy objectives will be frustrated and retiring members
of private pension funds may be unable to buy pensions.
114. The availability of Rwandan life tables as noted above will address one of the major
obstacles to introduction of annuities. Another current impediment, the lack of appropriate assets
34
to match annuity liabilities, will be addressed through other elements of FSDP II. Capital market
development, and in particular the program of government debt issues and over the medium
term, fostering of the corporate debt market, will provide some of the long-tenor assets required
to match long term annuity obligations. Symbiotically, a growing demand for annuities will help
to promote the capital market, by increasing demand for bonds and equities. The BNR will need
to develop the capacity to regulate and supervise annuity risks, and to supervise the risk
management capacity of the life companies themselves.
iii. Taxation
115. A tax regime tailored to the nature of the life insurance business will be introduced,
paralleling the special tax rules applied to the life insurance industry in other EAC countries.
Under the current Rwandan regime the insurance company is taxed on income (including
premium and investment income) less allowable expenses (including benefit payments).
However, this is not consistent with the approach in other EAC countries, and gives rise to some
undesirable outcomes. First, under many life and pension policies, investment income does not
accrue to the company but instead adds to the value of the benefits payable under policies held
by policyholders. It is not, therefore, part of profit. Second, applying tax on life insurance
company profits as normally defined is in effect taxing the policyholder (who therefore receives
the benefits of post-tax investment income not pre-tax), rather than the insurance company. This
acts as a deterrent to savings. It may also lead to double taxation, if the benefits of life or savings
policies are again taxed in the hands of the recipient. The new tax regime for life insurers will
not subject to corporate income tax the portion of profit accruing to policy-holders.
iv. Data compilation and publication
116. Greater information on the insurance industry will be made public by the BNR on its
website and through regular publication. Only very limited data on the insurance industry are
available, published in the BNR Annual Report. No comprehensive data on insurance are
publicly available, and there is no separation between data on short-term and long-term
insurance.
117. Such information should be a public good, in the same way that information on the
banking sector is published by the BNR. Furthermore, comprehensive information on insurance
company balance sheets is an essential input to monitoring of systemic financial sector stability
and risks. In future, the BNR will compile consolidated data on each of the two major insurance
sub-sectors (short-term and long-term). This will cover key balance sheet information (assets by
type, major liabilities) and income/expense data. It will also cover key compliance ratios
(solvency etc.). This can be done immediately on the basis of current reporting formats, however,
more detailed data will be available once the supervisory and reporting formats are separated and
refined for short-term and long-term insurers. The data will be published regularly in the BNR
Annual Report and Quarterly Bulletin, and on the BNR website
35
v. Professional qualification requirements
118. Insurance intermediaries (brokers, agents, loss adjusters) and technical staff employed by
the insurers will be required to have a professional qualification, such as the Certificate of
Proficiency (CoP) in Insurance, which is available with various specializations. After
consultation with the industry, the BNR will specify the acceptable professional qualification—
the CoP or other similar internationally recognized standard. The date from which the
requirement will be applied will be announced a significant period in advance –five years or such
other period as may be determined after consultation with the industry– in order give industry
incumbents time to acquire the qualification.
119. In conjunction with ASSUR, efforts will be made to have an educational institution in
Rwanda deliver the curriculum of the CoP (or similar) program, in collaboration with a
certifying institution outside of the country (it is not necessary to have Rwanda-specific
certification). The decision to make professional certification a regulatory requirement would
provide an assured market for tuition which should be sufficient to induce an educational
institution to invest in the necessary courses and professional development. The SFB is in the
process of establishing an Insurance Department, and this may well be a suitable vehicle for
professional insurance qualifications.
120. Another important technical skill that is lacking in the industry is actuarial science. This
required by life companies and pension funds (including the RSSB), but fully qualified Rwandan
actuaries are not available. Some teaching of actuarial science is offered at the National
University of Rwanda, but full qualification requires further passing further professional
examinations and a period of apprenticeship. Government will work with the RSSB and life
insurance companies to prepare a development program to produce qualified Rwandan actuaries.
Policy actions—Insurance
Prepare Rwanda-specific life (mortality) tables
Introduce annuity products to meet the requirements of private pension plans
Introduce a taxation regime for life insurance companies reflecting specific nature of the business
Compile and publish aggregate data on long-term and short-term insurance sectors
Introduce CoP or similar requirement with an appropriate phase-in
Encourage a local institutions to provide CoP courses, in collaboration with foreign instution
Develop a program to train Rwandan actuaries
4. Pensions
121. Developing private pension plans is a key element of FSDP II. Not only do pensions
meet social objectives of facilitating retirement savings, the growth of pensions is an important
aspect of mobilizing long-term savings and contributing to capital market development. The
pension sector currently comprises a government social security pension, and about 40 savings
products marketed by financial institutions as retirement products. Enactment of the pension law
36
to provide the legal and fiscal foundation for private pensions is a necessary precondition for the
growth of the sector.
i. Rwanda Social Security Board
122. The pension sector in Rwanda is currently dominated by the social security pension
scheme managed by the RSSB, which also manages the national medical plan. The RSSB is the
largest financial institution in the country, with total assets of about RWF 312 billion at end-June
2012, of which about two-thirds is accounted for by the pension plan. By virtue of its long term
pension liabilities, the RSSB should be a major source of institutional long-term capital in
Rwanda. However, because of the immature state of the capital market and developmental needs,
the RSSB has committed a considerable share of its portfolio to early stage real estate
development, including housing, and to unlisted equities.
123. The most recent actuarial valuation (2008) indicated a significant unfunded liability.
Given the low contribution rates, no ceiling on earnings, and a relatively high replacement rate
on earnings, the fund will begin to come under financial stress in 5 years. Based on the
assumptions in the valuation, the reserve fund will be exhausted by 2040. To deal with these
issues, the draft pension law presently before Parliament includes adjustments to benefits and
contributions to make the plan more sustainable. In the longer term there will be a need to
consider the impact on the RSSB of labour mobility within the EAC.
124. In addition to moving to a sustainable funding base, actions will be taken to i) strengthen
the governance, organization and administration of RSSB, ii) to improve investment
management and performance; and iii) to strengthen risk and cash management.
a. Strengthening governance, organization, and administration:
125. The RSSB is granted autonomy under its law, but at the same time is subject to the laws
governing public institutions. The role of the Board and management will be clarified, giving the
Board discretion to restructure the organization. Greater flexibility on compensation for key
positions, especially financial and investment management, than provided by public service
salary scales, and a streamlined tendering process for professional services will also be
established. The RSSB competes with the private sector for investment management
professionals and actuarial services. Great flexibility to hire sufficiently skilled and experienced
staff, or to obtain specialist skills through contractual arrangements, is required to safeguard the
assets of the country’s largest financial institution.
126. Accountability measures will be introduced in conjunction with increased autonomy for
the RSSB Board to discharge its mandate. Each function—pension and medical insurance—will
be managed as a responsibility centre, with overhead for shared and centralized functions
allocated to each. RSSB costs will be benchmarked to evaluate performance. Due to the unique
structure and investment portfolio –the costs of managing the RSSB’s large real estate portfolio
is higher than for a portfolio of marketable securities—there are few readily available
37
comparators. Initially, expenses will be benchmarked against historical performance. In future,
RSSB will commission a peer group benchmarking study.
127. A new actuarial valuation will be undertaken. The planned project to develop mortality
(life) tables for Rwanda will make this valuation more robust than previous reviews relying on
proxy data. The RSSB will also initiate a program of regular (approximately once every three
years) revaluation of its real-estate portfolio to better monitor the returns.
Policy actions—RSSB: Strengthening Governance, Organization, and Administration: Structure
Allow Board of Directors to redefine RSSB’s organizational structure
Formally define roles of the Board and management
Undertake compensation study relative to private sector
Pay market salaries for senior and skilled positions.
Manage RAMA And CSR portfolios separately, allocating overheads
Establish special tendering process for key areas such as professional services
Establish pension and medical insurance plans as separate client accounts of the RSSB.
Establish separate investment policies for pension and medical plans
Define a pension and medical responsibility center and allocate headquarters overhead
Measure and benchmark costs of administration
Perform actuarial studies for the pension and medical plans
Implement regular independent real estate valuations
Prepare analytical financial statements for management
b. Improving investment management and performance
128. The RSSB, using the greater autonomy outlined above, will recruit appropriately skilled
investment managers, actuaries and a senior risk-management professions. A staff actuary
familiar with the parameters of the plans is required, as are qualified portfolio managers and
financial analysts, both to select and manage assets and to provide management information for
decision making. Benchmarking the performance (rate of return and risk) of the portfolio and the
asset classes is problematic in Rwanda, since there are no historical indexes or peer groups of
fund managers. Initially benchmarks will be developed relative to treasury and bank deposit rates
and the actuarial discount rate used for the most recent valuation, and over the longer term
appropriate benchmarks will be established for each portfolio.
129. A mandate for a diversified foreign securities portfolio will be developed, benchmarked
against one of the widely used international indices, and tendered to an external funds manager.
Dedicating a portion of the portfolio to foreign securities will improve liquidity and diversity
risk. Investment policies will define foreign exposure limits, within the EAC and globally. Limits
will also be established for investments in unlisted securities. A reverse repo program (equivalent
to collateralized deposits) will be developed as a useful supplement to RSSB’s large bank deposit
program. A new requirement for professional feasibility reviews confirming commercial
viability prior to acquiring real estate will introduce a more disciplined approach to expanding
the real estate portfolio.
38
Policy actions—RSSB: Improving investment management and performance
Recruit high quality professional investment managers, actuaries, and a risk manager
Define rate of return benchmarks for each portfolio where appropriate indexes exist
Contract out a diversified foreign portfolio to external managers
Establish reverse repo procedures with counterparties
Require a professional study of commercial financial feasibility for large real estate projects
before approval
c. Strengthening risk management and cash management:
130. RSSB will institute a separate risk management committee reporting regularly to the
Board. Appropriate limits will be established for trading and investment. Risk tolerances and
limits will be defined as part of the investment policy, including the balance between risk and
return, and foreign exchange limits. In order to improve the quality of cash flow forecasting,
short term cash management plans will be designed and implemented, using liquidity gap
analysis. This is of particular importance because of the illiquidity of the real estate portfolio and
unlisted securities. Loans and overdue positions with government will be regularized. Lastly,
since the RRSB has gone through organizational changes and does not have a master custodian,
but rather has contracted directly to acquire assets over the years, a review of legal asset
ownership and registration will be undertaken.
Policy actions—RSSB: Strengthen Risk and Cash Management
Create risk management committee and staff at headquarters
Establish regular risk reporting to the Board
Create approval limits at trader, manager, CEO, and Board level
Review investment policies for the pension and medical plans to ensure appropriate risk/return
exposures
Design and implement cash management plans
Prepare liquidity bucket gap analyses
Settle arrears from government
Review the legal ownership and registration of securities and investments
ii. Private Pension Plans
131. The draft pension law before Parliament, which will establish the legal framework for
private pensions, envisages a three pillar structure:
The RSSB social security fund, with a cap on earnings, higher contributions, and less
generous benefits. Neither contributions nor benefits are taxed.
Voluntary occupational pension plans, which will be generously exempted from tax on
both contributions and on benefits
Personal retirement accounts, which will be similarly tax advantaged.
132. The private pension sector in Rwanda is very limited in scope at present. There is no
current registration framework: “pension plans” offered by insurance companies and employers
are after tax savings plans, which the employee usually takes in a lump sum on retirement. No
39
annuities are available. While about 40 employer plans exist, only fragmentary data on the plans
exists and has not been collated to provide an overall view of the sector.
133. Plans, managers, and asset custodians will be licensed and plans will be supervised by the
BNR. Regulations have been prepared in anticipation of the enactment of the law, but may
require revision to align with the law as proclaimed. Over time, private pension plans offer the
potential not only to meet retirement savings needs, but also to develop pools of contractual
savings that would contribute to capital market development. Bonds and equities are likely to be
in demand from the managers of these private pensions. Public sector pensions plans will register
under the new law once it and the regulations are proclaimed, providing a demonstration effect to
catalyze the private sector.
134. Elements of the draft pension law will be clarified prior enactment. It will be specified
that occupational pension plans can be DC or DB. Given that the annuity market is yet to
develop in Rwanda, an addition to the draft law will provide that DC plans may be commuted to
an annuity upon retirement, or alternatively be subject to a staged withdrawal. There will also be
provision for an alternative lump sum arrangement for small amounts. The law will also confirm
that the use of the accumulated assets to provide an insured benefit is meant to apply to DC
occupational plans and to personal retirement accounts, since the latter are mentioned elsewhere
in the law.
Policy actions—Private pensions
Enact pension law following required revisions and clarification
Establish licensing, prudential and supervisory regime for private pensions
Public sector entities provide catalyst by registering pension plans under the new law
5. Capital Market Development
135. A comprehensive legal foundation for the Rwandan capital market is now nearing
completion. Work is underway to address the remaining legal and regulatory gaps. The actions
planned and currently underway specifically consider the challenges of building a viable capital
market in a small economy within a regional context. The main issues going forward are:
completion of the necessary supporting infrastructure for regional trading; establishment of
guidelines for shelf registrations, medium term notes (MTNs), and private placements; and
developing a sustainability plan for the RSE including attracting additional local and cross-
listings.
136. To promote interlisting of securities and in anticipation of East African capital markets
integration, interconnectivity between Rwanda’s securities depository and other depositories is
being developed. Currently, the transfer must take place by paper, which discourages the trading
of inter-listed securities and non-resident trading on the Rwandan exchange. When the securities
depositories are linked there will be fewer barriers to foreign investors taking advantage of
Rwanda’s superior infrastructure, which supports DVP, to trade interlisted securities on the RSE.
40
137. Commercial paper, MTNs and public corporate issuance will be promoted. Companies
often find it easier to issue quickly using a shelf-filed note program than to prepare a public bond
issue. Therefore, guidelines for shelf registrations and MTNs will be developed in consultation
with the industry for implementation by end-2013. Corporate bond issues will be encouraged by
having parastatals, where appropriate, tap the bond market. Local banks are expected to consider
debt issues, both for long term funding and to raise Tier 2 capital in the form of subordinated
debt.
138. Automation and the development of IT infrastructure is a priority. An electronic trading
platform will be acquired by the RSE, and a project manager for this will be hired. The CMA
will upgrade communications and its documentation systems.
139. An investor compensation fund will provide more security and comfort for investors,
particularly in dealing with new branches of foreign brokerage firms in Rwanda, which may not
be well known to the public. The CMA will take an oversight and coordinating role.
140. The compilation of a list of approved credit rating agencies by the CMA, in coordination
with other East African regulators, will facilitate corporate bond issuance. Many institutional
investors structure fixed income portfolios by credit rating as a risk management technique, and
will not purchase (or severely restrict purchase of) unrated bonds. Credit rating reports also
provide investors with useful financial information about the borrower in an analytical format.
Policy Actions—Capital Markets
Complete the legal framework and regulation consistent with IOSCO principles
Disseminate guidelines for shelf registration of commercial paper and MTN programs
Draft and issue guidelines for exemption of private placements from public issuance
requirements
Proceed with connectivity between the BNR securities depository and other EAC depositories
Support IT automation in capital markets and promote the development of business contingency
plans for market intermediaries
Coordinate establishment of an investor compensation fund
Compile list of approved credit rating agencies
i. Rwanda Stock Exchange
141. The RSE is a self-regulatory organization under the supervision of the CMA. The key
next step in its development is to transition to a fully sustainable model. A five year plan
including an expansion in the number and type of listed securities will be prepared to guide the
near-term evolution of the market, taking into account EAC market integration and the particular
challenges of sustainability in a small economy. The RSE will build market supervision skills,
including through staff interchange with more mature markets.
142. The exchange will also undertake planning, education and information programs
regarding the exchange and financial markets, and disseminate price and trade volume data on its
website. A long term objective is to bring smaller firms to the market, taking appropriate
41
measures to mitigate the potential reputational risk from listing companies with less developed
governance structures and shorter track records. An initial step is to institute an information
exchange where entrepreneurs in need of capital and investors can meet and structure a deal,
with the assistance of legal and financing advice. This forum should result in a “pipeline” of
potential deals that could be supported by one or more venture capital funds established using the
new collective investment scheme law. A complementary initiative is the development of a
“second tier” listing requirement for the RSE. This is to be completed by March, 2013, with the
intention of facilitating capital market access for smaller firms.
Policy Actions—Stock Exchange
Disseminate member licensing criteria for potential new members
Undertake and continue public awareness campaigns on the procedures, rewards, and risks of
investment in securities
Build market supervision skills through training and staff interchange with other more mature
exchanges
Disseminate RSE price and trade volume data on website
Develop a business information exchange for venture capital, SME's, and investors, with access
to financial and legal resources.
When a deal pipeline has been established, engage the business exchange participants above to
constitute a venture capital fund as a CIS.
Complete and publish “second tier” listing requirements to attract smaller firms
Develop a 5 year plan for financial sustainability and financial independence for the RSE
Examine alternatives for the future of the RSE in the context of East African capital markets
integration
ii. Bond Market Development
143. The major components of the bond market action plan are: (i) to build the government
yield curve to serve as a pricing base for the market, (ii) to broaden the investor base, and (iii), to
promote private sector issuance. Bond market activity in Rwanda has been sporadic and
infrequent (Table 4). In addition to the small number of government bond issues there has been
one 10-year issue by BCR in 2008, for RWF 1 billion to finance mortgages. The small size of the
bond market is due to only occasional government issuance On the investor side, there is a
scarcity of natural long term fixed income investors. Nevertheless, the increasing bid/cover ratio
(ratio of bids received to amount offered) for the last 4 issues, indicating good demand.
Table 4: Government Bond Issues
Issued Tenor Offered (RWF bn.) Bid/cover ratio Yield (percent)
2008 2 Years 5.00 1.51 8.000
2008 2 Years 5.00 0.85 8.000
2008 3 Years 5.00 1.44 8.250
2010 2 Years 2.50 1.40 9.500
2010 3 Years 2.50 0.60 10.540
2010 2 Years 2.50 3.04 9.458
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2010 5 Years 3.50 2.01 11.121
2011 3 Years 2.50 3.28 10.425
2011 5 Years 2.50 3.60 11.150
Source: BNR.
144. Building the government yield curve will be guided by well-established principles and
approaches. The first step is the resumption of the Government borrowing program, beginning
with regular issuance of three and five year bonds to add depth to the front end of the market,
followed by the introduction of seven year tenors. The bond program will benefit the government
by reducing its refunding risk. Now, with all of its debt concentrated in short-term T-bills, the
government is exposed to the risk that maturing T-bills cannot be refinanced. The three year
(rather than two year) date is chosen to facilitate immediate benchmark issues given that
withholding tax on issues of three years and longer is subject to five percent withholding tax on
interest, while issues under three years pay 15 percent. Over the medium term the tax treatment
of different maturities will be revisited to eliminate differences than can distort the market..
145. Regular preannounced issue schedules are important so that brokers and clients can plan
their purchases. A modest program of RWR 2 billion per issue will be integrated with the T-bill
program and the Treasury’s cash management plan. Over 5 years, taking into account existing
bond maturities, such a program will raise about RWF 20 billion in net new cash, which could be
offset by reducing the outstanding RWF 90 billion in T-bills. Other uses for the cash could
include increasing treasury cash balances to minimize the occasional overdrafts at BNR, to
repurchase outstanding non-marketable bonds, and for ongoing general Treasury needs.
146. Bond market intermediaries – the auction participants and dealers who trade with clients
–are a key part of the bond market. A Rwanda dealer group, consisting of the more active
intermediaries in the government market, will help in its development. As regular auctions
proceed, trading will develop and members of the Rwanda dealer group will begin to post prices.
The BNR will collect market prices, calculate and publish a yield curve. It will also calculate and
publish closing bond prices for use is marking securities to market. The yield curve and bond
pricing information constitutes a base on which other issuers can price a bond issue or medium
term note.
147. At present, only direct clearing intermediaries have access to the auction platform.
Access can be allowed for the best performing brokers. Although they are small relative to
banks, they have the potential to be more aggressive traders and market makers, since that is
their livelihood, while for banks, trading government debt is not a major profit centre relative to
their lending and other businesses.
