Rwanda Saccos growth rate outstrips that of banks

Saturday August 10 2013

A Banque Populaire du Rwanda (BPR) banking hall. Commercial banks face increasing competition from Saccos. Photo/FILE

Rwanda’s microfinance institutions are giving commercial banks a run for their money.

New data released on Wednesday by the National Bank of Rwanda (BNR) — the central bank — shows that the growth of the country’s micro-finance sector outpaced that of the banking sector in the first six months of this year.

During this period, at least 80 per cent of the country’s savings and credit co-operative societies (Saccos) broke even.

Rwanda’s banking sector regulator last week said that the matching of income with the expenses of the Saccos, in each of the country’s administrative sectors (Umurenge), indicated that a higher number of the financial institutions, which are providing an alternative source of banking services, are becoming sustainable.

The central bank said that the assets and gross loans of the country’s microfinance sector grew by 20.89 per cent and 7.94 per cent respectively while assets and gross loans in the banking sector, which is much larger, grew by 10.7 per cent and 5.47 per cent respectively. The financial sector is expected to grow further in the second half, riding on falling inflation and higher uptake of loans.

READ: Micro-finance firms post record growth


“The outlook for Rwanda’s financial stability remains positive. As at the end of June, the financial system was still performing well and stable and resilient to different shocks as proven by stress testing results” said John Rwangombwa, the BNR governor in the latest monetary policy and financial stability statement released on Wednesday.

“It is expected that the Rwandan financial system will face some challenges due to the unfavourable global and regional economic outturn. Mindful of the potential risks to the financial stability, the BNR remains vigilant in its regular supervision of the financial system for any early warning signs and is committed to take proactive actions accordingly” said Mr Rwangombwa.

Assets of the microfinance sector, which consists of 12 limited companies, 416 Umurenge Saccos and 62 other Saccos, stood at Rwf122.1 billion ($189.9 million) as at the end of June compared with Rwf101 billion ($159.9 million) as at the end of December 2012.

Growth of loans

Loans granted by Umurenge Saccos grew by 17.9 per cent to Rwf16.4 billion ($25.5 million) from Rwf13.9 billion ($22 million) but the non-performing loan ratio deteriorated to 6.1 per cent in June from 5.3 per cent in December.

“The 334 Umurenge Saccos (80.2 per cent) reached the breakeven point in June compared with 304 in December 2012, which is a good step towards sustainability of the sector,” said the governor.

Data from the World Bank shows that only 33 per cent of Rwanda’s population who are above 15 years had an account in a formal financial institution in 2011, only eight per cent had a loan and only five per cent had a debit card, which are all indicators of low levels in financial inclusion.

The growth of the microfinance sector is expected to improve the penetration of banking services to the entire population.

BNR said that all banks, microfinance institutions, Saccos, insurance companies and 57 per cent of Umurenge Saccos had signed a memorandum of understanding with CRB Africa to improve the asset quality in the banking and microfinance sectors and will regularly provide data to the credit reference bureau.

“The remaining Umurenge Saccos will start sharing credit information by September,” said Mr Rwangombwa adding that in addition to mandatory participants, the financial institutions, voluntary participants such as utility companies and telecom companies like MTN and TIGO are sharing credit information regarding their clients.

BNR said that all Umurenge Saccos were fully licensed as at the end of June and that on-site inspections were conducted countrywide by inspectors from the regulator’s headquarters together with inspectors from the districts.

Microfinance institutions and Saccos have faced governance challenges leading to a number of them closing shop but enhanced oversight by regulators is changing the way they are run, leading to increased confidence in their stability.

ALSO READ: Plans afoot to merge Saccos into a bank

“With continued growth in the sector, the microfinance institutions and Saccos will be able to serve the market, which will ensure more economic growth,” said chief executive officer of the Rwanda Capital Markets Authority Robert Mathu.

The value of the microfinance sector assets however remained at a paltry 8.84 per cent of the value of the banking sector’s assets as at the end of June compared with 8.09 per cent as at the end of December 2012. 

Assets of the banking sector, which consists of nine commercial banks, three microfinance banks, one development bank and one co-operative bank were valued at Rwf1.38 trillion ($2.1 billion) as at the end of June this year compared with Rwf1.24 trillion ($1.9 billion) as at the end of December last year.

The growth of the microfinance sector is also coming at a time when the banking sector is leveraging on technology and bank agents to reach more consumers particularly in rural and far off areas where establishing a branch would be expensive.

“This product has improved the market penetration or banking outreach, supplementing the branch network growth,” said the regulator adding that four banks are offering banking agent services and that the number of agents increased to 1,161 at the end of June from 844 at the end of December last year.

Growth in the bank’s assets was mainly attributed to a marginal 5.47 per cent growth in loans, which rose to Rwf788.2 billion ($1.2 billion) as at the end of June from Rwf747.3 billion ($1.1 billion) as at the end of December 2012.

Bank executives said that the growth was a result of a reduction in interest rates, which saw commercial banks reduce their rates, making it more affordable for borrowers.

READ: Stiff competition as banks open doors, branches for Rwandans

“The move by central bank to reduce the lending rate for commercial banks from 7.5 to 7 per cent was a major indicator for the growth of the financial sector, which is why the economy has remained robust,” said chief operations officer of Bank of Kigali Lawson Naibo.

However, just like the non-performing ratio of the Umurenge Saccos, the ratio for the banking sector also deteriorated to 6.9 per cent by the end of June compared with 6.7 per cent and 5.8 per cent at the end of December and June 2012 respectively.

Total deposits in the sector rose by 11.46 per cent to Rwf940.7 billion ($1.4 billion) from Rwf844 billion ($1.3 billion) and the sector posted a net profit of Rwf14.0 billion ($21.7 million) at the end of June this year compared with Rwf12.9 billion ($20.4 million) at the end of June 2012.

By David Mugwe and Alex Ngarambe