Rwanda: Financial Sector Development Program II October, 2012 Prepared by: A. Michael Andrews, Keith Jefferis, Robert Hannah and Paul Murgatroyd 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. i 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 ii 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 iii 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 ..............................................................................