Policy actions—Bond Market Development: building the yield curve
Develop modest 3, 5 and 7 year regular bond issuance program consistent with fiscal needs
Revisit withholding tax to remove distortions caused by different treatment of maturities
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Introduce longer tenor government bonds as market develops
Publish indicative quarterly bond auction dates for the coming year for the 3, 5 and 7 year
auctions
Reopen outstanding bonds where possible to promote liquidity
Prepare proposal to designate a Rwanda Dealer group in government securities (bills and bonds),
discuss with the industry
Seek agreement on privileges and obligations for the dealer group: auction performance, market
making, market reporting and intelligence
Develop performance indicators for dealer group
Based on market making and trading prices, publish daily government yield curve
Form a bond pricing unit which will calculate and publish closing bond prices, for use in fund
and portfolio market valuation
Look for opportunities to refund non-marketable debt in marketable form
Allow the best performing non-bank dealers success to the automated auction platform
148. Broadening the investor base for bonds will promote liquidity in the form of a more
active secondary market and more issuance. While the banks are reliable auction participants, it
is important to develop markets beyond the banks. Foreign participation will be promoted by
conducting joint BNR-MINECOFIN investor presentations in other EAC financial centers. On
the technical side, connectivity between Rwanda’s securities depository and that of other East
African countries is necessary to promote regional trading. Currently cross border delivery of
securities requires cumbersome paper transfer documentation, but an initiative is underway to
link the EAC systems. Quotation of government bonds will be promoted on global trading
screens like Reuters and Bloomberg.
149. Withholding tax on interest income will be revisited as it inhibits foreign institutional
participation in the Rwandan market. It also raises the costs of bond issuance relative to bank
loans and under the current regime introduces distortions due to different treatment of debt
issues of differing maturities.
150. The options for issuing Diaspora bonds will be explored. One option is that Rwandan
citizens abroad might purchase bonds through accounts with local brokerages. A tranche of
government bond issues, or of a savings bond issue when introduced, could be reserved for the
Diaspora. The reserved tranche would be open to subscription for a set period. While additional
resources would be required to manage this program, using tranches of other issues would
contribute to the development of the domestic bond market and investor base. An alternative
would be to consider foreign currency issues, possibility with an earmarked use for the funds,
such as supporting affordable housing. Foreign currency issues may be more attractive to the
Diaspora, but come with their own complications in terms of distribution and cost, and do not
contribute in the same way to the development of the domestic bond market.
151. On the domestic side, one measure to broaden the investor base will be to make non-bank
sales of government securities a performance criterion for dealers. At the auction, a modest
overallotment tranche of the bond will be reserved for non-bank and retail participation for a few
44
days at the non-competitive rate. Another option to be assessed is the possible introduction of a
retail targeted savings bond for individuals. This will help mobilize savings and provide an
attractive alternative to bank deposits for individuals, but has to be evaluated against the costs of
running a savings bond program.
152. Over the medium term, institutional investors in Rwanda will benefit though educational
efforts on how to use bonds to build pension products (annuities) which will be in demand after
the draft pension law is enacted and pension managers and administrators are licensed. Education
for issuers as well as investors will also be necessary.15
Policy actions—Bond Market Development: broaden the investor base
Consider elimination of withholding tax on RSE listed bonds
Prepare investor presentation, plan industry visits with MINECOFIN (Kigali, Nairobi, Kampala,
Johannesburg, London)
Resolve technical issues to facilitate RWF electronic bond delivery and custody in EAC
Pursue longer term electronic link with global clearing and settlement platform
Promote quotation on Bloomberg, Reuters, and other trading platforms.
Assess market and technical details (sales and settlement) for a Diaspora bond issue
For dealer group, make bill and bond sales to non-banks a performance criterion
Continue informal daily market consultation and formal periodic dealer exchanges with BNR on
market conditions and auction recommendations
Explore development of a retail targeted savings bond program
Reserve a modest proportion of auction amount ("over- allotment") for primary dealer retail
distribution after auction date at non-competitive rate
153. Building the government bond market and development of the yield curve will lay the
foundation for the corporate bond market. The role of parastatals and public-private partnerships
(PPPs) are two additional ways that government can play a catalytic role. Parastatals requiring
long-term financing can be encouraged to consider debt issues, and government can encourage
the including of a domestic bond tranche in the financing of PPPs.
a. Public Private Partnerships
154. A three year plan is being prepared for the implementation of PPP projects from an initial
list of 15 projects and the first, the airport project, is now being tendered. The PPP policy and
procedures, presently available in draft will be finalized and will define the responsibilities of
RDB, the MINECOFIN public investment team, and CMA. The policies and procedures will
differentiate between very large projects (like the airport project now being tendered) and
smaller projects for which Rwandan sources such as the stock exchange and local lenders are
potentially relevant. The policy for the smaller PPP projects will inform bidders that some
weighting will be placed on the extent to which there is local participation in the form of i)
raising capital on the stock exchange; ii) debt participation by local lenders; and iii) advisory
15
This was noted by the City of Kigali as it assessed the prospects for a municipal bond issue several
years ago.
45
services contributing to the packaging process. Utilizing BRD project structuring and appraisal
skills will be considered, when relevant, for smaller projects in which BRD does not have a
conflict of interest.
b. Securitization
155. Securitization of assets is also a way to create marketable bonds. Regulations for asset
backed securities (ABS) have been prepared and will be gazetted soon. One key element of the
legal framework for these instruments is the enactment of the Trust Law currently pending in
Parliament. This is necessary to confirm the legal underpinnings for securitization (conveyance
of assets to a special purpose vehicle or a trust, or segregation of assets against which a covered
bond can be issued with prior claim). A further required element is review of the tax regime to
make securitization tax neutral with respect to the assets conveyed to the trust or special purpose
vehicle. Once complete, the foundation will be in place for issuance of a range of asset-backed
securities
Policy actions—Bond Market Development: promote private issuance
Educate issuers on bond, equity issues and securitization
Complete the legal requirements for securitization (Trust Law, SPVs) and review tax treatment
Explore potential domestic financing component for medium sized PPP projects
Educate and canvas investors to confirm interest in new issues
iii. Collective Investment Schemes
156. Enactment of the Trust Law is the last remaining element of the legal foundation of
collective investment schemes (CIS). The CIS Law introduces the requirements for mutual
funds, contractual agreements, and unit trusts. Regulations have been prepared for Real Estate
Investment Trusts (REITs). Introduction of products like mutual funds will provide another
savings and investment vehicle, and also foster development of a new class of institutional
investor—funds managers. Diversification of the investor base in Rwanda will be enhanced to
the extent that these funds managers are not affiliated with existing financial institutions, and
through development of alternative distribution channels such as independent financial advisors
or “open architecture” approaches whereby by banks and insurance companies offer the funds of
both related and unrelated managers. The regulator will be the CMA. Foreign funds managers
are permitted, but they must have a known place of business in Rwanda, which will help to
develop products for the Rwandan market and build capacity in the industry .
6. Supporting Infrastructure
i. Payment System
157. Almost all of the previously identified issues with the payment system have been
resolved, putting in place the foundation for a payment system to support the needs of a modern
economy. Continuing reforms will close the few remaining gaps.
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a. Legal and Regulatory Framework
158. The main legal issue outstanding with regard to payment systems is the need to improve
the legal protection of the funds of MMT subscribers held in escrow accounts at commercial
banks. This requires the introduction of the Trust Law, and other changes in the regulation of
MMT services.
159. MMT licensees are required by the BNR to keep the funds received from subscribers, in
exchange for e-money, in a trust or escrow account at a commercial bank. These funds are
segregated from the general funds of the MNO running the MMT service, in order to protect the
interests of MMT subscribers. However the legal foundation for such segregation is weak, and
could be over-ridden by the general provisions of insolvency law.
160. This situation is unsatisfactory and means that the intended protection of MMT
subscribers through the trust/escrow account mechanism may not work. Enactment of the
pending Trust Law is a matter of priority to give legal effect to the intended protection. A related
requirement is that the winding up of a bank should not be subject to the general insolvency law
but should be governed by relevant portions of the Law on Banking.
b. Retail Payment Systems
161. The retail payments landscape has improved considerably since the time of the FSAP in
2011.
SIMTEL under new management, re-branded as RSwitch, is operating reliably
Revocation of the SIMTEL monopoly led to market driven solutions, including the
entry of VISA
Two MNOs (MTN and Tigo) have introduced mobile money transfer products and a
third operator (Airtel) has applied to do so
Banks have begun to roll out mobile and internet banking products
162. The main challenge over the next five years is to consolidate and build upon these
improvements, to allow market forces to operate in the retail payments market, and to ensure that
consumer interests are served through ensuring interoperable systems with open access. With
both RSwitch and VISA present in the Rwanda retail payment market, competition and market
forces are now capable of guiding development. Both banks and retail customers have a choice
of card types, technologies and costs.
c. Rwanda Integrated Payment Processing System (RIPPS)
163. All three components of the RIPPS (which includes the Automated Clearing House
(ACH), the Real Time Gross Settlement (RTGS) system, and the Central Securities Depository
(CSD)) are now functioning. The main objectives with respect to RIPPS in the coming years will
be to encourage further transition towards electronic payments; to ensure that adequate
arrangements are in place to manage the liquidity requirements of participants in the RTGS; to
broaden participation in the RIPPS; and to further integrate into the EAC payment system.
47
164. Further measures will be undertaken to move high-value payments to the RTGS, where
settlement is faster and risks are better managed. This will be achieved by introducing a value
cap on cheques and EFTs.
165. At present the RTGS only deals with RWF transactions, although there are facilities to
operate in multiple currencies. The demand for foreign currency transactions will be monitored,
particularly in the context of EAC payment system integration. The BNR will be prepared to
introduce facilities for EAC currencies and USD transactions should it be justified.
d. Automated Clearing House
166. The ACH, which deals with payments by cheque and electronic funds transfer (EFT) is
an integral part of the payments system. Over the next five years the main challenges will be
improving the efficiency of the cheque clearing system while accommodating the move towards
electronic payments, and broadening access by different types of financial institutions.
167. The BNR is implementing a cheque automation and modernization plan, involving the
introduction of machine-readable cheques. Standards for these cheques (based on magnetic
image character recognition), have been agreed between the banks and the BNR. The banks will
invest in new (machine readable) cheques and processing machinery for cheque reading, imaging
and truncation. Banks will be required to meet the new cheque standards and introduce cheque
reading equipment, but the move to full truncation will depend on whether the costs can be
justified. The BNR will encourage the public to move away from cheques, while banks pricing
strategies may provide an incentive for the public to move away from cheques to electronic
payments.
e. Broadening participation in the ACH
168. The rapid growth of Umurenge SACCOs and the continued role of older SACCOs and
MFIs has raised questions about which institutions can gain access to the RIPPS and its various
components (particularly the RTGS and the ACH). At present this is limited to licensed banks
and microfinance banks. Membership entails access to both the RTGS and the ACH. SACCOs
and non-bank MFIs can only access the payments system indirectly, through a bank that is a
RIPPS member.
169. The BNR will consider alternative means of providing MFIs and SACCOs with access to
the ACH. This could be through tiered membership of the RIPPS, which would allow selected
MFIs and SACCOs access to the ACH under strict conditions. The conditions for
accommodating such tier-2 membership of the RIPPS would need to be developed. Not all
SACCOs/MFIs would be eligible – access will be restricted to those that meet minimum volume
requirements, are in good regulatory standing, and have access to the necessary technology and
communications. If a decision is taken to combine Umurenge SACCOs into a smaller number of
district SACCOs, then these district-level organizations would be more suitable as ACH
participants. Such tier-2 membership would specifically exclude access to credit facilities at the
central bank, which would continue to be available only to licensed banks.
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170. An alternative approach would be to establish a central facility serving all MFIs and
SACCOs, which would collect all EFT instructions and submit them to the ACH through a bank
(as well as providing other services). This would provide access to the ACH for all
MFIs/SACCOs and would be more manageable than multiple MFI/SACCO memberships of the
ACH. This solution would be feasible if plans to establish a SACCO/MFI Management
Information System come to fruition.
f. Securities Settlement Systems
171. The CSD, operated by the BNR, went live in May 2011. To improve the functioning of
the CSD and ensure users are aware of the range of functionality provided, an operational
manual will be prepared, laying out rules and regulations for participants and providing guidance
with respect to the features of the CSD. Training for CSD users will also provided. Custodial
services for international investors will be put in place, by encouraging Rwandan institutions to
develop links with international custodial services.
g. Oversight and Co-operation
172. The current National Payment System (NPS) Framework and Strategy was prepared in
2008. The Strategy has been largely implemented. It is now time to update the Framework and
Strategy, and this will be done through the oversight body for the payment system, the National
Payments Council.
173. The updated NPS Framework and Strategy needs to deal with a number of key issues
over the next five years. One is to craft a comprehensive retail payments strategy that takes into
account all payment instruments, payment channels, interoperability issues etc. This should
extend to remittances, mobile payments, e-money etc., and will therefore also entail close liaison
with Banking Supervision in order to identify supervisory and regulatory responsibilities in
respect of financial products and services that straddle both payments and deposit-taking
functions.
174. There is also a need to improve payment systems oversight, and to ensure that emerging
risks are monitored and managed. This will require an expansion of skills and the number of staff
at the BNR engaged in oversight activities, so as to ensure that all relevant activities are covered.
It will also be important to develop co-operative relationships with other supervisory entities,
both within the BNR and in other countries, and to maintain an ongoing consultative relationship
with all relevant stakeholders.
h. Regional integration of payment systems
175. The integration of the Rwanda CSD with other depositories in the EAC (Uganda,
Tanzania, and most importantly Kenya) will facilitate dematerialisation and inter-register
transfers of dual-listed stocks. This will help improve the efficiency of trading of dual listed
stocks on the RSE; will encourage further dual listings, and will help to make the RSE more
attractive to foreign investors, who require stocks to be held on a CSD. Progress on
49
implementing these linkages will depend not just on actions in Rwanda but also the necessary
complementary actions by relevant entities in other EAC member states.
176. An EAC Regional Payments Strategy has been developed by member states with the
support of the African Development Bank. This involves the progressive integration of payment
systems across the five EAC member states. Key components of the strategy include linking high
value payment systems (RTGSs), clearing houses (ACHs) and securities depositories (CSDs) in
the region. It also involves facilitating cross-border remittances and payments.
177. The first component is in the process of being implemented, with the RTGSs in Kenya,
Uganda and Tanzania already linked. Preparations have been made to link Rwanda; testing has
been completed, and the system will go live shortly. The RSE and CSD offer Delivery versus
Payment (DVP) for share transactions, which is an attractive feature to offer to foreign investors.
This gives the RSE an advantage over other exchanges in the region, and may provide a
comparative advantage that will attract inward portfolio investment, especially if the range of
regional stocks with a dual listing on the RSE can be increased.
i. Data
178. BNR has started publishing useful information on the RIPPS and the use of different
payment instruments, notably in the 2011 Annual Report. In future, more comprehensive data on
payment flows will be published in the Annual Report, the Quarterly Bulletin and on the BNR
website.
Policy actions—payment systems
Establish interoperability among retail payment systems
Introduce a value cap on cheque and EFT transactions
Encourage migration away from cheques
Encourage MMT providers to develop cross-border payments
Develop operations manual for the CSD
Update the 2008 NPS Framework and Strategy
Complete the integration of the RTGS with other EAC RTGSs
Link the EAC CSDs
Improve the reporting of data on payments in the BNR Annual Report, Quarter Bulletin and
NBR website
ii. Credit Information Reporting
179. The credit reporting system is functioning reasonably well. CRB now has approximately
700,000 records on individual borrowers (credits) and 50,000 records on company borrowers. In
order to improve the effectiveness of the credit information system, further refinements are
required to improve the breadth of coverage and the accuracy and accessibility of the information
held. Improving the quality of credit information is an important component of improving access
to finance, as financial institutions are more likely to provide credit when they can make a more
accurate assessment of the riskiness of lending to particular borrowers.
50
180. Since 2010, financial institutions have been required to report credit transactions to both
the BNR and a private credit bureau, CRB Africa. The information held in the BNR and CRB
databases needs to be made more consistent. At present, financial institutions report separately to
the two institutions, which have different requirements and reporting templates. As a result the
information that is required to be reported to the BNR differs from that required to be reported to
the CRB. This leads to a dual reporting burden and inconsistencies between the CRB and BNR
data. To resolve this problem, the reporting formats will be unified and a single report will be
submitted to the two institutions.
181. Building up a comprehensive credit record takes time. Given that the CRB is relatively
new, some of the historical credit information is incomplete, and there has been mixed
experience with the uploading of data from banks, especially those that only have manual
records on past lending. The BNR will monitor the quality of the credit data submitted by banks
and other financial institutions, and ensure that there is full compliance with requirements to
submit credit information and to make enquiries before granting new credits.
182. The success rate on credit report enquiries has been poor, but is improving. The main
reasons for enquiry failure are ID number discrepancies, and lack of historical information. Data
quality has been affected by the changeover from the old national ID system to the new system.
This situation should improve as new records are uploaded based on the new ID number system.
The old and new ID system databases will be linked to enable cross referencing of records. The
national ID database will also be made accessible for online searches, and this will at a minimum
enable cross-checking of ID information submitted by prospective borrowers.
183. Compliance and reporting by all non-banks will be closely monitored, and efforts will be
made to encourage voluntary participation by other credit-granting entities such as retail stores.
Although all financial institutions are required to use the credit information system, among
SACCOs and MFIs only a small number are reporting to CRB. This creates a large gap where it
is perhaps needed most—smaller rural borrowers who do not have relationships with banks.
Many Umurenge SACCOs in particular do not have the capacity to report, although this should
be possible once they have a proper MIS in place.
184. While the main use of the CRB credit database is for credit assessment by banks and
other financial institutions, the main use of the BNR credit information register is for statistical
purposes. Aggregated information is used by the BNR, MINECOFIN and the National Institute
of Statistics of Rwanda (NISR). The BNR will consider how the credit data can be used to
enhance its supervision of financial institutions.
Policy actions—credit information reporting
Unify formats for reporting credit information to CRB and BNR, and require a single report to be
submitted to the two institutions
Monitor submission of credit data by banks and ensure compliance
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Monitor compliance by banks in submitting credit enquiries
Expedite linking of old ID and new ID system databases
Work towards compliance by all SACCOs and MFIs in reporting credit data, once the necessary
MIS is in place
Monitor submission of data by insurance companies to ensure compliance
Improve voluntary participation in credit reporting
Consider use of BNR credit registry data for supervisory purposes
iii. Creditors’ Rights and Insolvency
185. Far reaching reforms in the commercial law and insolvency regime have been
implemented under FSDP I. The Rwanda Development Board (RDB) has taken a central role in
implementing insolvency arrangements; specialized commercial courts have been set up, and
registries of security charges are in place. RDB also is developing a registry of insolvency
representatives who may act as administrators of commercial estates.
186. A number of issues remain to be addressed in the legal framework and its
implementation. The National Land Centre (under a separate Ministry) and the Registry of
mortgages at the RDB do not presently share meaningful co-ordination that allow data for land
titles and mortgages to be recorded in one place, or accessibility using a single electronic portal.
A project is currently underway to synchronize access to the two registries, which will facilitate
the registration and verification of charges.
187. Lenders are reluctant to use the movables registry (for vehicles, equipment) because of
the risk that assets will be removed, stripped or damaged before creditor possession. Rules will
be put in place to prevent asset stripping, and to facilitate use of the registry by approving use of
serial numbers and requiring less detailed descriptions.
188. Except for a small number of prime corporate borrowers, most commercial credit is
secured by specific assets. The current legal framework gives secured creditors the ability to
realize on their security prior to a general insolvency; often the secured claims can be executed
outside the court system. It is preferable to allow the court to place a stay on the actions of
secured creditors in the case of insolvency, so that an orderly liquidation can be carried out, or a
reorganization of the business as a going concern can be carried out. However, such a stay must
be balanced and not unduly impair the rights of secured creditors, and the latter will retain their
prior claim in the insolvency process.
189. In the case of a debt restructuring, the current application of the tax regime imposes
charges and obligations on the restructuring plan. Modifications to the tax regime will aim to
facilitate debt restructurings. The law currently does not provide for the transformation of an
informal restructuring agreement into a binding insolvency plan. Provisions for the approval and
expedited implementation of informal restructuring plans, with the ability to bind dissenting
minorities, will be implemented.
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190. Creditors’ committees should be composed solely of creditors, to ensure appropriate
representation. The current law, which provides for the inclusion on creditors’ committees, for
other parties (for example, employees’ groups), will be revised.
191. The registry of charges at the RDB charges a flat fee for registration. This discourages
the use of the registry for small secured lending transactions; use of the registry will be
encouraged by reducing or waiving the fee for small transactions.
Policy actions—Creditors’ Rights and Insolvency
Synchronize the computerized land and mortgage registries to introduce a unified access portal.
Encourage use of the movables registry through rules that prevent asset stripping
Introduce a stay for secured creditors’ actions that would allow for a more orderly liquidation or
for a reorganization of the business as a going concern
Reform tax regime to avoid penalizing debt restructuring
Reform insolvency law so that informal workouts can be formalized into a restructuring plan and
expedited.
Restrict the composition of creditors’ committees to include only creditors
Consider a reduction or elimination of fees for registration of small security claims (MFI’s, etc.)
7. Rwanda as a Financial Services Hub
192. Expanding the size of the financial services sector is a key component of the objective of
increasing the service sector share of GDP to 55 percent by 2020. Significant progress was made
under FSDP I in laying the foundation for a financial sector able to meet Rwandan needs. This
foundation work will be completed during FSDP II so that Rwandan financial institutions and
markets are positioned to take advantage of regional and international opportunities. Meeting this
significant challenge requires continued improvement in the payment system, capital markets,
the legal and regulatory environment, the quality of supervision, the human capital of the
financial sector, and review of the tax regime.
193. The reforms to financial sector legislation, regulation, and the practice of supervision
outlined in FSDP II are central to the future positioning of Rwanda’s financial services sector.
Requiring the domestic sector to meet world-class standards in governance, risk-management
and capital adequacy is crucial if Rwandan firms are to compete abroad, initially in the EAC and
neighboring countries. Similarly, a world-class prudential regime is necessary to attract reputable
foreign institutions to Rwanda. There will at a later stage be a need to make significant changes
in the tax regime as one of the foundation elements of a regional and internationally competitive
financial sector.
194. Rwandan financial services enjoy a comparative advantage in offering neighbouring
Burundi, the Democratic Republic of the Congo (DRC) and to a lesser extent, other French
speaking African countries a bridge to EAC. Rwanda has a comparative advantage in playing
53
this role given its geographic location, rapidly improving financial sector foundation, multi-
lingual culture and familiarity with legal systems in both French and English-speaking Africa.
This will present opportunities which must be carefully considered due to the operational risk
arising from venturing into jurisdictions with different and less well developed legal and
supervisory systems. Equally importantly, there is potential reputational risk if Rwandan
institutions suffer losses abroad or become embroiled in legal or other issues in international
activities.
195. EAC integration offers additional opportunities for Rwandan institutions and markets.
The rapid pace of reform means that Rwandan institutions are able to operate from a legal,
regulatory and supervisory regime that has already made substantial progress towards
harmonizing on agreed EAC standards, and which in most areas will reach full harmonization
well in advance of other EAC countries.
Program 3: Investment and Savings to Transform the Economy
196. The success of the National Savings Mobilization Strategy is evident in the number of
new depositors and mobilization of funds in savings and current accounts in the banking and
MFI sector, In order to achieve the objective of a national savings rate of 20 percent by 2020
(increased as the original target of 6 percent will be easily surpassed), longer term savings
products need to be introduced to complement and supplement the growth in deposits.
1. Long-Term Savings
197. The RSSB is already a major source of long term savings, but has the potential to become
much more important. Expansion of participation in the RSSB pension from the current eight
percent of the work force will lead to significant increases in contributions and a major growth in
the pool of savings managed by the RSSB. A current challenge is the lack of suitable investment
opportunities, meaning that the growth of the RSSB also has to serve as a catalyst for capital
markets development.
198. Contractual savings are essential for their social role of allowing individuals to provide
for their own retirement and the financial security of their family, as well as to accumulate the
pools of capital needed for productive investment. Actions outlined elsewhere in FSDP II will
provide the legal foundation for pensions, catalyze mobilization of additional pools of long-term
funds in the private pensions and provident funds and foster the development of life insurance
and annuities. Over time, these products will lead to insurance companies becoming significant
institutional investors.
199. The provisions for collective investment schemes, soon to be finalized, will lead to a new
range of savings options for Rwandans. Mutual funds, unit trusts and exchange traded funds
offer vehicles to pool risks to that individual investors can easily purchase diversified
investments that can include venture capital, corporate and government bonds, and equities.
54
200. Increased RSSB focus on converting a significant portion of shorter-term bank deposits
into longer-term bank deposits and the development of a yield curve utilizing government bond
issuance will give banks access to more of the long-term funds already available in the pension
industry which can, in turn, support longer-term funding.
2. Increasing financing for the private sector
201. Increasing domestic credit to the private sector from its present 13 percent of GDP to 27
percent by 2017 is the most important financial sector target relating to credit as it has the most
direct impact on economic growth. The core strategy for increasing financing for the private
sector is i) ensuring that formal financial sector institutions are able to mobilize more funds with
a reasonably optimal maturity structure; ii) improving the enabling environment to encourage
more short and long term lending; and iii) depending primarily on market forces to move the
money in the most productive directions. It includes a number of specific actions which
indirectly further this objective and enhance the ability of participants to perform this key
function more effectively and productively.
i. Reducing obstacles to commercial bank lending in priority areas
202. While the access to finance strategy puts considerable emphasis on SACCOs, MFIs and
VSLAs that expand financial inclusion and lending to more marginal borrowers, commercial
banks as of December 2011 provided more than 94 percent of formal financial institution loans
by value and 67 percent by number. The major opportunities to increase lending in priority areas,
e.g., small and medium enterprise (SME), PPPs, agriculture, exports and, perhaps most
importantly, housing lie with creating incentives to enhance commercial bank willingness to
increase the credit provided to these subsectors. At present, the banking system is quite liquid
and is seeking opportunities to increase lending. The rapidly improving availability of credit
information, which will be further improved as part of FSDP II reduces what is perhaps the most
significant supply side obstacle to expanding bank lending in these priority areas.
203. FSDP II helps to address three other primary remaining obstacles, i.e., i) inadequate
collateral available to many borrowers; ii) inadequate access to long-term funds (especially
relevant for housing finance, plant and equipment, and coffee and tea production; and iii)
inadequate effective demand in areas like small scale enterprise (for which it is the primary
constraint to increased lending) because many potential borrowers cannot provide accounts,
business plans, or a clearly articulated vision as to why their enterprise has a bright and sound
future.
204. Completion of the electronic land registration process contributes significantly to
availability of collateral for many borrowers and is particularly relevant for housing and some
agricultural finance. Allowing RDB arbitration to be conducted electronically on appropriate
loans to avoid the commercial court system,16
e.g., small loans for SMEs, agriculture, and
housing, will make such lending more attractive by reducing potential transaction costs.
16
The Law on Intermediation will be amended if necessary to handle these cases.
55
Enactment of a new leasing law which incorporates international tax-advantaged standards for
such legislation, e.g., elimination of VAT on lease payments, will enhance lenders’ ability to
collateralize longer term credit, in particular, for equipment such as tractors and transport
vehicles.
205. Greater use of BDF guarantees for bank lending to small scale enterprise, agriculture and
microfinance and an increase in the number of institutions that use them can become an
increasingly significant factor in augmenting collateral of loan applicants. BDF has and
continues to place considerable emphasis on promoting the use of its guarantees by major
lenders. However, the usefulness of these guarantees in their role in augmenting collateral will be
enhanced by restructuring the guarantee facility to increase its financial capacity and soundness.
206. BDF is a relatively newly formed limited company 100 percent owned by BRD, which
provides advisory services and the guarantees, with BRD presently its biggest single client. If
BDF’s structure and financial condition are sufficiently strengthened, the value of its guarantees
can be fully taken into account together with other eligible collateral in BNR requirements
relating to provisioning on NPLs.
207. BDF, while remaining a BRD subsidiary, will consider spinning off the guarantee
function into a separate legal entity, to be managed by BDF for a fee under a contract. The
detailed financial ramifications for both BDF and the guarantee facility entity need to be studied
before implementation, however, it is envisaged that this entity would be a financially
independent structure that can comply with existing prudential standards for consideration of
guarantees in determining bank provisioning requirements. Meeting these standards requires
assurance that there is little risk that BDF’s considerably expanded guarantee exposure would
not be honored. Criteria that would have to be met to achieve this objective may include:
increasing net worth to a level in excess of 15 percent of risk adjusted assets by converting a
portion of existing grant and/or guarantee funds to equity and seeking other private bank
investment such that BRD’s ownership share drops to less than 50 percent. It would also prepare
financial statements that transparently show net income by accruing anticipated expense
associated with outstanding guarantees,17
and its true liabilities and equity (guarantee funds that
do not need to be repaid can be treated as tier 2 capital or as managed funds). A three year
financial plan can be used to ascertain whether existing guarantee levels and a possible increase
to, say, 75 percent in some guarantee programs, e.g., for SME and housing, can be offered on at
least a breakeven basis when interest income on transferred guarantee fund cash and appropriate
accrued provisioning for future anticipated losses and actual losses on the existing stock of
17
At present, BDF does not record either actual or accrued expenses associated with guarantee-related
losses in its income statements or as deductions from net worth, thus providing inadequate data for
ascertaining the extent to which its fees cover the cost of the guarantee program. Large guarantee funds
are treated as liabilities and largely as cash on the asset side of the balance sheet and any losses are now
written off directly against the liability
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guarantees are taken into account. .18
As its guarantee program is a potentially relevant financial
sector stability factor, the new entity would be directly supervised by BNR.
208. A highly credible financial base for the new entity, i.e., a strong capital position and
eliminating a competitor’s (BRD) ownership control will assist in increasing banks’ interest in
using the guarantee facility. Moreover, to the extent that any staffing constraints have been
addressed and internal feasibility analyses have been completed, the guarantee facility should be
encouraged to broaden its product offerings to include guarantees for i) housing finance loans; ii)
coffee and tea production loans; and iii) export financing relating to customers for whom banks
would not otherwise take full risk exposure on. It will also allow for the possibility of increasing
the level of credit guarantees beyond the normal 50 percent for a few areas with the highest
priority, perhaps in conjunction with a partial government cross-guarantee.
209. Development of the capital markets is the primary strategy for increasing the availability
of long-term funds for lenders as well as the economy more broadly over time. However, this
source needs to be supplemented at this juncture. RSSB, which mobilizes relatively large
amounts of long term funds (RWF 45 billion in 2011 net inflows, currently places virtually all of
its bank deposits in maturities of one year or less, despite the long-term nature of its liability
structure for pensions. Prevailing bank practices incorporate relatively little term transformation ,
i.e., seldom using these relatively short-term deposits to any significant extent to make loans of
four years or more, e.g., housing loans, plant and equipment, coffee production, etc.
210. RSSB will, on a pilot basis, request tenders from banks for five year deposits on both a
fixed and variable interest rate basis. If the pilot is successful and rewards RSSB with higher
interest rates, after its cash projection function has strengthened it will allocate an appropriate
portion of its investment portfolio to longer term bank deposits.
Policy actions— increasing financing for the private sector
Increase private sector lending by banks by improving the enabling environment and depend
primarily on market forces to move money in the most productive directions
Improve bank access to long-term funds from RSSB deposits and the capital markets and
strengthen tools to enhance collateral
Consider converting BDF into a separate legal entity with substantially increased capital,
financial ability to credibly cover all guarantee-related risk, to be licensed and supervised by
BNR and managed by BDF on a contractual basis
Broaden BDF guarantees to cover export finance, production of coffee and tea production loans
needing unusually long grace periods, and housing finance, subject to satisfactory feasibility and
staff capacity considerations
18
The guarantee portion of the business can be spun off without reducing the value of BRD’s current
equity investment and receivable by transferring the two large funds (85 percent of the liability side of
the balance sheet), a significant portion of assets leaving sufficient assets to protect BRD’s existing and
receivables position; and iii) converting a sufficient portion of the two large funds from liabilities to
equity.
57
ii. Increasing small enterprise financing
211. Increasing the effective use of guarantees, a possible increase in the level of SME
guarantees, especially for new enterprises, to 75 percent as well as increased use of credit
information (in particular from SACCO/MFI sources) will lead to an increase in small enterprise
lending. SME lending will be further supported with a three pronged approach, i.e., i) developing
a better understanding of the subsector and its needs and constraints and providing baseline data
to evaluate progress over time; ii) addressing a major constraint related to inadequate levels of
effective demand, i.e., increasing the number of trained qualified entrepreneur borrowers,
assisting them with loan applications coordinated when appropriate by guarantees; and iii)
strengthening specific incentives and the support environment for lending in this subsector.
212. A hybrid agricultural/SME finance survey, focusing on the demand side and parallel in
many respects to the 2012 FinScope study, will be conducted in 2014. Its inputs will be used to
more effectively target other initiatives as well as providing a base-line to measure progress over
time.
213. Perhaps the most important program is increasing the number of “bankable”
entrepreneurs though training, assistance with preparation of business plans, and, working
closely with BDF, supporting applications for trained applicants in coordination with the national
financial literacy and education program. The soon-to-be-established Institute for Entrepreneurs,
Cooperatives and Microfinance and the existing MINICOM Hanga Umurino program will be
heavily relied on to increase the number of small entrepreneurs able to present attractive loan
applications to lenders. Emphasis on this approach will increase the likelihood of entrepreneur
success as well as their ability to find financing.
214. BDF, in its management capacity in the new guarantee entity, will conduct an internal
study to ascertain feasibility and, if appropriate, design and implement an export guarantee
facility to support small enterprise and agricultural exporters who do not have banking
relationships that include working capital for production and LC financing for exports as well as
longer-term loans for small producers of products for export (e.g., coffee and tea). If
implemented, this guarantee program could increase national exports at the margin as well as
supporting small entrepreneurs and farmers in export-related endeavors. It should also prepare a
risk management framework and an approach for presenting an annual guarantee summary and
evaluation report for the new entity.
215. Other actions that will be taken to catalyze increased small enterprise lending include
waiving the RDB fee for registering collateral for loans of under RWF 10 million, and revising
and expanding the BRD small and micro-enterprise development fund. Using monitoring to
create opportunities to incentivize increased lending in priority areas by drawing more attention
to it can be improved by breaking out commercial bank lending for SMEs and housing finance
58
separately in BNR reports,19
and defining agricultural lending to clearly include loans to
participants later in the value chain (such as processors, exporters, etc.) within the composition
of subsector lending table as an element in the already initiated BNR review of regulations and
reporting.
iii. Increasing agricultural financing
216. Many FSDP II actions supporting access to finance create an enabling environment and
incentives that will increase outreach, literacy, strengthened grassroots SACCOs and MFIs, and
increased private sector lending, particularly in priority areas. As agriculture represents a very
large share of total economy activity (almost 32 percent of GDP and 30 percent of national
exports) these broader actions, while not targeted specifically to agriculture, will certainly
significantly increase lending to this sector.20
While not surprising given the levels of subsistence
and small shareholder farming and possibly understated, bank lending for agriculture21
is
undesirably low so efforts will be made to increase agricultural financing. BNR should report
outstanding loans and new loans by subsector on a quarterly basis to better capture seasonality
and should publish the agricultural lending breakdown by subcategory which is already reported
to them by the banks.
217. Several policy actions discussed early in this section relating to augmenting collateral,
the hybrid SME/Agricultural financing survey, and making small loans more attractive for
bankers by reducing transaction costs will certainly contribute to increasing agricultural
financing at the margin. Moreover, Umurenge SACCOs report that at present 19 percent of
lending is for agriculture (which exceeds the 2017 18 percent target mentioned in the 7 year
government strategy) and anecdotal evidence suggests that agriculture represents a considerably
higher percentage of total lending for older SACCOs and MFIs than it does for banks.
218. Other actions more specifically related to agriculture lending include i) enacting a
Warehouse Receipts Act and regulations; ii) conducting a rural and agricultural services cost
study designed to guide MINIAGRI interventions relating to financing associated with specific
crops; and iii) specialized training for bank officers in providing credit to agriculture.
219. Agricultural loan guarantees represent the majority of BDF guarantees at this juncture
and the expansion of this program will be aggressively promoted. Understandably, the vast
19
This will require stipulating the definition of SME lending, perhaps to include loans to businesses of
under RWF 100,000 as this is relatively easy to measure, and defining housing lending to exclude
mortgages on existing buildings or housing that is used to invest in businesses other than housing. 20
Banks report 3.5 percent of their new lending for agriculture as of December 2011, almost none of
which is short-term, implying virtually no crop financing at that time of year. Over half of this reported
lending was for exports, and some agriculture-related activity e.g., coffee and tea export financing
could be classified as commercial, transport or warehousing. 21
This percentage, drawn from reporting to BNR, may significantly understate the actual lending to
agriculture as activities such as the financing of coffee exports could be classified as commercial,
transport or warehousing.
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majority of BDF guarantees cover 50 percent of the eventual loss on financial institution lending
losses and, while suggestions of raising that guarantee to 75 percent for lending that is
considered of highest priority are regularly made there is not yet an adequate experience base
and satisfactory accounting needed to enable BDF to ascertain its ability to maintain
sustainability if it offers significant programs to cover losses at this level of guarantee. An
extension of 75 percent guarantees, if any, should be carefully limited as a percentage of BDF’s
overall guarantee risk exposure, and necessarily reserved for areas identified as of the highest
priority for stimulating increased bank lending. MINECOFIN should establish this prioritization
from among worthy candidates, including i) export-related SMEs and agriculture; ii) other SME;
and iii) housing finance, as discussed below.
Policy actions— increasing financing for small scale enterprise
Conduct a hybrid agricultural/SME finance study, focusing on the demand side in parallel with
the 2012 FinScope study
Increase the number of bankable entrepreneurs through linking targeted training, assistance with
business plans, the possibility of BDF guarantees, and assisting with loan applications
Utilize export financing guarantees to assist SME and agricultural exporters without banking
relationships to finance working capital and LC financing
Waive RDB collateral registration fees for loans of under RWF 10 million
Revise and expand the BRD small and micro-enterprise development fund
Change subsector credit reporting requirements to break out SME and housing finance separately,
define the agricultural lending category in more detail, and report quarterly to capture seasonal
factors more effectively
Enact a Warehouse Receipts Act and regulations
Provide specialized training for bank officers in providing credit to agriculture
iv. Increasing finance for housing
220. Increasing housing finance, especially finance related to affordable housing, is a very
high priority. The actions in FSDP II focus on commercially viable housing finance, which will
be complemented by other policy initiatives to more specifically target affordable and subsidized
housing. City development in Kigali and elsewhere continues to reduce the stock of affordable
housing while the need to increase the stock continues to grow. Although banks report that 30
percent of all lending, and 54 percent of all long-term lending is mortgage related, it is unclear as
to how much lending is for housing. As of September 2010, RWF 38.5 billion (61 percent of
mortgage value) involving 2000 loans were to individuals.22
Anecdotal evidence suggests that
much of the mortgage lending, including some lending to individuals, raises funds for investment
in businesses by mortgaging existing buildings and homes.
221. Financial institutions constitute the primary source of housing finance for those that can
afford to borrow on commercial terms, an estimated 2 percent of the population. They can also
represent a substantial source of financing for commercially viable rental housing and developer
22
As noted in the August 2011 FSAP report.
60
schemes for affordable housing, as well as for incremental financing for renovation and adding
rooms. Actions relating to strengthening collateral, e.g., BDF guarantees, and increasing access
to long term funds, e.g., from RSSB support increased lending in these areas. This increase in
housing finance will indirectly contribute to meeting affordable housing demand by increasing
the total stock of housing and removing some of the competition for earmarked affordable
housing by servicing some of the demand from middle income borrowers.
222. The strategy for increasing lending for financial sector housing, in addition to broader
actions relating to strengthening collateral and increasing bank access to long term funds focuses
on i) improving the enabling environment; ii) providing increased access to long-term funds
from sources such as RSSB deposits; iii) exploring and taking advantage of opportunities to
increase commercial financing for affordable housing; and iv) subsidizing support for affordable
housing that is not commercially viable.
223. The role of the already completed electronic land registration system will be
strengthened by creating a unique property identifier-based (UPI) system for electronically
linking it with the mortgage registration system, recording the value of land transactions and
using it to develop an index for land prices. Additional actions that will be taken to strengthen
the real estate valuation environment include i) using the new Law on Valuation to set standards
based on international practice and improve the monitoring of licensed valuers; and ii) finalize a
cell-based real estate value reference system based on transactions and factors like access. Once
a reasonable data base on values in place, the mortgage law will be amended so independent
valuation is not needed for commercial bank loans of under RWF 10 million when both parties
agree.
224. The recent increase in the new building space available, financed to a significant extent
by RSSB and commercial banks, and rapidly increasing prices create a volatile real estate
environment. BNR will study the extent of real estate exposure for these institutions and RSSB
will provide increased understanding of real estate valuation, especially in Kigali, in conjunction
with its upcoming audit. In time this date will be used to reconsider the risk-weighting for
residential mortgages.
225. Mobilizing longer-term RSSB deposits in the banking system is key to increasing the
availability of suitable long-term funds for mortgages. The government decision to allow banks
to establish tax-advantaged long-term housing savings schemes will be implemented and efforts
will be made to link these deposits to priority listing for affordable housing projected to come on
stream in the future.
226. BRD, subsequent to the Housing Bank (BHR) merger, plans to significantly expand its
mortgage lending. It is preparing a housing strategy focused on mid-income housing inclusive of
a strategy for raising the long-term local currency necessary to implement. Subsequent to
passage of the CMA asset-backed security regulation, BRD is also exploring the possibility of
exploring a “housing” bond issue based on securitization of its existing housing loan portfolio
61
with BRD retaining the credit risk and responsibility for collection. BRD will also continue in its
attempt to find additional nongovernmental investors with similar objectives to reduce the
government share to less than 50 percent, which may provide access to additional sources of long
term funds.
227. Additional actions will be taken to increase the amount of commercial lending for
housing with a focus on affordable housing including i) providing training for financial
institution loan officers and treasurers on housing finance lending; ii) creating housing loan
products for housing cooperative members based on peer group guarantees as well as traditional
collateral; iii) designing a developer scheme for low cost housing; and iv) identifying RSSB
opportunities to invest in commercially viable affordable housing; and iv) conducting a housing
microfinance study with a view to developing an affordable housing finance project, an
incremental financing component, and a supporting fund targeted at commercial lenders.
228. Subsidized lending supported by government and donors will be necessary to more
directly contribute to meeting the urgent and growing demand for the bulk of affordable housing.
This will be based primarily on a RHA prepared national strategy and policy for financing
affordable housing which will focus primarily on noncommercial sources and will build on a EU
housing market study, now available in draft. Receipts from a real estate tax to help finance
infrastructure, and linking planning permission to inclusion by developers of a proportion of
housing meeting affordability criteria will be considered, as will repackaging the former Bye
Bye initiative for mobilizing Diaspora support and raising Diaspora bond funding for affordable
housing..
Policy actions— increasing finance for housing
Increase commercial lending for middle income borrowers, incremental expansion and
improvement of existing housing to increase the stock of housing and reduce competition from
this segment of borrowers for affordable housing
Link the completed electronic land registration electronically with mortgage registration and
record the value of land transactions to develop an index of prices
Use a new Law on Valuation to set standards based on international practice and improve
monitoring of licensed valuers
Amend the Mortgage Law to eliminate the requirement for independent valuation for mortgages
of under RWF 10 million when both parties agree
Lower the risk-weighting asset requirement for performing residential mortgages to 35 percent if
a study on bank exposure risk to real estate in Kigali demonstrates that it does not pose a stability
risk
Mobilize 5 year RSSB deposits, initially on a pilot basis, in the banking system to reduce term
transformation challenges
Prepare a BRD lending strategy for mid-income housing and a strategy for mobilizing more long-
term local currency resources
Explore the possibility of floating a housing bond issue based on securitization of its existing
home mortgage portfolio
62
Provide training for financial institution loan officers and treasurers in residential mortgage
lending
Create housing loan products for housing cooperative members augmenting traditional collateral
with peer group guarantees
Identify RSSB opportunities to invest in commercially viable affordable housing
Conduct a housing microfinance study
Prepare a national strategy and policy for financing affordable housing focused on non-
commercial sources which builds on the EU housing market study
Use FinScope 2012 ubudehe segment data to extend the EU Kigali market segment analysis to
Rwanda’s urban and semi-urban areas
Program 4: Protecting Consumers and Maintaining Financial Stability
229. There are four elements of the consumer protection regime for the financial services
sector. First, prudential requirements are intended to ensure that the financial promises made by
institutions—to repay a deposit in accordance with its terms, to pay a claim when an insured
event occurs, or to make pension payments upon retirement—are met. Second, oversight by the
BNR ensures adherence to these standards. Thus, many the actions outlined in this section to
strengthen the regulatory framework and practice of supervision contribute directly to protecting
the interests of consumers. The third element is compensation in the event of the failure of an
institution. To provide this protection, deposit insurance will be introduced for banks, MFIs and
SACCOs, and an investor compensation fund will be introduced for capital markets
intermediaries. As part of the review of the regulatory framework for insurance companies,
stakeholders will be consulted regarding the best approach to implementing a policy-holder
compensation fund.
1. Protecting Consumers
230. The final element in the consumer protection regime is providing a redress mechanism to
address the imbalance of power between financial institutions and their customers. A new unit
will be established in the Office of the Ombudsman to provide Rwandans with a single portal for
resolution of financial sector disputes. The Office of the Ombudsman has a broad range of
competencies in dealing with complaints, fraud and corruption. It will need to develop staff with
expertise in financial services, and to this end the BNR may initially second staff to assist. The
financial sector unit in the Office of the Ombudsman will be operational by end-June, 2103.
2. Updating the Regulatory Framework
231. Experience with the financial sector legislation and inputs provided by stakeholders, as
well as the need to continually update to keep pace with evolving international standards, has
identified the need for changes to existing legislation and regulation.
63
i. Amending Legislation—Banking
232. There are three main elements to the project to revise banking legislation. First, the
amendments to the LOB will be prepared for consultation by end-2012, with a view to having a
final draft for consideration by Parliament by June 2013. Following enactment of the
amendments, revised regulations will be required. These are targeted for completion by June,
2014, with the precise timing contingent on the timing of proclamation of the amendments to the
legislation. Finally, reporting requirements and formats will need to be reviewed and revised as
necessary, with this work targeted for completion by June, 2015. A concurrent project is the
necessary updating of banks’ charts of accounts to reflect International Financial Reporting
Standards (IFRS) and revised reporting requirements.
Policy actions—amending banking legislation
Prepare drafts of all required amendments to the LOB
o Consequential amendments from introduction of deposit insurance
o Revise Chapter VI to enhance resolution regime
o Technical amendments arising from experience and consultation
o Revision of the definition of deposit
o Consult with stakeholders and prepare final version for Parliament
233. Article 63 of the LOB provides for the establishment of a deposit guarantee fund, with
the specifics to be provided in a separate (deposit insurance) law. The LOB needs revision to
provide that the intended guarantee fund would be empowered to facilitate lesser cost minimally
disruptive resolutions such as purchase and assumption transactions in addition to indemnifying
depositors in the event of liquidation as currently contemplated. Revisions to Section 2 of
Chapter VI are related to the introduction of deposit insurance as a full range of powers to seize
control and impose a resolution on a failing institution is required to minimize the costs to the
deposit insurance fund. In addition, amendments will be required to provide a legal framework
fully reflects the 2011 Financial Stability Board guidance “Key Attributes of Effective
Resolution Regimes for Financial Institutions.”
234. Consultation with the RBA is an important part of amending the LOB. In addition to
seeking feedback on amendments identified in this program, industry suggestions regarding other
amendments will be solicited and considered, together with any other specific amendments to the
LOB identified as part of the FSDP II consultation process. A final package of all amendments to
the LOB, revised as necessary after stakeholder consultation, will be ready for introduction in
Parliament in 2014.
235. The FSAP Update proposed revising the LOB to specifically limit deposit taking to
licensed institutions. This will be accomplished by revising the LOB definition of deposit from
“funds that an entity receives from the public” to “funds that an entity licensed pursuant to this
Law, or the Law on Microfinance, receives from the public.”
64
ii. New and Revised Bank Prudential Standards
236. Most of the areas for improvement in prudential standards noted in the FSAP Update
have been addressed through the revised Regulation on Risk Management promulgated in April,
2012. The issue of country and transfer risk remains outstanding, and will be addressed through a
guideline or regulation to be put in place by end-2015. At present, country and transfer risk
exposure of Rwandan banks is minimal, but as part of the foundation for Rwandan institutions to
compete within the region and more broadly, the required standard will be established in the
medium term.
iii. Bank Capital Adequacy
237. Rwandan capital adequacy requirements for banks require revision to implement
changing international standards. Implementation of the Basel III capital adequacy requirement
arises from Rwanda’s commitment to align standards with the EAC harmonization objectives. In
response to the findings of the FSAP update, elements of the Basel II framework relevant to
Rwanda will be introduced.
Policy actions—new capital adequacy regime
Revise definitions of eligible capital and minimum capital adequacy requirements (CAR) to
implement the Basel III standard
Introduce a leverage limit in addition to the risk-weighted capital adequacy requirement
Include collective allowance (general provisions) in the allowable elements of supplementary
(Tier 2) capital, consistent with the Basel Capital Accord
Introduce a capital charge for market risk, with exemption provisions to avoid unduly burdening
banks with minimal market risk exposure
Adopt the Basel II elements appropriate for Rwandan banks
o Capital charge for operational risk (basic indicator or standardized approach)
o Require banks to have an Internal Capital Adequacy Assessment Process (ICAAP)
o Require banks to publish summary data on their web-sites
o Require banks to make audited statements available on their web-sites and in branches
a. Eligible capital and minimum requirements
238. The current conservative approach to capital adequacy means that unlike in many other
countries, the practical impact of a Basel III regime for banks in Rwanda will be minimal. The
current Rwandan standard requires banks to hold core capital equal to at least 10 percent of
RWA and total capital (core plus supplementary capital ) of at least 15 percent of RWA. The
minimum Tier 1 (core capital) will be increased when the Basel III compliant regime is
implemented in 2013, consistent with the EAC agreement to harmonize on a on a minimum Tier
1 ratio of 12 percent. In accordance with the EAC agreement, Rwandan banks will be subject to
the Basel III 2.5 percent capital conservation buffer, to be phased in from 2016 through end-
2018. Rwandan banks on average currently have capital adequacy ratios well in excess of 20
percent, so transitioning to the harmonized EAC standard should not present significant
challenges.
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239. The Basel III compliant regime for Rwanda will retain the current 15 percent total capital
ratio. Although the EAC agreed minimum standard is 14 percent, with a view to maintaining
financial stability there will be no reduction in the Rwandan requirement.
240. Regulation No. 11/2009 on Capital Adequacy Requirements requires revision to
implement the new capital adequacy regime. The main changes are:
Introduction of a definition and minimum requirement for CET1 in place of the current
core capital requirement,
Specification that deductions of goodwill and intangibles will be from CET1, and
Establish the CET1 requirement at 12 percent
b. Leverage limit
241. The FSAP Update recommended that a revised capital adequacy regulation introduce a
leverage limit in addition to the risk-weighted CAR. Reflecting the Basel III standard and the
EAC harmonization agreement, the initial limit will be core capital equal to at least three percent
of total assets and specified off-balance sheet items. Given the high levels of tier 1 capital
already held by Rwandan banks there will be no need for a phase-in period, with introduction
expected by end-2013.
c. Including collective allowance in supplementary capital
242. The capital adequacy standard will be revised to include collective allowance (general
provisions prior to the introduction of IFRS) as one of the elements of Tier 2 capital. The Basel
standard permits inclusion to a maximum of 1.25 percent of total RWA. The capital adequacy
requirements in Kenya and Uganda permit inclusion of general provisions as Tier 2 or
supplementary capital, so adopting the Basel standard would bring Rwanda in line with practices
elsewhere in the EAC.
243. In addition, including collective provisions as supplementary capital will facilitate
revision of Regulation No. 2/2011 on Credit Classification and Provisioning to introduce a
requirement for minimum provisions on “pass” and “special mention” loans, as required by the
EAC harmonization agreements. Local industry opposition will be mitigated by the possibility of
including as supplementary capital the additional provisions that will be required, consistent with
practices elsewhere in the EAC.
d. Capital Charge for Market Risk
244. All Rwandan banks are currently exposed to relatively small market risks—primarily
foreign exchange risk and interest rate risks—and this is likely to remain the case for the
foreseeable future. A regime with appropriate exemption criteria will insure that any banks
exposed to material market risks hold capital appropriate to those risks, while exempting most
banks on the basis of their minimal market risk exposure. This will ensure that banks with
minimal market risk exposure are not hindered in their development by undue regulatory burden.
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245. The minimum capital requirements for foreign exchange risk, interest rate risk and equity
position risk will be determined by applying the Standardised Measurement Method specified in
the Basel Committee publication “Amendment to the Capital Accord to Incorporate Market
Risks,” or such other methods as the BNR may approve. However, the regulation will also
provide that the bank may apply to the BNR to be exempted from the capital adequacy
requirements for market risk. The exemption from the market risk capital requirements would be
subject to two conditions:
The bank must demonstrate that on a continuing basis its foreign currency business,
defined as the greater of the sum of its gross long positions and gross short positions in
all foreign currencies, does not exceed one hundred percent of Tier 1 capital, and the
overall net open position does not exceed two percent of core capital, and
The bank must demonstrate that on a continuing basis its total trading book assets do not
exceed five percent of total assets.
e. Adopting Basel II Elements Appropriate for Rwandan Banks
246. Basel II comprises three pillars: i) minimum capital requirements; ii) supervisory review;
and iii) market discipline. The Basel committee expressly noted that national supervisors need to
consider carefully the benefits of Basel II in the context of the domestic banking system when
developing an approach to implementation. Rwanda can benefit from the more nuanced
approach to credit risk management in a Basel II framework, enhanced supervisory review and
the disclosure required for market discipline. However, reflecting the need to ensure that the
capital adequacy regime is commensurate with the size, nature and complexity of the banking
business, the introduction of Basel II will provide for only the standardized approaches.
247. The standardized approach to credit risk under Basel II is essentially a refinement of the
Basel I framework which provides the base for the current Rwandan standard. The key
differences are the introduction of risk-weighting based on the external credit rating of the
counterparty, which will have minimal effect due to virtual absence of rated counterparties to the
Rwandan banking system, and different risk-weights for some asset classes. Current risk-weights
for all asset classes will be retained as there is no evidence that loss experience in Rwanda
supports adopting the Basel II weightings.
248. The FSAP Update recommended that Regulation No. 11/2009 on Capital Adequacy
Requirements incorporate a capital charge for operational risk. This will be implemented
pursuant to the Article 17 of the LBO which provides that the BNR may by regulation impose
capital charges for any risk. Banks would have the option of either the Basic Indicator or
Standardized approach as detailed in the International Convergence of Capital Measurement and
Capital Standards (Basel II). It would not be appropriate to offer Rwandan banks the advanced
approaches to operational risk as these are not warranted by the current size, nature and
complexity of their business, which is likely to hold true for the foreseeable future.
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249. The FSAP Update recommended introduction of a requirement for banks to have an
Internal Capital Adequacy Assessment Process (ICAAP). This will be implemented as part of the
review of the Capital Adequacy Guidelines. Adopting this element of Basel II will contribute to
enhanced capital management by banks.
250. The objective of Pillar 2 of Basel II is supervisory review of the risk profile and quality
of risk management of individual institutions. The ongoing BNR focus on risk-based supervision
(RBS) will contribute to Pillar 2 implementation by enhancing the ability of the BNR to review
and assess banks’ adherence to prudential standards and the quality of their risk management. It
is not appropriate to adopt the quantitative aspect of Pillar 2—establishing institution-specific
CARs—at this time. This highly advanced supervisory approach could be introduced at an
appropriate time as the legal foundation is provided by Article 15 of the LOB, however for the
foreseeable future it would likely be preferable for the BNR to perfect its current RBS
framework.
251. The focus of Pillar 3 implementation is on disclosures by banks to facilitate enhanced
market discipline. The FSAP Update recommended that banks be required to publish summary
data on their web-sites and make available audited statement on their web-sites and in branches.
Some banks already do this, but revised disclosure requirements will be introduced to make this s
mandatory, consistent with Pillar 3.
iv. Bank Liquidity Standards
252. Rwandan banks are currently required to maintain liquid assets equivalent to 20 percent
of total deposits. Basel III introduces two new liquidity standards, the liquidity coverage ratio
which is to come into effect in 2015, and the net stable funding ratio planned for introduction in
2018. In accordance with the EAC harmonization agreement, the liquidity coverage ratio and net
stable funding ratio will be introduced as prudential requirements. However, the current liquidity
requirements will be retained at least through a transition period to 2020 while experience is
gained with the new Basel liquidity standards.
Policy actions—liquidity standards
Liquidity coverage ratio introduced by end-2015
Net stable funding ratio introduced by end- June 2018
Retain current liquidity ratio at least through a transition period with the new Basel ratio
v. Bank Provisioning Requirements
253. Regulation No. 2 of 2011 on Credit Classification and Provisioning be revised to
introduce minimum provision requirements for “pass” and “special mention” loan classifications.
In addition, the regulation will adopt the five loan classifications as agreed by the EAC
supervisors. This will move Rwanda towards full compliance with the Basel Core Principles and
bring Rwanda in line with the harmonization agreement within the EAC. These types of general
provisions are a key counter-cyclical tool, as they increase with the size of the loan portfolio and
provide a cushion against unexpected but inevitable loan losses.
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254. Introducing the general provision requirement at the same time as capital definitions are
revised to allow inclusion of general provisions up to 1.25 percent of RWA as Tier 2 will help to
address the banking industry’s concerns about the introduction of a general provision
requirement. In addition, the minimum general provision requirements will be phased-in over
four years, so that by end-2017 banks would have accumulated the full amount of the required
provisions. The phase-in period would spread the impact on profitability over several years,
addressing one of industry’s key concerns.
Policy actions—provisioning requirements
Harmonize on five classifications as agreed by EAC supervisors
Require minimum provisions on pass and special mention loans per EAC agreement
Phase in over four years minimum provision requirement for pass and special mention loans
vi. Bank Accounting and Reporting Standards
255. In consultation with the banking industry the BNR will review and revise the chart of
accounts and prudential reporting standards. Rwandan banks have adopted IFRS, but the chart
of accounts and reporting formats mandated by the BNR are not yet wholly consistent with
IFRS. This project will be linked and sequenced to be informed by planned revisions to the law
and regulations so that reporting formats will only be revised once.
Policy actions—accounting and reporting standards
Consult industry on revised chart of accounts and reporting formats
New and revised reports reflect revisions to law and regulations
Revisit the content and frequency of all prudential reports
vii. Amending Legislation—the Central Bank Law
256. The Law Governing the Central Bank of Rwanda (No. 55/2007—BNR law) also requires
amendment. The FSAP Update proposed several amendments to increase compliance with the
Basel Core Principles. Best practices for independence and accountability require amendment to
Article 16 so that the Governor could only be dismissed for specific reasons—by becoming unfit
for office—and requiring that the reasons for any dismissal be made public. Article 69 requires
amendment to provide that the BNR and its employees are able to refuse any request for
confidential information other than pursuant to legal or Parliamentary order. Achieving full
compliance with Basel Core Principle 1.3 requires amendment to Article 73 to remove the
potential liability of BNR staff for errors. The usual standard is indemnity for actions taken in
good faith, so that unless there was malicious intent, staff would not be liable for damages
arising from errors in judgment or action.
Policy actions—amending the central bank law
Revise Article 16 of BNR Law regarding dismissal of the Governor
Revise Article 69 of BNR Law to enhance confidentiality
Revise Article 73 of BNR to remove liability for good faith actions
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viii. Insurance—Revising and Enforcing the Regulatory Framework
257. One of key requirements of the new statutory structure introduced in 2009 was the
separation of short-term and long-term (life and non-life) insurance into different legal
structures. As a result the existing “composite” insurers had to separate their life and non-life
operations into different companies, which can nevertheless be held under common ownership
under a holding company structure. This separation is still in progress, and the BNR will ensure
that it is completed by the end of 2012. The BNR will also ensure that all other regulatory
requirements are complied with.
258. The two statutory health insurance providers – RAMA (RSSB) and Military Medical
Insurance (MMI) – were not required to obtain insurance licenses as they are entitled to
undertake insurance business under their own legislation. However, adherence to the prudential
framework will help to ensure the stability of these public insurers and also provide a level
playing field to the extent that private insurers may offer competing and complementary
products. The necessary regulations – relating to capital, solvency, reporting, governance, and
investment guidelines—will be amended to apply to the statutory insurers.
259. The single set of regulations applying to all insurance companies will be revised to reflect
the differing nature of short-term and long term insurance. Under the 2009 statutory framework,
a single set of regulations, a common reporting structure and a single set of investment
guidelines applies to all types of insurance companies. However, there are distinct differences in
the nature of insurance operations and of the risks to which they are exposed across different
types of companies. Hence the regulatory and supervisory framework will be revised to reflect
the differences between short-term and long-term insurance businesses, and within short-term,
the distinction between general insurance (fire theft, motor etc.) and health insurance. Reporting
formats and risk-based supervision will be amended accordingly.
f. Solvency Margins
260. Unlike capital requirements, solvency margins in Rwanda are differentiated between
long-term and short-term insurers. The former are required to maintain a solvency margin (“the
excess of admitted assets over admitted liabilities”) of RWF500mn, while the latter are required
to maintain a solvency margin equivalent to RWF500mn or 20 percent of gross premium income
net of reinsurance in the last year, whichever is the greater. While for short-term insurers the
solvency margin will rise with the size of the business, this is not the case with long-term
insurers. A variable element will be introduced to the solvency margin for long-term insurers,
which is related to the size of the business. The fixed element of the solvency margins for both
will be reduced, in line with lower minimum capital requirements.
g. Investment Guidelines
261. The investment guidelines will be revised to make them relevant to the different types of
types of liabilities that short-term and long-term insurers have. Short-term (non-life) insurance
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incurs short-term liabilities (e.g. during one year) and charges premiums so as to cover those
liabilities, make a profit and build up (relatively small) reserves that are designed to provide a
buffer against year-to-year fluctuations in claims experiences. Long-term (life) insurance, by
contrast incurs liabilities spread over many years into the future. The assets of short-term
insurance companies need to be available at fairly short notice to meet liabilities, and hence
liquidity is a prime requirement of the assets in which reserves and surpluses are invested.
Therefore it is not prudent to allow short-term insurers to invest significantly in illiquid assets
such as real estate. For long-term insurers, the (actuarial) liabilities are long term and, subject to
prudent operational cash flow management, liquidity does not need to be a primary investment
objective. Instead, investment policies for long-term insurers need to balance maximizing return
while keeping risks within acceptable levels.
262. More generally, diversification of investment portfolios is a key requirement for
prudential investment management. Given the small size of Rwandan capital markets, a
proportion of investments will need to be held outside of Rwanda in order to achieve
diversification and optimize risk-adjusted returns. The revised guidelines are summarized in
Table 5.
Table 5. Proposed new insurance investment guidelines (percent of total assets)
Investment asset category Short-term Long-term
Real estate or immovable properties
(excluding those for the insurer’s own use)
0-10 0-30
Equity shares
of which unlisted equities
0-10
0
20-60
0-10
Marketable debt securities (maturity >1 year) 0-10 20-70
Cash, bank deposits, money market securities (maturity < 1
year)
70-100 10-30
Maximum exposure (debt, equities, deposits) to any single
entity
10 10
Maximum outside of Rwanda
EAC
Rest of world
20
10
10
50
25
25
Policy actions-insurance
Complete the separation of life and non-life business of insurance companies
Extend regulatory requirements to statutory insurers
Complete revisions of regulations to reflect difference between life and non-life
Revise reporting formats to reflect different life and non-life regulations
Introduce variable solvency element related to the size of the business
Complete separate investment guidelines for life and non-life insurance
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3. Financial Stability
263. There is currently no formal approach to contingency planning for the possible failure of
an individual bank or other financial institution or a more wide-spread systemic problem in
Rwanda. When required, the BNR and MINECOFIN have coordinated on an ad hoc basis. With
the establishment of the Capital Markets Authority (CMA), and planned introduction of deposit
insurance there is now a third entity and prospectively a fourth entity with mandates to contribute
to financial stability. At this point, it is appropriate to plan for more formalized arrangements for
crisis management.
i. Contingency Planning
264. Effective contingency planning requires several complementary initiatives to provide the
foundation for an action plan for crisis preparedness. The required policy actions are summarized
below:
Policy actions—contingency planning
Establish a senior coordinating committee for contingency planning, the FSCC
o Prepare terms of reference for the FSCC
o Prepare MOU on role, responsibilities of participating organizations
Prepare generic plan to respond to financial instability
Prepare generic plans to resolve problem institutions
Review legal framework for problem institutions
Remove the provisions of Article 101 of Law No.12/2009 making insolvency of financial
institutions subject to that law
Revise Section 2 of Chapter IV of the LOB to provide full resolution powers
o BNR able to impose a resolution without a report from a special commissioner
o Power to impose resolutions without creditor or shareholder consent
o Power to establish a bridge bank
o Judicial appeal not to stay enforcement and resolution actions
Revise Chapter VI of the Microfinance Act to provide full resolution powers
o BNR able to impose a resolution without a report from a special commissioner
o Power to impose resolutions without creditor or shareholder consent
o Power to establish a bridge institution
o Judicial appeal not to stay enforcement and resolution actions
Participate in supervisory colleges of foreign banks in Rwanda
Restrict normal times collateral for BNR facilities to government securities and BNR deposits
Pre-position new Exceptional Liquidity Facility for crisis management
Ensure the Deposit Insurance Law is fully consistent with LOB and LMO
a. Coordination and Planning
265. A high level body—the Financial Sector Coordinating Committee (FSCC)—will be
established with a mandate to act as the senior decision-making authority to deal with a financial
crisis. The key participants are the authorities with mandates to contribute to financial stability:
the BNR; the CMA; MINECOFIN; and once established, the deposit insurance agency. While
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the supervisory authorities and deposit insurer will provide the necessary technical and
operational expertise, the role of the MINECOFIN is crucial because of the public policy and
fiscal implications of dealing with a crisis.
266. The permanent members of FSCC will be the Governor of the BNR, Chief Executive of
the CMA, and the Minister of Economic Development and Finance. Membership at the most
senior level will help ensure that the FSCC is able to quickly take decisions, and to mobilize
necessary resources from their respective organizations to support the work of the FSCC. Terms
of reference will be prepared for the FSCC outlining its expected role in crisis management and
normal times review of macro prudential policies and risks, and financial sector policy
coordination. A Memorandum of Understanding among participating institutions will be put in
place to confirm the allocation of responsibilities, details of information sharing and an outline of
the expected role of the members of the FSCC in normal times and in crisis.
267. One of the first tasks of the FSCC is to oversee the development of a generic contingency
plan to deal with financial sector instability. As part of this, the BNR will prepare contingency
plans for intervention in weak financial institutions. The FSCC will remain a “living” body,
providing a forum for development and discussion of financial sector policy, and will also
contribute to macro-prudential oversight by meeting periodically to review the BNR’s financial
stability analysis. This will provide a macro-prudential outlook, flagging any concerns about
build-up of risks in the financial sector overall, or outside the financial sector with implications
for financial stability. Over time, the BNR will build additional capacity in this area particularly
the identification and monitoring of macro-prudential indicators. The FSCC will also receive
reports on participation in supervisory colleges for the banks active in Rwanda, and updates from
the BNR and CMA on developments in the international architecture and standards and their
implications for Rwanda.
268. In times of crisis, the FSCC would meet on a regularly scheduled basis to coordinate the
official response. Depending on the nature of the crisis and required response, some or all of the
BNR head of the financial stability directorate, CMA senior staff, or chair of the deposit
insurance fund, would participate in meetings of the FSCC for the duration of the crisis.
b. Resolution Framework for Troubled Financial Institutions
269. The lack of clarity in the legal regime for problem institutions arising from the provisions of
the Law Relating to Commercial Recovery and Settling of Issues Arising from Insolvency (No. 12 of
2009) will be addressed. Article 101 will be revised to clarify that the resolution provisions in the
financial institutions laws—the LOB, LMO and Insurance Law—take precedence over the general
insolvency law.
270. In addition, review of the legal framework for problem bank resolution in the context of
the recent developments in international best practices and the planned introduction of deposit
insurance suggests the need for revisions to Section 2 of Chapter VI of the LOB to introduce all
the elements of an effective resolution regime for problem banks.23
A similar review will be
23
International standards have evolving since the recent global financial crisis. Revisions to the Rwandan
framework with be guided by Financial Stability Board, 2011, “Key Attributes of Effective Resolution
Regimes for Financial Institutions” (Basel, Bank for International Settlements).
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conducted of the relevant sections of the Insurance Law. The major concerns about the current
regime are whether resolution options could be implemented sufficiently quickly, and whether it
would be possible to impose a resolution without shareholder or creditor consent in the interests
of protecting depositors and maintaining stability.
271. The planned introduction of deposit insurance makes it especially important to have a
robust resolution regime in place. A legal regime that permits prompt intervention in a failing
institution and imposition of a resolution without shareholder or creditor consent is crucial to
being able to minimize the exposure of the deposit insurance fund and pursue lower cost
resolutions. It is equally crucial to ensure there are no conflicts between the provisions of the
LOB and deposit insurance law as these could lead to delays while courts resolve challenges, or
in the worst case to the overturning of actions taken to resolve a problem bank.
272. As part of the broader review of the LOB, specific amendments to the resolution powers
of the BNR will be introduced:
Clarify that the BNR may impose a resolution without first requiring a report from a
special commissioner
Explicit power for the BNR to impose a resolution on a failing banks without the
approval of creditors or shareholders
Explicit power for the establishment of a bridge bank
273. In addition, as recommended in the FSAP update, the legal framework requires
amendment to provide that appeal of enforcement and resolution actions taken by the BNR
should not stay those actions. The courts should be limited to a review of whether the BNR, and
after its establishment the deposit insurance agency, has acted in accordance with the law, with
no provision for the courts to substitute their judgment for the professional judgment of the BNR
with respect to solvency, viability and the cost of resolution options. In the event the BNR is
found in violation of the law, the appropriate remedy is an award of monetary damages. These
provisions are required to facilitate speedy resolutions in the interests of depositors and financial
stability, and to provide certainty when resolutions have been implemented.
274. The resolution powers under the Microfinance Act (Chapter VI) parallel those in the
LOB, and thus require similar revision.
275. Cross-border resolution issues are of particular importance because of the prominence of
subsidiaries of foreign banks in the Rwandan banking sector. The recent work of the Financial
Stability Board and Basel Committee on resolution regimes has emphasized the importance of
effective domestic resolution frameworks as a precondition for effective cross-border resolution.
Thus, it is important that the Rwandan regime contain all the elements recommended by the
Financial Stability Board, and that the BNR liaise with home country supervisors to ensure
appropriate arrangements are in place for coordination and information sharing in a crisis as a
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supplement to the exchange of information required for ongoing consolidated supervision . The
BNR will also advocate within the EAC that the other members countries review their own
resolution regimes to ensure they fully meet the Financial Stability Board criteria.
c. Safety Net—Liquidity Facilities
276. As part of crisis preparedness the BNR will pre-position a new Exceptional Liquidity
Facility (ELF). This facility will not be available to banks in the normal course, but could be
made available to a solvent bank as part of the response to a crisis. Since the ELF would be used
when a solvent bank had exhausted its eligible collateral for the NBR’s normal facilities, the
security for the ELF would be the bank’s loan portfolio, subject to a significant haircut to ensure
adequate protection for the BNR. The ELF will bear a penal interest rate reflecting that it would
only be used in extraordinary circumstances.
277. Prerequisites for an ELF advance will be a loan agreement specifying terms and
conditions, security agreement assigning the loan portfolio to the BNR, and a legal opinion
satisfactory to the BNR that the security agreement would be enforceable. The BNR will “pre-
position” itself and the banks for a crisis by preparing the documentation in advance, and having
“shelf” agreements with each bank ready for execution should they be required. The Financial
Stability Directorate as the supervisory authority would play a key role in the authorization
process by providing an opinion on the solvency of the institution, as the ELF, like other BNR
facilities, would only be available to solvent banks.
d. Safety Net—Deposit Insurance
278. Chapter V of the LOB provides for the establishment of a Depositors’ Guarantee Fund.
Draft legislation has been prepared which would establish the deposit protection fund within the
BNR. LMO (Chapter III) provides for the establishment of a stabilization fund mandated to
provide financial assistance to protect the interests of depositors, and government does intend to
extend deposit insurance to microfinance institutions. Deposit insurance for microfinance
institutions will be introduced concurrently with the introduction for banks. The deposit
insurance regime will support minimally disruptive least cost resolutions through the express
legal power to participate in purchase and assumption type transactions in addition to making
payments to depositors of banks in liquidation.
ii. Building Supervisory Capacity
279. The BNR has an ongoing need for several types of training. First, introductory
supervision courses are required for bank and non-bank supervisors. The BNR has in the past
made use of regional courses offered through the East African Regional Technical Assistance
Centre (East AFRITAC) and generic bank supervision courses offered by a number of providers.
These are useful, but especially when progressing towards intermediate skill levels would be
more useful if specifically tailored to the Rwanda legal and regulatory framework and
supervisory processes.
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280. The BNR will develop a core training curriculum. This will be supplemented by self-
study modules using the FSI-Connect program offered by the Financial Stability Institute. There
is also a need for intermediate level training on specific supervisory skills such as financial
analysis, credit analysis and risk management, liquidity risk concepts and management, and
various aspects of market risk including interest rate risk and foreign exchange risk. There is a
similar need for intermediate and advanced training in insurance and pension supervision topics.
281. The is also a need for targeted specialized training. One specific area identified by the
BNR relates to anti-money laundering and countering the financing of terrorism (AML/CFT),
where it will be necessary to train inspectors in the use of the on-site inspection procedures to be
developed. Other specialized training will be linked to revisions to the Risk Management
Guidelines. Financial Stability Directorate staff will require training to ensure they are fully
aware of the revised legal framework, which could take the form of one to two day workshops
for supervisors on each of the key elements of the Risk Management Guidelines. These programs
linked specifically to the Rwandan prudential framework will be supplemented by self-study
course on the related technical issues through FSI-Connect..
Policy actions—building supervisory capacity
Develop core training curriculum for BNR supervision staff
o Introductory supervision course
o FSI Connect self-study modules
o Intermediate and advanced courses tailored to the RBS framework
o Intermediate and advanced course in insurance and pension supervision
o Intermediate and advanced courses in MFI and SACCO supervision
Seek funding for continuing presence of one or more resident advisors
Targeted specialized training
o AML/CFT
o Training workshops on the revised risk-management guidelines
Use risk-based rather than size-based approach to supervisory planning
Examine higher risk banks on a 12 month cycle, lower risk less frequently
Implement a one-month internal schedule for on-site reports after completion of field work
Revise on-site manual to reflect planned changes in guidelines and regulations
Prepare new on-site module to guide AML/CFT review
Prepare new on-site module to guide review of operational risk, including IT
Review Off-site Surveillance Manual, RBS Framework and Draft On-Site Inspection Procedures
o Ensure consistency among manuals and alignment with actual practices
o Sequence so that revised manual reflect expected changes to law and regulations
e. Implementing the Risk-Based Supervision Framework
282. The RBS Framework is well suited to use in allocating supervisory resources by
determining the appropriate supervisory cycle and most relevant tools of supervision. By
2013/14, the BNR will move towards full implementation of its framework by replacing the
current size-based approach to determining the supervisory cycle with a risk-based approach.
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Tools of supervision will routinely include targeted examinations and meeting with banks’
internal auditors as useful supplements to full-scope inspections. Effective from 2013/14, each
higher risk bank will be examined at least once each year in accordance with the RBS
Framework, with lower risk banks examined less frequently.
283. The BNR’s internal processes for completion and approval of on-site examination reports
will be enhanced. The BNR will implement a one-month internal schedule from the date of
completion of the field work for an examination for review and completion of the on-site report
to ensure than banks receive it on a timely basis.
284. The BNR will undertake a thorough review project to ensure that supervision policies
and procedures are fully documented, and reflect all of the expected revisions to the law,
regulations and guidelines. For efficiency, the revision of the manuals will be undertaken once
the revisions to the law, regulations and guidelines are well advanced so that the manuals would
fully reflect the new framework.
285. BNR supervisory activities are currently guided by the 2006 Off-Site Surveillance
Manual, the 2007 RBS Framework, and the 2010 Draft On-Site Inspection Procedures. These
documents are not wholly consistent and do not align in all cases with the BNR’s actual practice
of supervision.
286. On-site inspection procedures require review and revision. This requires incorporating
into a revised On-Site Manual the planned changes to capital adequacy requirements,
provisioning standards and risk management guidelines as well as introducing specific modules
with the on-site procedures for review of AML/CFT implementation, and operational risk
including information technology.
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III. IMPLEMENTING, MONITORING AND EVALUATING FSDP II
287. FSDP II will be implemented using the same approach that helped catalyze completion of
over 90 percent of the actions in FSDP I. The FSDS in MINECOFIN will monitor progress
against the actions and timelines provided in the appendix, providing quarterly updates to the
stakeholders with responsibility for implementation. Quarterly meetings to review progress will
be chaired by MINECOFIN at least through end-June 2014.
288. Given the front-end loading of many of the policy actions for FSDP II—many are high
priority and sequenced for completion by 2014—end-June 2014 marks a logical point for a mid-
program stock-take of implementation. At that time, the need to adjust timing or otherwise revise
the actions will be reviewed, and a decision made at that time on the modalities for monitoring
through end-2017. As with FSDP I, evaluation will be based on the successful completion of the
action plans.
289. The matrix of actions included in the appendix contains both time frames and responsible
entities. The balance of this chapter is a summary of the programs and sub-programs, including
identification of those requiring external resources for effective implementation, responsible
entities and timing. This chapter focuses on the observable outputs expected from the completion
of the matrix of actions. It may be possible to achieve the outputs through different actions than
contemplated in the matrix of policy actions. As part of the monitoring process, the responsible
stakeholder and FSDS will consider whether new or revised actions need to be introduced to
achieve the desired outcome.
290. The expected outputs will contribute to the reaching the financial sector targets
established in Vision 2020 and the 7YGP, and in turn contributed to achieving the boarder set of
goals and objectives for the country. The summary in this chapter provides a foundation for the
preparation of the results chain, log framework and determination of budget implications which
will be needed for EDPRS II, but are beyond the scope of FSDP II.
78
Program 1: Action Plan for Financial Inclusion
Sub-program Outputs Completion Date External Resources Responsible agencies
Define and monitor
financial inclusion
1. Umurenge mapping includes all semi-formal VSLA
programs that report VSAL MLS data to MINALOC
2. Financial inclusion monitored with data by male,
female, youth to extent possible, including active
depositors and borrowers, participants in registered
semi-formal, cell phone participants, insurance
participants
1. June 2013
2. June 2014
Not required
Not required
BNR
MINECOFIN
National financial
education and literacy
strategy
1. Baseline financial capability study complete
2. National financial education policy and strategy
completed
3. Roadmap in place to achieve specific objectives over 5
years.
4. Institute of Entrepreneurship, Cooperatives and
Microfinance established
1. June 2013
2. June 2014
3. June 2014
4. June 2015
Technical assistance
Technical assistance
Technical assistance
Technical assistance
AFR
MINECOFIN
Mobile money transfers 1. Harmonized domestic and international transfer limits
2. Individual and corporate subscriber accounts
introduced
3. Increasing number of agents and super-agents
4. Reporting by MMT service providers includes
classification of transactions by size
1. June 2014
2. June 2014
3. Ongoing
4. June 2013
Not required BNR, MNOs
MMT Consumer
protection
1. MMT services in legally separate entity
2. Segregation of trust/escrow accounts from other MNO
assets
3. Remove prohibition on interest payments on escrow
accounts
1. June 2013
2. June 2014
3. June 2013
Not required BNR
79
Sub-program Outputs Completion Date External Resources Responsible agencies
Licensing 1. New or extended licensing category for e-money
deposits
2. E-money deposit takers hold balances in trust accounts
at licensed banks, prohibited from offering credit
products
3. MMT service providers split large escrow account
across banks
4. KYC requirements for individual e-money accounts are
national ID and photo
5. KYC requirements for business e-money accounts are
normal banking requirements
6. Cap imposed on value of balances held in individual e-
money accounts
1. June 2014
2. June 2014
3. June 2014
4. June 2014
5. June 2014
6. June 2014
Not required BNR
Mobile and agent
banking
1. Agency Banking Regulations issued
2. Mobile and agent banking statistics published
3. Agency banking and mobile e-money regulations
harmonized
1. June 2013
2. June 2013
3. June 2013
Not required BNR
Micro-insurance 1. Micro-insurance diagnostic completed
1. June 2014
Technical assistance
for diagnostic study
BNR, AFR
Strengthen the
Umurenge SACCO
program—phase 1
1. Technical steering committee established.
2. Substantial technical secretariat in place to support
technical steering committee, coordinating and
implementing technical assistance for SACCOs and
MFIs
3. Financially sustainable District SACCOs established in
every district
4. Standardized hardware, accounting, reporting, IT and
MIS in use in all District SACCOs and their branches
5. RCA cooperative policies and procedures issued to
SACCOs on non-financial issues
6. Work-out unit established to deal with weak SACCOs
and MFIs
7. CGAP management tool in use in all District SACCOs
and their Umurenge branches
1. December 2012
2. June 2013
3. December 2014
4. June 2015
5. June 2013
6. December 2013
7. December 2014
Donor support for
technical committee
secretariat
Technical assistance
Technical assistance
Possible technical
assistance
Technical assistance
Technical assistance
MINECOFIN,/BNR
MINECOFIN/BNR
BNR/RCA
Steering Committee
RCA
MNECOFIN/BNR
Steering Committee
80
Sub-program Outputs Completion Date External Resources Responsible agencies
Umurenge SACCOs—
phase 2
1. National structure and implementation plan developed
after study overseen by technical committee and
stakeholder input.
2. National structure operational, providing services to
District SACCOs
1. June 2016
2. June 2017
Technical assistance
required
Technical assistance
required
MINECOFIN/BNR
RCA
MINECOFIN/BNR
RCA
Strengthen Supervisory
and Regulatory
Environment for
SACCOs and MFIs
1. SACCO/MFI supervision units established at the
provincial level, district supervisors phased out.
2. External audits of all District SACCOs, older SACCOs
and MFIs completed by BNR approved auditors
3. SACCOs and MFIs reporting to the CRB, and using
CRB reports in credit adjudication
1. June 2015
2. June 2014
3. June 2015
Not required
External auditors
Assistance with MIS
system
BNR
BNR
BNR
Strengthen other entities
and programs to support
access to finance
1. AMIR strategic plan revised to recognize staffing and
funding constraints and implemented.
1. June 2013 Not required AMIR
81
Program 2: Developing Institutions, Markets and the Supporting Infrastructure
Sub-program Outputs Completion Date External Resources Responsible agencies
Insurance 1. Rwanda specific mortality (life) tables prepared
2. Annuity products introduced in Rwanda
3. BNR capable of supervising annuity risks
4. Corporate income tax not applied to life insurance
profit attributable to policy-holders
5. Publish insurance industry data
6. CoP or equivalent requirement for insurance
intermediaries and company staff
7. Local educational institution delivering professional
courses for CoP or equivalent
1. December 2015
2. December 2014
3. December 2014
4. June 2015
5. June 2013
6. June 2017
7. December 2014
Actuarial consulting
services, FIRST or
other donor funding
if possible
Not required
Technical assistance
Not required
Not required
Not required
Collaboration with
foreign institute,
possible technical
and/or funding
assistance for
delivery
BNR, RSSB, ASSAR,
MINECOFIN
Insurance companies,
ASSAR
BNR
BNR, RRA
BNR
BNR
BNR, SFB
82
Sub-program Outputs Completion Date External Resources Responsible agencies
Pensions—RSSB 1. RSSB has operational independence and
accountability, evidenced by ability to retain suitably
skilled staff and consulting expertise and
benchmarking administrative cost performance
2. Virtual holding company concept implemented with
separate accounts for pensions, medical, and allocation
of overhead
3. Risk management committee and staff in place, with
regular risk reporting to the Board
4. Approval limits in place at trader, manager, CEO and
Board level
5. Separate investment policies established for pension
and medical funds
6. Foreign securities exposure limits, foreign currency
exposure limits and limits on unlisted securities in
place
7. Actuarial studies for pension and medical plans
complete
8. Management regularly receiving analytical MIS reports
9. Rolling cash management plans in place
10. Liquidity bucket gap analysis completed on regular
basis
1. June 2103
2. June 2013
3. June 2103
4. June 2013
5. June 2013
6. June 2013
7. June 2103
8. June 2103
9. June 2013
10. June 2013
Not required
Possible need for
technical assistance
Not required
Not required
Technical assistance
Not required
Actuarial technical
assistance
Technical assistance
Technical assistance
Technical assistance
MINECOFIN, RSSB
RSSB
RSSB
RSSB
RSSB
RSSB
RSSB
RSSB
RSSB
RSSB
Pensions—Private 1. Pension law provides appropriate legal foundation for
private pensions
2. Licensing, prudential and supervisory regime for
private pensions in place after legislation enacted
3. Public sector pension plans registered under the new
law
1. June 2013
2. June 2013
3. June 2013
Possible need for re-
drafting assistance
Technical assistance
Not required
BNR, MINECOFIN
BNR
Ministries, parastatals
Payment System--Retail 1. Interoperability among ATMs, POS and MMT systems
2. Value cap in place on cheque and EFT transactions
1. June 2013
2. June 2013
Not required
Not required
BNR, banks, MMOs
BNR
83
Sub-program Outputs Completion Date External Resources Responsible agencies
Capital Markets 1. Guidelines in place for shelf registration of commercial
paper and MTNs, and exemption of private placements
from public issuance requirements
2. BNR securities depository and other EAC depositories
connected
3. Investor compensation fund established
1. June 2013
2. December 2014
3.
4. June 2013
Not required
Possible need for
technical assistance
Possible need for
technical assistance
CMA
BNR, RSE
CMA, industry
Stock Exchange 1. Member licensing criteria disseminated
2. Public awareness campaign on investing in securities
complete
3. Business information exchange for venture capital,
SMEs and investors established
4. “Second tier” listing requirements published to attract
smaller firms
5. Five year plan for RSE financial sustainability
completed
1. June 2013
2. June 2014
3. June 2014
4. June 2013
5. June 2014
Not required
Possible need for
technical assistance
Possible need for
technical assistance
Not required
Possible need for
technical assistance
RSE
RSE
RSE, CMA, MINICOM
CMA, RSE
RSE
Bond Market
Development—building
the yield curve
1. 3, 5 and 7 year government bonds issued on a regular
and ongoing schedule
1. June 2013
Not required
BNR, MINECOFIN
Bond Market
Development—
developing the investor
base
1. Ongoing “road show” presentations to promote
Rwandan market
2. Electronic bond delivery and custody within the EAC
1. June 2014
2. June 2014
Possible technical
assistance required
Technical
assistance, EAC
coordination
MINECOFIN, BNR
BNR
Bond Market
Development—Private
Issuance
1. Legal underpinnings for securitization in place—Trust
Law and provisions for SPVs
1. June 2013 Possible technical
assistance
CMA, BNR
Payment System—
RIPPS
1. Operational manual for CSD completed 1. December 2013 Possible technical
assistance
BNR
Payment System—
Vision and Strategy
1. National Payment System Framework and Strategy
updated
1. June 2104 Possible technical
assistance
BNR
84
Sub-program Outputs Completion Date External Resources Responsible agencies
Credit Reporting 1. Single format implemented for reporting to CRB and
BNR
2. Banks, MFIs including SACCOs and insurance
companies complying with requirements to submit
credit data and credit enquiries
3. Old ID and new ID system databases linked
1. June 2013
2. Ongoing
3. June 2013
Not required
Not required
Not required
BNR, CRB
Financial institutions,
MFIs, BNR, CRB
BNR
Creditor Rights and
Insolvency
1. Land and mortgage registries synchronized
2. Tax regime does not penalize debt restructuring
3. Law permits informal workouts to be formalized into a
restructuring plan and expedited
4. Composition of creditors’ committees restriction to
only creditors
1. June 2013
2. June 2014
3. June 2014
4. June 2014
Not required
Possible technical
assistance
Possible technical
assistance
Possible technical
assistance
BRD, Land Registry
BRD, RRA
BRD
BRD
85
Program 3: Investment and Savings to Transform the Economy
Sub-program Outputs Completion Date External Resources Responsible agencies
SME and Agricultural
Finance
1. BDF Guarantee scheme restructured to be regulated as
a financial institution.
2. Export guarantee facility available to small borrowers.
3. Guarantee facility established for coffee/tea production
with extended grace periods.
4. Agricultural/SME finance study focusing on the
demand side completed.
5. RDB collateral registration fees waived for loans under
RWF 10 million.
6. Warehouse Receipts Act and regulations enacted
7. Index-based crop yield insurance tracking system in
place.
8. Training programs delivered for bank officers in
providing agricultural credit.
1. June 2014
2. June 2014
3. June 2105
4. June 2015
5. June 2013
6. June 2017
7. June 2016
8. June 2105
Possible need for
technical assistance
Technical assistance
Technical assistance
Technical assistance
Not required
Technical assistance
Technical assistance
Technical assistance
BDF
BDF
BDF
MINECOM/RDB
RDB
MINAGRI/MOJ
MINAGRI
RBA
Housing Finance 1. Electronic land registration process complete.
2. Cell based real estate value reference system
operational.
3. Mortgage law amended to remove requirement for
independent valuation for loans under RWF 10 million
4. Pilot RSSB tender for 5 deposits completed.
5. Tax advantaged housing savings scheme deposits
rolled out.
6. BRD housing finance strategy focusing on mid-income
housing complete.
7. Training programs delivered for bank officers in
providing housing financing.
8. National strategy for affordable housing completed.
1. June2013
2. June 2017
3. June 2015
4. June 2014
5. June 2013
6. June 2013
7. June 2015
8. June 2014
Not required
Technical assistance
Not required
Not required
Not required
Technical assistance
Technical assistance
Technical assistance
RDB
RDB
RDB/MOJ
RSSB
RRA
BRD
RBA
RHA
86
Program 4: Protecting Consumers and Maintaining Financial Stability
Sub-program Outputs Completion Date External Resources Responsible agencies
Consumer protection 1. Financial sector unit established in the Office of the
Ombudsman.
1. June 2013 Possible secondment
of BNR staff
Ombudsman
Updating the regulatory
framework—banking
2. LOB amendments reflecting all specific FSDP II
actions ready for submission to parliament
3. New and revised regulations ready for gazetting
following enacting of LOB amendments
4. Bank prudential standards aligned with EAC agreed
convergence
5. New and revised bank reports and formats in place
6. Revised bank chart of accounts reflect IFRS and new
reporting formats
7. National Bank of Rwanda law revised to implement
FSAP recommendations.
2. June 2013
3. June 2014
4. June 2014
5. June 2015
6. June 2105
7. December 2014
Drafting and
technical assistance
Drafting and
technical assistance
Drafting and
technical assistance
Technical assistance
Technical assistance
Possible technical
assistance
BNR, MINECOFIN
BNR
BNR
BNR
BNR
BNR
Updating the regulatory
framework—insurance
1. Life and non-life business separated
2. Public insurers subject to prudential regime with the
exception of requirement for a license
3. Appropriately different regulations for life and non-life
insurers in place, including capital, solvency and
investment guidelines
1. June 2013
2. December 2014
3. June 2014
Not required
Not required
Technical assistance
BNR
BNR
BNR
87
Sub-program Outputs Completion Date External Resources Responsible agencies
Contingency planning 1. High level coordinating committee established and
operating pursuant to TOR and MOUs with
participating institutions
2. Generic contingency plan in place to address financial
instability
3. Generic contingency plan in place to deal with a failing
financial institution
4. Resolution framework in place clarifying that the
financial institution laws take precedence over the
general insolvency law, and providing full powers to
quickly impose resolutions to protect depositors and
financial stability
5. New deposit insurance law is fully consistent with
provisions of the LOB and LMO
1. June 2014
2. June 2015
3. June 2015
4. June 2014
5. June 2014
Possible technical
assistance
Technical assistance
Technical assistance
Technical assistance
Technical assistance
BNR, MINECOFIN,
CMA
BNR, MINECOFIN,
CMA
BNR
BNR, MINECOFIN,
MINECOM
BNR
Building Supervisory
Capacity
1. Core training curriculum developed and being
delivered to BNR supervision staff
2. RBS Framework and all supervision manuals and
procedures revised for consistency and full alignment
with laws, regulations and BNR policies
1. June 2013
2. June 2014
3. June 2015
Not required
Technical assistance
Technical assistance
BNR
BNR
BNR
A- 1
APPENDIX: PRIORITY POLICY ACTIONS MATRIX
Program 1: Action Plan for Financial Inclusion
No. Priority
(L, M, H) Description of policy action 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 Responsibility
Define and Monitor Financial Inclusion Objective
1. H Refine definition of financial inclusion to separately identify a
semi-formal VSLA supply-side category
X BNR
2. H Provide BNR with copy of quarterly data provided to districts by
VSLA programs
X MINALOC/
VSLAs
3. H Broaden Umurenge financial mapping to include all semi-
formal VSLA programs that report VSALMIS data to district
MINALOC
X BNR
4. H Require all BNR licensed financial institutions to submit data
needed to monitor financial inclusion as part of their regular
reporting
X BNR
5. H Monitor financial inclusion roughly by district by collecting and
recording number of active depositors and borrowers at BNR
licensed and VSLA qualified institutions, divided into male,
female and youth, as well as value of combined financial
institution deposits,, loans, small enterprise and agricultural
loans, and number of financial deposit transactions
X MINECOFIN
6. H Utilize future household surveys to examine quality of financial
inclusion and guide 2015 FinScope on deeper inclusion quality
aspects and demand side program evaluaton
X AFR
7. H Encourage establishing a donor-funded small central unit to
provide support for and monitor at least the 4 big programs when
donors leave
X MINECOFIN
AFR
8. H Utilize technical assistance to provide support for strengthening
district Access to Finance Committees
X MINICOM
MINECOFIN
9. M Utilize financial inclusion reports, their discussion in Access to
Finance Forums, and Umurenge SACCO performance contracts
to create incentives for broadening financial inclusion
X MINECOFIN
MINICOM
A- 2
Create and Implement a National Financial Education and Literacy Strategy
10. M Finalize national financial capability baseline survey and use its
segmentation findings to identify key priority targets and needs
X AFR
11. H Develop a national financial education policy and strategy based
on the financial literacy and education study
MINECOFIN
12. H Create a plan for implementing the strategy and monitor
implementation for improving financial literacy at the district
and Umurenge level
X MINECOFIN
13. H Develop clear objectives, priorities and stakeholder roles and
key messages targeted at different consumer segments
X MINECOFIN
14. M Establish a roadmap to achieve specific objectives over the next
5 years in relation to identified national needs, gaps and
priorities
X MINECOFIN
15. H Consider the following, modified appropriately when the
baseline study is completed.
X MINECOFIN
16. H Establish a financial literacy unit/function in MINECOFIN
and create a task force of most involved institutions to work
with it
X MINECOFIN
17. H Provide institutional task force members with specific tasks
and targets to implement
X MINECOFIN
18. H Coordinate and implement a national district-focused
financial and educational literacy program
X MINECOFIN
19. H Centralize preparation of financial literacy substantive
content focused on at least two levels of assumed knowledge
X MINECOFIN/AF
R
20. H Focus phase one training on existing financial institution
clients who are immediately able to utilize new
understanding for actual transactions
X MINECOFIN
21. H Utilize existing VSLA program trainers/content that have
already trained about 330,000 to continue to train all new
participants in these programs
X MINICOFIN/
VSL
22. M Utilize existing Access to Finance Forum district committees
and RCA membership training to deliver literacy strategy
programs
X MINECOFIN/
MINICOM
23. L Study Vision Umurenge Program (VUP) program for
lessons to be learned
X STEERCOM
24. H Ensure that effectiveness of financial education programs is
evaluated and redesign as necessary
X MINECOFIN
25. H Create an Institute of Entrepreneurship, Cooperatives and
Microfinance
X MINICOM
A- 3
26. H Utilize donor-financed consultants to design a structure,
curriculum, modus operandi and financial plan for this institute
X MINICOM
No. Priority
(L, M, H) Description of policy action 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 Responsibility
Mobile money transfers (MMT)
27. M Harmonise transaction limits for domestic transfers with those
for international transfers
X BNR
28. H Introduce “individual” and “corporate” categories of MMT
subscriber accounts, with different due diligence requirements
and value caps on transactions and balances
X BNR
29. M Increase the number of MMT agents and super-agents X X X X X X MNOs
30. M BNR to ensure that operators implement interoperability
requirements, including introducing the ability to transfer funds
to accounts on other service providers’ networks and to bank
accounts
X BNR, MNOs
31. M Extend the reporting framework for MMT service providers to
include: number of subscribers, agents (direct, sub- and super-);
number of transactions classified by size bands, value of
transactions classified by size bands, total value of e-money in
issues, value of trust balances at individual banks, user complaint
logs and resolution.
X BNR
Consumer Protection
32. H Introduce a Law on Trusts to enable proper segregation of
trust/escrow accounts from other Mobile Network Operator
(MNO) assets
X BNR
33. M Amend Law on Payment Systems if necessary to segregate MMT
escrow accounts from general bank deposit liabilities (as with
RIPPS balances).
X BNR
34. M Require MMT service providers to split escrow accounts across
banks once they reach a certain size
X BNR
35. M Remove the prohibition on interest payments on escrow accounts
for MMT services
X BNR
Licensing
36. H Introduce new licensing category or extend MMT license to
specifically enable e-money deposit taking for transactions and
savings purposes
X BNR
A- 4
No. Priority
(L, M, H) Description of policy action 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 Responsibility
37. H Make the e-money deposit license available to MNOs and certain
other non-banks
X BNR
38. H Require all e-money deposit takers to hold balances in a trust
account at a licensed bank, and prohibit them from offering credit
products
X BNR
39. H Permit the payment of interest on e-money deposits X BNR 40. H Allow individual e-money deposit accounts to be opened on the
basis of minimal KYC requirements (national ID card and
photo), by agents
X BNR
41. H Allow business e-money deposit accounts to be opened on the
basis of normal bank KYC requirements
X BNR
42. H Impose a cap on the value of balances that can be held in
individual e-money deposit accounts
X BNR
Mobile and agent banking
43. H Formalise Agency Banking Guidelines as Regulations X BNR
44. H Encourage banks to roll out mobile and agent banking networks,
and monitor closely
X BNR
45. M Develop appropriate data reporting template, and publish
statistics in BNR publications and on website
X BNR
No. Priority
(L, M, H) Description of policy action 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 Responsibility
Micro-insurance
46. M Consider regulatory reforms to create a “second tier”
suitable for micro-insurance providers.
X BNR, AFR
47. M Review the results of the MicroEnsure and Syngenta
pilot studies for livestock and crop insurance, and
consider regulatory reforms that could improve
product viability while retaining sufficient consumer
protection.
X BNR
MINAGRI
AFR
Strengthening the Umurenge SACCO Program—Phase One
Consolidate and strengthen governance of district SACCOs
48. H Establish district level SACCOs in every district by
end 2013
X BNR/RCA
A- 5
No. Priority
(L, M, H) Description of policy action 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 Responsibility
49. H Convert those Umurenge SACCO members who
meet requirements and wish to do so into District
SACCO members
X RCA/BNR
50. H Conduct a nation-wide public relations and
marketing campaign to promulgate the benefits of
District SACCO share membership
X RCA/BNR/
MINECOFIN
51. H Establish method for exchanging Umurenge SACCO
shares for district shares consistent with
amalgamation
X RCA/BNR
52. H Convert Umurenge SACCOs amalgamated with the
District SACCOs into branches
X BNR/RCA
53. H Make District SACCO a legal entity with
accountability and control over Umurenge branches
that have some local-level decision making power
X MINECOFIN/BNR/RCA
54. H Eliminate separate legal status of Umurenge
branches but retain Umurenge boards as "advisory
boards")
X RCA/BNR
55. M Allow reasonably healthy older SACCOs and
licensed unions choice if they wish to become
district SACCO members on same basis as
Umurenge SACCOs
X BNR/RCA
56. H Rate all Umurenge SACCOs to determine those that
are sufficiently sound and only allow them to qualify
for consolidation at district level
X BNR
57. H Convert unsustainable Umurenge SACCOs into
point of service agencies or "outlets" if there are
other financial institutions in the Umurenge
X BNR
58. M Require de facto bankrupt older SACCOs to be
wound up or, if carefully structured and agreed,
merged with a nearby sound SACCO or MFI if one
exists
X BNR
59. M Ensure that net asset value of weak merged SACCOs
equals 15 percent of assets (with subsidies if needed)
to avoid de-capitalizing the combined SACCO
X BNR
60. L Consider allowing other cooperatives to invest in
District SACCOs to increase capital but ensure that
Umurenge SACCO members own at least 60 percent
X RCA/BNR
A- 6
No. Priority
(L, M, H) Description of policy action 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 Responsibility
61. H Allow only district members to make deposits and
borrow and make first loan to any one borrower
small
X RCA
62. H Allow free entry and exit of district cooperative
members
X RCA
63. H Manage Umurenge branches as profit centers on a
relatively decentralized basis to retain
cooperative/grassroots culture and sustainability
incentives
X BNR
64. H Maintain some local Umurenge decision-making
subject to capability , NPLs, sustainability and
performance-based limits
X STEERCOM
65. H Require standard procedure manuals, rules, and
credit and risk management policies for all SACCOs
and Umurenge branches
X BNR
66. H Establish standardized hardware, accounting and
reporting systems and fully harmonized IT and MIS
at District SACCOs and Umurenge branches
X STEERCOM
67. M Use simple computerized "accounting system" at
branch level that requires computer but not much
accounting skill
STEERCOM
68. M Use same MIS system and harmonized manual
accounting in branches that do not have electricity or
internet communications access
X STEERCOM
69. M Ensure that MIS systems include capability to
participate fully in the credit information system and
provide usage data to monitor financial inclusion
X STEERCOM
70. M Require all districts to prepare an annual budget
which becomes the first year of a 3 year business
plan
X X STEERCOM
71. H Prepare district SACCO "legal" financial statements
monthly and include individual branch level
financial statements in harmonized formats
X STEERCOM
72. M Issue standard RCA cooperative policies and
regulations for all SACCOS which do not cover
financial issues or conflict with BNR regulations
X RCA
73. H Establish district level SACCOs in every district by
end 2013
BNR/RCA
A- 7
No. Priority
(L, M, H) Description of policy action 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 Responsibility
Establish an effective interface between district SACCOs and Umurenge branches to maintain control and preserve cooperative culture
74. H Recruit highly qualified consultants to prepare
district organization, staffing, standard policies &
procedures, & interface with Umurenges
X MINECOFIN/BNR
75. H Work within an overall interface which gives
district primary accountability and responsibility
but allows scope for limited branch decision-
making
X STEERCOM
76. H Prepare custom-tailored business strategies and
plans for District SACCOs using similarly
formatted Umurenge branch business plans as
input
X STEERCOM
77. H Prepare standard policies and procedures manual
and internal controls at district level which
include those that Umurenge branches must
follow
X STEERCOM
78. H Require Umurenge level branches to provide
monthly reports directly to the district for
analyzing and onward submission
X STEERCOM
79. H Produce pro forma balance sheets and income
statements at branch level that focus in particular
on deposits, profit, sustainability and NPLs
X STEERCOM
80. L Account for interbranch interest income at
branches for money transferred to district to
reduce incentives to maximize branch lending
X STEERCOM
81. H Create/redo management contracts between
District and Umurenge managers and emphasize
number of depositors, sustainability and NPLs
X STEERCOM
82. H Design compensation policy that pays managers
sufficiently well to recruit and retain capable
staff
X STEERCOM
83. H Reward District and Umurenge branch managers
for improvements in number of depositors, low
NPLs and meeting financial performance targets
X STEERCOM
Create District SACCO Headquarters and Umurenge Branch Strategies to improve sustainability
84. H Same consultants should, inter alia, consider the
following ideas:
X STEERCOM
A- 8
No. Priority
(L, M, H) Description of policy action 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 Responsibility
85. H Assist Umurenge branches to prepare
standardized format business plans
X STEERCOM
86. M Design strategies to create noninterest income at
both District and Umurenge level
X STEERCOM
87. H Maximize interest income associated with
liquidity ratio requirements at both District and
Umurenge with savings accounts and short-term
deposits
X STEERCOM
88. H Pay deposit rates that allow investing in
commercial bank savings or term deposits at an
adequate positive spread
X STEERCOM
89. H Require market-based interest rate minimums for
all loans on which SACCO takes credit risk
X STEERCOM
90. M Utilize district collection committee and ensure
NPL reports are run daily and collection efforts
begin on loans one day overdue
X STEERCOM
91. M Enforce a policy of not lending again to a
defaulter deemed as willing for at least 5 years
X RCA
92. M Distribute Ubudehe credit and other gov't
program loans without credit risk to the SACCO
for a fee based on collection performance
X MINECOFIN
93. H Charge market-based interest on VUP/other
gov't programs loan portions to avoid market
distortions and eroding branch commercial
image and culture
X BNR
94. H Measure management performance primarily on
the basis of profit, NPLs, and increase in number
of depositors
X STEERCOM
95. L Consider replacing managers who perform in
lowest quintile of Umurenge branch performance
for more than 12 months
X STEERCOM
96. L Provide promotion opportunity incentives for
branch managers who remain in top performing
quintile for considerable periods of time
X STEERCOM
97. M Consider adopting CGAP credit and/or BPR
credit scoring tool for credit decision-making
X STEERCOM
98. M Create custom-tailored loan products and try
them out on a pilot basis
X STEERCOM
A- 9
No. Priority
(L, M, H) Description of policy action 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 Responsibility
99. H Adopt some bank lending product ideas targeted
at similar clientele where appropriate
X STEERCOM
100. L Assist members with credit needs larger than
District SACCO credit exposure limits to
graduate to the banking system
X STEERCOM
101. H Design low administrative cost structures and
MIS system that actively compares actual
against annual budget
X STEERCOM
102. H Act as non-bank agencies, in POS roles, and as
Western Union and cash transfer sub-agents
when opportunities are available
X STEERCOM
103. M Act as platforms for cellphone banking and
develop mobile banking products where feasible
X STEERCOM
104. L Consider using commercial bank wireless
network and services where useful
X STEERCOM
Establish an Overall System and Strategy for Overseeing and Coordinating SACCO Support and Capacity Building
105. H Create a technical steering committee under the
HLSC to coordinate capacity building support for
SACCOs and MFIs for 3 to 5 years
X MINECOFIN
106. H Appoint fairly high level MINECOFIN, BNR,
AMIR, and RCA officials to the committee
X MINECOFIN
107. H Retain a firm (UNCDF financed?) for at least 3 years
to act as secretariat to the committee and assist in
designing and implementing approved programs
X MINECOFIN/BNR
108. M Add a small highly qualified firm-supported small
person work-out unit for troubled saccos and MFIs
also reporting to steering committee
X MINECOFIN/BNR
109. H Prepare an overall capacity building strategy
establishing priorities, identifying programs, and
designing a coordinated implementation program
X STEERCOM
110. H Create a one year and a three year overall capacity
building strategy and plan and seek donor support for
it
X STEERCOM
111. M Monitor and maintain record of support delivered by
entity and officer level individuals within entities
X STEERCOM
112. H Train SACCO boards and staff in the areas identified
in the training needs assessment
X STEERCOM
A- 10
No. Priority
(L, M, H) Description of policy action 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 Responsibility
113. L Interface with commercial bank linkage programs to
ensure they are fully harmonized, and incorporate in
the capacity building tracking analysis
X STEERCOM
114. H Implement agreement between BNR and RCA
defining their respective scopes for supervision and
support
X BNR/RCA
115. M Review RCA Umurenge SACCO strategy and its
implementation in coordination with steering
committee program
X MINICOM/RCA
116. M Resolve conflicts, if any, between BNR and RCA
cooperative policies and regulations at the technical
steering committee
X HSLC
117. L Utilize AMIR's 24 trainer/coaches in support of
steering committee program
X STEERCOM
118. L Catalyze district and local government coordination,
but cautiously, with and support for, SACCOs and
MFIs
X MINALOC/STEERCOM
119. M Resolve conflicts, if any, between BNR and RCA
cooperative policies and regulations at the technical
steering committee
X HSLC
120. H Cease all Umurenge SACCO branch level subsidies
as of December 2013
X MINECOFIN
121. M Cease all District SACCO subsidies as of December
2014
X MINECOFIN
122. M Do not subsidize portions of losses caused by
provisions associated with NPLs of over 10 percent
X MINECOFIN
123. H Continue to provide grant money for capacity
building, technical assistance, computers,
supervision, etc.
X X X X MINECOFIN
Implement the Overall SACCO/MFI Capacity Building Support Strategy Effectively
124. H Place highest priority on capacity building for District
SACCOs and customize some training addressing
their somewhat unique roles
X STEERCOM
125. H Give priority in support services to SACCOs and
MFIs which are the largest and those with greatest
risk
X STEERCOM
A- 11
No. Priority
(L, M, H) Description of policy action 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 Responsibility
126. H Continue capacity building for TCU district-based
SACCO inspectors especially in risk management
and financial analysis during first phase
X STEERCOM/BNR
127. H Provide capacity building for RCA inspectors who
work with financial SACCOs on issues for which
they are responsible
X STEERCOM/RCA
128. H Put a primary initial focus on establishing uniform
computers, accounting systems and reporting at
Umurenge level
X STEERCOM
129. M Adopt CGAP management tool for all SACCOs and
Umurenge branches and assist in training and
implementing
X STEERCOM
130. H Create and train congruent with standard credit
policies and a credit decision-making tool
X STEERCOM
131. M Use pilot concept extensively to test new ideas,
products and tools before system-wide adoption
X STEERCOM
Phase Two-Umurenge SACCOs
Link all Financially Sound district SACCOs at National Level as Phase Two
132. H Conduct study of best structure, ownership and
interface option for national cooperative entity inter
alia including commercial bank, federation, etc.
X MINECOFIN/
BNR/RCA
133. H In phase 2, establish a national cooperative structure
in most appropriate form to link district SACCOs
X MINECOFIN/
BNR/RCA
134. H License and supervise the national structure in a
manner appropriate to the type of structure
established
X BNR
135. M Begin study, conducted with stakeholder
participation, after all District SACCOs have been
established and have audited financial statements for
one year
X MINECOFIN/
BNR/RCA
136. M Finish study roughly one year before planned
implementation to allow active stakeholder
participation in discussions and their training
X MINECOFIN/
BNR/RCA
137. H Implement phase 2 when most District SACCOs
have proved to be reasonably sound
X MINECOFIN/
BNR/RCA
138. L Allow other cooperatives to invest but ensure that
credit cooperatives (SACCOs) maintain at least 60
percent control
X
A- 12
No. Priority
(L, M, H) Description of policy action 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 Responsibility
139. L Explore an option under which national cooperative
structure conducts only wholesale lending and does
not compete with district SACCOs
X BNR
140. M Defer MFI/SACCO deposit insurance until national
unifying structure has been implemented
X BNR
Strengthen Supervisory and Regulatory Environment for SACCOs and MFIs
Reorganize BNR Supervision Department to Effectively Supervise SACCOs/MFIs at all Levels
141. H Retain 2 BNR supervisors at each district throughout
phase one or until subsidy runs out, then change to 3
supervisors at each province
X BNR
142. H Organize SACCO/MFI supervision units at the
provincial level when District SACCO formation has
been completed
X BNR
143. M Directly monitor Umurenge branches in the bottom
two quintiles in coordination with District SACCOs
on a management by exception basis until subsidy
stops
X BNR
144. H Strengthen small off-site supervision team In Kigali
to utilize District SACCO and MFI reports as guide
to substantive supervision
X BNR
145. M Supervise the largest independent unions, SACCOs
and MFIs from Kigali or the district (during phase
one) as most practical
X BNR
146. H Supervise all District SACCOs intensively with
particular focus on monitoring those with largest
value of assets and those that are weakest
X BNR
147. M Place a consultant in the MFI/SACCO Supervision
Department to help establishing the off-site
supervision and training staff to use it
X BNR
148. M Prepare monthly peer group analysis using a few key
indicators and rate District and Umurenge SACCOs
in quintiles
X BNR
149. M Define the weakest per the risk-based schedule in
BNR's onsite supervision manual and two lowest
quintiles identified by off-site analysis
X BNR
150. M During phase one, provide a government subsidy to
BNR to cover 50 percent of BNR incremental
supervision cost
X MINECOFIN
A- 13
No. Priority
(L, M, H) Description of policy action 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 Responsibility
151. M Inspection fees, will not be levied during phase one,
should be the same for SACCOs and MFIs, based 75
percent on assets and 25 percent on NPLs
X BNR
Strengthen Regulatory and Supervisory Requirements for SACCOs and MFIs
152. M Review legal and regulatory requirements and
modify, in line with recommendations in July 2012
and other studies
X BNR
153. M Continue to impose existing SACCO and MFI
regulations for all SACCOs and MFIs but modified
for transitional situations, e.g., absence of District
SACCOs
X BNR
154. M Move toward harmonizing MFI and SACCO
reporting formats so BNR off-site unit can
consolidate, compare, and analyze data more
consistently
X BNR/AMIR
155. M Review the MFI/SACCO categorization system as to
feasibility of amending the law to reduce the number
or eliminate the categories
X BNR
156. H Require that only SACCOs which are legal entities
send an appropriately designed quarterly report to
RCA on those issues it supervises
X RCA
157. H Require external audits of District and older
SACCOs/MFIs by auditors approved by BNR
X BNR
158. H Require all SACCOs and MFIs to report all loans to
credit bureau as soon as MIS systems make this
feasible
X BNR
159. M Require all SACCOs and MFIs to use credit reports
for loans in line with LMO or CRB requirements
X BNR
160. M Ensure that all gov't funds channeled through
SACCOs and on-lent be separately identified and not
included for capital and liquidity compliance review
X BNR
161. H Impose specific rules on Umurenge SACCOs &
branches until District SACCOs are formed and
uniform policies and procedures are determined:
X BNR
Strengthen Other Entities and Programs to Better Support Access to Finance
Strengthen AMIR, Its Capacity and Programs
A- 14
No. Priority
(L, M, H) Description of policy action 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 Responsibility
162. H Revise the existing 2009 AMIR Strategic Plan to
define a more narrowly focused strategy recognizing
staffing and funding constraints
X AMIR/MINECOFIN
163. H Continue to emphasize AMIR's role in advocacy and
co-ordination and research and development while
deemphasizing direct capacity building
X AMIR
164. M Provide some government funding for AMIR, if
needed, after new strategy and financial plan are
agreed and approved
X MINECOFIN
165. L Look to EAC or other associations for twinning
support
X AMIR
166. H Consider the following in the AMIR review of the
strategy study
X MINECOFIN
167. M Focus AMIR more on being a conduit for
information on the industry, publishing, and
lobbying for members' interests
X AMIR
168. M Strengthen AMIR capacity in communications
and marketing
X DONORS
169. M Design a more highly focused research and
development program based on members'
highest priority needs
X AMIR
170. M Develop AMIR MIS system for tracking and
benchmarking MFI/SACCO industry data
X AMIR
171. L Conduct a program for capacity building for
AMIR's own staff
X AMIR
172. L Coordinate with EAC Microfinance Network to
further harmonize enabling environment and
improve coordination
X AMIR
173. M Reduce or eliminate AMIR role direct role in
implementing capacity building but facilitate
members in raising funds for such purposes
X AMIR/DONORS
174. M Facilitate MFI capacity building and financing
(challenge fund) for individual MFIs with donor
financing through steering committee
X DONORS
175. M Continue to publish AMIR industry benchmark
report on MFIs and SACCOs at least once every
two years
X X X AMIR
A- 15
No. Priority
(L, M, H) Description of policy action 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 Responsibility
176. L Explore expanding AMIR "Fact Sheet" for all MFI
reporting without changing BNR reporting
requirement
X AMIR
177. L Continue national award program for best MFI and
best SACCO and organize an annual Rwanda Day of
Microfinance workshop
X X X X X X AMIR
Program 2: Developing Institutions, Markets and the Supporting Infrastructure
No. Priority
(L, M, H) Description of policy action 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 Responsibility
Capacity Building
178. M Require certificate of proficiency for insurance professionals X BNR
179. M Provide five years for industry incumbents to obtain certificate X BNR
180. M ASSAR to adopt professional program based on UK CII X ASSAR, BNR
181. M ASSAR to partner with local institutions to deliver curriculum X ASSAR
182. M RBA to affiliate with UK CBI or other recognized institute X RBA, BNR
183. M RBA to partner with local institutions to deliver curriculum X RBA
184. M Explore possibility of SITI partnering with Rwandan educational
institutions for course delivery X CMA, SITI
Insurance
185. H Approach FIRST Initiative to funding the preparation of
Rwanda-specific life (mortality) tables
X BNR, MINECOFIN
186. H Alternatively, agree to split the cost three ways, between the
BNR, the RSSB and the insurance industry (through the
Insurance Association).
X BNR, RSSB, ASSAR
187. H Commission actuarial consultants to prepare Rwanda-specific
life (mortality) tables.
X X X BNR, RSSB, ASSAR
188. H Introduce annuity products to meet the requirements of private
pension plans
X X X X X Insurance co’s,
ASSAR
189. H Government to undertake bond issuance programme for capital
market development purposes.
X X X X X X MINECOFIN
A- 16
No. Priority
(L, M, H) Description of policy action 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 Responsibility
190. H BNR to develop capacity to supervise annuity risks (or annuity
risk management by the life companies).
X BNR
191. M Introduce a special taxation regime for life insurance companies
that reflects the specific nature of the business, to avoid an
inappropriate calculation of profit and unintended additional
taxation of savers.
X BNR, RRA
192. M Compile consolidated data on each of the two major insurance
sub-sectors (short-term and long-term). This should cover key
balance sheet information, income/expense data and key
compliance ratios (solvency etc.).
X BNR
193. M Publish insurance industry data in the BNR Annual Report and
Quarterly Bulletin, and on the BNR website
X BNR
194. M Announce the intention to introduce the CoP (or similar)
requirement for insurance intermediaries and insurance company
staff
X BNR
195. M Introduce the CoP (or similar) requirement X BNR
196. M Encourage a local institution to provide relevant courses leading
to CoP qualification, in collaboration with a foreign certifying
institution
X X BNR, SFB
197. M Develop a programme to train Rwandan actuaries X X X X X X MINEDUC, ASSAR,
Insurance co’s
No. Priority
(L, M, H) Description of policy action 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 Responsibility
Pensions
RSSB
198. H Allow Board of Directors to redefine RSSB’s organizational
structure
X MINECOFIN, BNR
199. H Formally define roles of the Board and management X RSSB, MINECOFIN
200. H Undertake compensation study relative to private sector X RSSB
201. H Pay market salaries for senior and skilled positions. X RSSB 202. H Establish special tendering process for key areas such as
professional services
X RSSB
203. M Create virtual holding company with consolidated statements X RSSB
A- 17
No. Priority
(L, M, H) Description of policy action 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 Responsibility
204. M Establish pension and medical insurance plans as separate client
accounts of the RSSB.
X RSSB
205. H Establish separate investment policies for pension and medical
plans
X RSSB
206. M Define a pension and medical responsibility center and allocate
headquarters overhead
X RSSB
207. M Measure and benchmark costs of administration X X X RSSB 208. H Perform actuarial studies for the pension and medical plans X RSSB 209. H Implement regular independent real estate valuations X RSSB 210. M Prepare analytical financial statements for management X RSSB 211. H Recruit high quality professional investment managers, actuaries,
and a risk manager
X RSSB
212. H Define rate of return benchmarks for each portfolio where
appropriate indexes exist
X RSSB
213. M Contract out a diversified foreign portfolio to external managers X RSSB 214. Define foreign securities exposure limits within the EAC and
globally
X RSSB
215. M Define limits for investment in unlisted securities X RSSB 216. M Establish reverse repo procedures with counterparties X X RSSB 217. M Require a professional study of commercial financial feasibility
for large real estate projects before approval
X X X X X X RSSB
218. H Create risk management committee and staff at headquarters X RSSB 219. M Establish regular risk reporting to the Board X RSSB 220. H Create approval limits at trader, manager, CEO, and Board level X RSSB 221. M Review investment policies for the pension and medical plans to
ensure appropriate risk/return exposures
X RSSB
222. M Define foreign exchange risk limits X RSSB 223. H Design and implement cash management plans X RSSB 224. M Prepare liquidity bucket gap analyses X RSSB 225. H Settle arrears from government X RSSB 226. M Review the legal ownership and registration of securities and
investments
X RSSB
Private Pensions
227. H Enact pension law following required revisions and clarification X BNR, MINECOFIN
228. Establish licensing, prudential and supervisory regime for private
pensions X BNR
229. Public sector entities provide catalyst by registering pension
plans under the new law
X Ministries, Parastatals
A- 18
No. Priority
(L, M, H)
Description of policy action 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 Responsibility
Capital Markets
230. H Complete the legal framework and regulation consistent with
IOSCO principles
X CMA
231. M Disseminate guidelines for shelf registration of commercial
paper and medium term note programs
X CMA
232. M Draft and issue guidelines for exemption of private placements
from public issuance requirements
X CMA
233. H Proceed with connectivity between the BNR securities
depository and other EAC depositories
X X BNR, RSE
234. H Support IT automation in capital markets and promote the
development of business contingency plans for market
intermediaries
X X X X X X CMA, RSE
235. H Coordinate establishment of an investor compensation fund X CMA, industry
236. M Compile list of approved credit rating agencies X CMA
Stock Exchange
237. M Disseminate member licensing criteria for potential new
members
X RSE
238. H Proceed to list new initial public offerings of Rwandan firms
X MINECOFIN, CMA,
RDB, RSE
239. H Undertake and continue public awareness campaigns on the
procedures, rewards, and risks of investment in securities
X CMA, RSE
240. H Build market supervision skills through training and staff
interchange with other more mature exchanges
X X RSE
241. M Disseminate RSE price and trade volume data on website X X X X X X RSE
242. M Develop a business information exchange for venture capital,
SME's, and investors, with access to financial and legal
resources.
X X RSE, CMA,
MINICOM
243. M When a deal pipeline has been established, engage the business
exchange participants above to constitute a venture capital fund
as a CIS.
X X RSE, MINICOM
244. H Complete and publish “second tier” listing requirements to
attract smaller firms
X CMA, RSE
245. H Develop a 5 year plan for financial sustainability and financial
independence for the RSE
X X RSE
A- 19
No. Priority
(L, M, H)
Description of policy action 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 Responsibility
246. M Examine alternatives for the future of the RSE in the context of
East African capital markets integration
X X X X X X CMA, RSE
Bond Market Development—Building the Yield Curve
247. H Develop modest 3, 5 and 7 year regular bond issuance program
with MINECOFIN, consistent with fiscal needs
X X X X X X BNR, MINECOFIN
248. Introduce longer tenor government bonds as market develops X X X MINECOFIN
249. H List bonds on RSE X X X X X X MINECOFIN
250. H Publish indicative quarterly bond auction dates for the coming
year, for the 3 and 5 year auctions
X X X X X X BNR, MINECOFIN
251. M Reopen outstanding bonds where possible to promote liquidity X X X BNR
252. H Prepare proposal to designate a Rwanda Dealer group in
government securities (bills and bonds), discuss with the industry
X BNR
253. H Seek agreement on privileges and obligations for the dealer
group: auction performance, market making, market reporting
and intelligence
X X BNR
254. M Develop performance indicators for dealer group X X BNR
255. M Based on market making and trading prices, publish daily
government yield curve
X X X X X BNR
256. M Form a bond pricing unit which will calculate and publish
closing bond prices, for use in fund and portfolio market
valuation
X X X X X BNR
257. M Look for opportunities to transform non-marketable debt into
marketable debt (RSSB non marketable bonds, BNR assets,
development bonds)
X MINECOFIN
258. H Allow automated auction platform access to the best performing
non-bank dealers
X
Developing the Bond Market--Broadening Investor Base
259. H Consider elimination of withholding tax on RSE listed bonds X MINECOFIN, RRA
260. M Prepare investor presentation, plan industry visits with
MINECOFIN (Kigali, Nairobi, Kampala, other centres)
X X X X X MINECOFIN. BNR
261. H Resolve technical issues to facilitate RWF electronic bond
delivery and custody in EAC (and eventually wider)
X X BNR
262. M Promote quotation on Bloomberg, Reuters, and other trading
platforms.
X BNR
263. M Assess market and technical details (sales and settlement) for a
diaspora bond issue
X X BNR
264. H For dealer group, make bill and bond sales to non-banks a
performance criterion
X BNR
265. H Continue informal daily market consultation and formal periodic
dealer exchanges with BNR on market conditions and auction
X X X X X X BNR
A- 20
No. Priority
(L, M, H)
Description of policy action 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 Responsibility
recommendations
266. M Explore development of a retail targeted savings bond program
with MINECOFIN
X X MINECOFIN, BNR
267. M Reserve a modest proportion of auction amount ("over-
allotment") for primary dealer retail distribution after auction
date at non-competitive rate
X BNR
Bond Market Development—Promote Private Issuance
268. M Educate issuers on bond, equity issues and securitization X CMA, BNR, RSE
269. M Complete legal framework for securitization in Rwanda (trust
law, SPV) and review tax treatment
X CMA, BNR
270. M Explore potential domestic financing component for medium
sized PPP projects
X RDB, CMA
271. M Educate and canvas investors to confirm interest in new issues X BNR, RSE
No. Priority
(L, M, H) Description of policy action 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 Responsibility
Payment System
Retail payments
272. H Ensure that interoperability is established between retail payment
channels, especially ATMs, POS machines and mobile money
transfers
X BNR, banks, MMOs
273. H Introduce a value cap on cheque and EFT transactions X BNR
274. L Encourage the public to move away from cheques in favour of
electronic payments
X X X X X X BNR, banks
275. L Allow the banks to price in a way that discourages cheque use –
as long as pricing is transparent
X X X X X X BNR, banks
276. M Encourage MMT service providers to develop cross-border
payments, subject to proper identification of risk and risk
mitigation procedures.
BNR
RIPPS
277. H Monitor intraday RTGS liquidity and participant behaviour X X X X X X BNR
278. M Segregate settlement and reserve accounts or introduce a daily
minimum
X BNR
279. L Monitor demand for non-RWF facilities in the RTGS and be
prepared to introduce if justified
X BNR
A- 21
No. Priority
(L, M, H) Description of policy action 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 Responsibility
280. L Consider appropriate means of providing SACCOs/MFIs with
access to the electronic payment platform, including appropriate
settlement arrangements
X BNR
CSD
281. M Develop an operations manual for the CSD laying out rules and
regulations for participants
X CSD (BNR)
282. M Encourage the provision of custodial services for international
investors
X CMA
Payments Vision and Strategy
283. M Update the 2008 NPS Framework and Strategy X NPC, BNR
Regional Integration
284. M Complete the integration of the RTGS with other EAC RTGSs X BNR
285. L Link the EAC CSDs X BNR
Data/reporting
286. M Improve the reporting of data on payments in the Annual Report,
Quarterly Bulletin and BNR website
X BNR
No. Priority
(L, M, H) Description of policy action 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 Responsibility
Credit Reporting
287. M Unify formats for reporting credit information to CRB and BNR,
and require a single report to be submitted to the two institutions
X BNR, CRB
288. M Monitor submission of credit data by banks and ensure
compliance
X X X BNR, CRB, banks
289. M Monitor compliance by banks in submitting credit enquiries X X X BNR, CRB, banks
290. M Expedite linking of old ID and new ID system databases X ???
291. M Work towards compliance by all SACCOs and MFIs in reporting
credit data, once the necessary MIS is in place
X X BNR, CRB, ??
292. M Monitor submission of data by insurance companies to ensure
compliance
X X BNR, CRB, ASSAR
293. L Improve voluntary participation in credit reporting X X BNR, CRB, MNOs,
utility companies,
major stores
A- 22
No. Priority
(L, M, H) Description of policy action 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 Responsibility
294. L Consider use of BNR credit registry data for supervisory
purposes
X X BNR
No. Priority
(L, M, H) Description of policy action 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 Responsibility
Creditors’ Rights and Insolvency
295. H Synchronize the computerized land and mortgage registries X RDB, Land Registry
296. M Encourage use of the movables registry through rules that
prevent asset stripping
X RDB
297. H Introduce a stay for secured creditors’ actions that would allow
for a more orderly liquidation or for a reorganization of the
business as a going concern
X X RDB
298. H Reform tax regime to avoid penalizing debt restructuring X X RDB, RRA
299. H
Reform insolvency law so that informal workouts can be
formalized into a restructuring plan and expedited.
X X RDB
300. M Restrict the composition of creditors’ committees to include
only creditors
X RDB
301. M Consider a reduction or elimination of fees for registration of
small security claims (MFI’s, etc.)
X RDB
Program 3: Investment and Savings to Transform the Economy
No. Priority
(L, M, H) Description of policy action 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 Responsibility
Commercial Bank Lending in Priority Areas
302. L Allow RDB arbitration conducted electronically on appropriate
small loans
X MONECOM
303. M Enact new Leasing Law X MINECOFIN
A- 23
No. Priority
(L, M, H) Description of policy action 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 Responsibility
304. L Consider adding loan category reporting for SMEs and housing to
already established BNR review of its regulatory and reporting
requirements
X
305. H Strengthen BDF guarantee scheme by restructuring it in the form
of a separate corporation, increasing capital, modifying
ownership and changing accounting:
X BDF
306. H Broaden and strengthen BDF guarantee program as follows: X BDF
307. H Spin off a separate legal entity from BDF to handle
guarantees to be managed by BDF for a fee under contract
X BRD
BDF
308. H Create sound capital structure, reduce BRD ownership to a
minority position and subject new guarantee entity to BNR
supervision
X BRD
BDF
309. H Accrue provisions expense on outstanding guarantees, write
off losses, and prepare a 3 year financial plan
X BDF
310. H Broaden guarantees to cover housing finance, export finance
and term loans for coffee and tea production
X BDF
311. M Increase BDF guarantees to 75 percent for the highest
priority facilities, if feasible
X BDF
312. M Clarify BNR treatment of guarantees in enforcement of its
provisioning requirements
X BNR
SME and Agricultural Finance
313. H Conduct a hybrid agricultural/SME finance survey parallel to the
FinScope study
X AFR
314. M Link guarantee scheme with potential borrowers trained under
MINICOM sponsored training and technical assistance programs
including Hanga Umurino
X MINICOM/BDF
315. M Design and implement an export guarantee facility to support
small borrowers who do not have access to bank LCs and
financing
X MINICOM/BDF
316. M Waive registration fee for collateral on low value loans under
RWF 10 million
X RDB
317. L Revise and expand the BRD small and micro-enterprise
development fund
X BRD
318. M Stipulate the definition of SME lending and define housing
lending to exclude housing lending to exclude mortgages used to
invest in business
X BNR
319. H Allow RDB arbitration conducted electronically on appropriate
loans to avoid commercial court system
X RDB/MOJ
A- 24
No. Priority
(L, M, H) Description of policy action 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 Responsibility
320. H Amend Law on Intermediation if necessary to enable RDB to
handle these cases
X MINICOM/RDB
321. M Build on established MINICOM Hanga Umurino program and
other technical assistance to improve SME management and
creditworthiness
X MINICOM
322. L Facilitate commercial bank lending programs for financing new
coffee production including BDF guarantees
X MINICOM
323. L Enact Warehouse Receipts Act and regulations to facilitate
implementation if financially feasible
X MINAGRI/MOJ
324. L Develop index-based crop yield insurance tracking system to
facilitate eventual rural crop insurance
X MINAGRI
325. L Provide specialized training for bank officers in providing credit
to agriculture
X MINAGRI
326. M Conduct Rural and Agricultural Services Cost Study X AFR
327. L Consider adding loan category reporting for SMEs and housing to
already established BNR review of its regulatory and reporting
requirements
X BNR
Housing Finance
328. H Improve the enabling environment in support of housing finance: X
329. M Create electronic UPI based system to connect land and
mortgage registration systems
X RDB
330. M Use this connected system to record the value of land
transactions and an index of land prices
X NLC
331. M Using a new Law on Valuation to set standards based on
international practice and improve the monitoring of licensed
valuers
X RDB
332. L Finalize a cell based real estate value reference system based
on transactions and factors like access
X RDB
333. M Amend Mortgage Law so independent valuation not needed
for commercial bank loans of under RWF 10 million if
parties agree
X RDB/MOJ
334. H Establish a BDF guarantee scheme for affordable housing
loans
X BDF
335. L Study commercial banking system and RSSB commercial
real estate risk exposure
X BNR
336. H Mobilize more long-term funding suitable for mortgages X COM Banks/RSSB
A- 25
No. Priority
(L, M, H) Description of policy action 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 Responsibility
337. H Conduct a pilot RSSB tender for a modestly sized 5 year
deposit to inter alia ascertain suitable market-based interest,
terms and conditions
X RSSB/COM Banks
338. H Incentivize RSSB to seek three to five year term deposits in
banking system at higher interest rates (or variable)
X COM Banks/RSSB
339. M Implement gov't decision to allow banks to establish tax-
advantaged long term housing savings schemes
X REV AUTH
340. L Link tax-advantaged housing savings scheme deposits
directly to planned affordable housing projects coming on-
stream
X RHA/COM Banks
341. M Prepare a BRD housing finance strategy which inter alia
focuses on mid-income housing
X BRD
342. L Securitize BRD housing loan portfolio for private placement
with recourse (BRD keeps credit risk & collection
responsibility)
X BRD
343. L Attempt to bring in an international investor with
developmental objectives to reduce government share in
BRD to 40 percent
X BRD
344. H Increase the amount of commercial lending for housing with
a focus on affordable housing
X BRD
345. L Provide training for financial institution loan officers and
treasurers on housing finance lending
X BA
346. L Create loan products relevant for loans to housing
cooperative members utilizing peer group guarantees
X RHA/COM Banks
347. L Consider a developer financing scheme for affordable housing X RHA
348. M Focus future RSSB real estate investment, subject to good
standards and satisfactory ROI, on affordable housing projects
X RSSB
349. M Conduct housing microfinance study with a view to developing
an affordable housing finance project and a supporting fund
X AFR
350. H Create a national strategy for affordable housing which builds on
the EU housing market study focusing primarily on non-
commercial sources
X RHA
351. M Use FinScope 2012 ubudehe segment data to extend EU Kigali
market segment analysis to Rwanda’s urban and semi-urban areas
X RHA
352. L Consider Imposing a permit fee on high cost housing and Kigali
commercial real estate development to support affordable housing
X RHA/RDB
353. L Consider repackaging the former Bye Bye initiative for
mobilizing Diaspora support
X RHA
MINECOFIN
A- 26
Program 4: Protecting Consumers and Maintaining Financial Stability
No. Priority
(L, M, H) Description of policy action 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 Responsibility
354. H Establish financial sector unit in Office of the Ombudsman X Ombudsman
Updating the Regulatory Framework
Banking 355. H Prepare drafts of all required amendments to the LOB X BNR, MINECOFIN
356. H Consequential amendments from introduction of deposit
insurance
X BNR, MINECOFIN
357. H Revise Chapter VI to enhance resolution regime X BNR, MINECOFIN
358. H Technical amendments arising from experience and consultation X BNR, MINECOFIN
359. L Revision of the definition of deposit X BNR, MINECOFIN
360. H Consult with stakeholders and prepare final version for
Parliament
X BNR, MINECOFIN
361. H Review and revise regulations and guidelines when LOB
enacted
X BNR
362. H Revise Regulation 9 of 2009 on Capital Adequacy X BNR 363. H Align definitions of capital and requirements with Basel III X BNR 364. H Introduce a leverage limit X BNR 365. H Including collective allowance in supplementary (Tier 2) capital X BNR 366. H Capital charge for market risk, with suitable exemptions X BNR 367. H Adopting Basel II elements appropriate for Rwanda banks X BNR 368. H Capital charge for operational risk X BNR 369. H Banks required to have ICAAP X BNR 370. H Banks’ summary financial data available on their websites X BNR 371. L Introduce regulation on country and transfer risk X BNR 372. M Align bank prudential standards with EAC recommended
convergence
X BNR
373. M Limit on large exposures revised to 800 percent core capital X BNR 374. M Increase minimum Tier 1 capital adequacy ratio from 10 to 12
percent
X BNR
375. L Adopt Liquidity Coverage Ratio and Net Stable Funding Ratio X BNR 376. L Retain current liquidity ratio for transition period X X X BNR
A- 27
No. Priority
(L, M, H) Description of policy action 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 Responsibility
377. M Require banks to publish in newspapers financial statements
quarterly
X BNR
378. M Banks’ audited financial statements displayed in branches X BNR 379. M Banks’ audited statements submitted within 3 months of year-
end
X BNR
380. M Revise regulation No. 2 of 2011 to harmonize five loan
classifications
X BNR
381. H Require minimum 1 percent provision on “Pass” loans X BNR 382. H Require minimum 3 percent provision on “Special Mention”
loans
X BNR
383. M Phase in new provisioning requirement over four years from
2014
X X X X BNR
384. H Consult industry on revised reporting formats and requirements X X BNR 385. H Revise formats and requirements due to changes in LOB and
regulations, identify other new reports required
X
386. H Capital adequacy report X BNR 387. H Provisioning report X BNR 388. H Large exposures report X BNR 389. H Update bank chart of accounts to reflect IFRS, new reporting
formats
X X BNR
390. M Revise Article 16 of BNR Law regarding dismissal of the
Governor
X BNR, MINECOFIN
391. M Revise Article 69 of BNR Law to enhance confidentiality X BNR, MINECOFIN
392. M Revise Article 73 of BNR to remove liability for good faith
actions
X BNR, MINECOFIN
Insurance
393. H Complete the separation of life and non-life business of
insurance companies
X BNR
394. M Bring the public insurers within the statutory requirements of
regulation and supervision, other than the need to obtain a
license from the BNR
X BNR, MINECOFIN
395. H Refine the regulatory and supervisory framework for insurance
companies to draw up different sets of regulations for different
types of insurance (Short-term, long-term).
X BNR
396. H Amend reporting formats and risk-based supervision
accordingly.
X BNR
A- 28
No. Priority
(L, M, H) Description of policy action 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 Responsibility
397. M Introduce a variable element to solvency requirements for long-
term insurers that would relate the required solvency margin to
the size of the business.
X BNR
398. H Prepare separate investment guidelines for short-term and long-
term insurers and for different categories of products offered by
each, each which take their respective liquidity requirements and
the tenor of their liabilities, as well as exposure to risk into
account.
X BNR
399. M Agree on the proportion of their investment portfolios that
insurance companies are permitted to invest outside of Rwanda
X BNR, MINECOFIN
No. Priority
(L, M, H) Description of policy action 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 Responsibility
Contingency Planning
400. H Establish a senior Financial Sector Coordinating Committee
(FSCC)
X BNR, MINECOFIN,
CMA
401. H Prepare terms of reference for FSCC X BNR, MINECOFIN,
CMA
402. H Prepare MOU on role, responsibilities of participating
organizations
X BNR, MINECOFIN,
CMA
403. M Prepare generic contingency plan to address financial instability X FSCC
404. M Prepare generic contingency plans to take control of a weak
institution
X BNR
405. H Review the resolution framework for financial institutions X BNR
406. H Remove the provisions of Article 101 of Law Nº12/2009
making insolvency of financial institutions subject to that law
X BNR, MINECOFIN,
MINICOM
407. H As part of LOB amendment project, revise section 2 of chapter
V
X BNR
408. H Clarify that BNR may impose a resolution without a report from
a special commissioner
X BNR
409. H Power for BNR able to impose resolution without shareholder
or creditor consent
X BNR
410. H Explicit power to establish a bridge bank X BNR
A- 29
No. Priority
(L, M, H) Description of policy action 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 Responsibility
411. H Judicial appeal of enforcement and resolution actions not to stay
those actions
X BNR
412. M Revise Chapter VI of the Microfinance Act X BNR
413. M Clarify that BNR may impose a resolution without a report from
a special commissioner
X BNR
414. M Power for BNR able to impose resolution without creditor or
shareholder consent
X BNR
415. M Explicit power to establish a bridge bank X BNR
416. M Judicial appeal of enforcement and resolution actions not to stay
those actions
X BNR
417. H BNR to participate in supervisory colleges convened by the
CBK
X X X X X X BNR
418. M BNR to advocate that all EAC countries review resolution
regimes
X X X BNR
419. M Pre-position new Exceptional Liquidity Facility (ELF) X BNR
420. H Ensure consistency among revised LOB, LMO and new deposit
insurance law
X X BNR
Priority
(L, M, H) Description of policy action 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 Responsibility
Building supervisory capacity 421. M Develop core training curriculum for BNR supervision staff X BNR 422. M Introductory supervision course X BNR 423. M FSI Connect self-study modules X BNR 424. M Intermediate and advanced courses tailored to the RBS
framework
X BNR
425. M Intermediate and advanced courses in insurance, pension
supervision
X BNR
426. M Intermediate and advanced courses in MFI and SACCO
supervision
X BNR
427. H Targeted specialized training X BNR 428. H AML/CFT X BNR 429. H Training workshops on the revised risk-management regulations X BNR 430. H Use risk-based rather than size-based approach to supervisory
planning
X BNR
431. M Examine high risk banks on a 12 month cycle, lower risk less
frequently
X BNR
A- 30
Priority
(L, M, H) Description of policy action 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 Responsibility
432. M Implement one-month internal schedule for completion of on-
site reports after completion of field work
X BNR
433. H Review Off-site Surveillance Manual, RBS Framework and
Draft On-Site Inspection Procedures
X BNR
434. H Ensure consistency among manuals and alignment with
practices
X BNR
435. H Revised manuals to reflect changes in law and regulations X BNR 436. H Prepare new on-site module to guide AML/CFT review X BNR 437. H Prepare new on-site module for operational risk, including IT X BNR