Rwanda: Rwanda Finance Profile

Since the end of the civil war, Rwanda has made remarkable evolution in rebuilding its economy: peace and political stability have been reestablished and sound macroeconomic and structural policies implemented, backed by substantial donor assistance. As a result, the country has enjoyed strong increase, averaging 7 % for the completed seven years, with comfortable international reserves and substantially reduced external deficit levels.

The agricultural sector, which employs over 80 % of the people, has expanded in recent years. As of 2007, agriculture accounted for almost 40 % of GDP and forms the backbone of the export industry, together with minerals.

Despite evolution, challenges remain. Poverty is widespread, aid flows continue to account for over 20 % of national gain, and external deficit levels continue to be high.

The financial sector is small but growing. As of 2004, total financial sector assets stood at 35 % of GDP, with bank assets equivalent to 18 % of GDP – both figures indicating low levels of financial depth relative to the sub-Saharan average.

The government is extensively involved in the banking sector, even though majority shares in two of the country’s banks were sold in 2004. Credit remains limited to a small number of sectors, namely trade, tourism, property development, and manufacturing. Agriculture, by far the major sector of the economy, received only 2 % of bank credit as of 2004.

While financial supervision, oversight, and regulation are weak, the government has undertaken significant reforms and banks’ soundness and performance has considerably improved since 2005.

In May 2007, the government finalized the country’s Financial Sector Development Program (FSDP) to establish a comprehensive policy framework and a detailed action plan for developing the financial sector.

An over-the-counter deficit market was established in February 2008, but capital markets remain in their infancy.

The insurance industry is small, with only four companies active in the sector as of 2005. Premiums account for 0.4 % of GDP and total insurance assets for 1.7 %. The sector is de facto unsupervised; however, an insurance bill, establishing the legal and regulatory framework for insurance companies, was submitted to Parliament in July 2008.

The pension industry is limited to a public pay-as-you-go system, which provides mandatory coverage to public and private sector workers in the formal sector.

While access to financial services remains limited, ongoing reforms are rapidly improving Rwandans’ ability to participate in the financial sector: over 30 % of households have presently have a bank account.

Most microfinance institutions (MFIs) lack the capacity to finance themselves, develop new products, or expand their reach to rural clients. A microfinance bill was submitted to parliament in July 2008 to establish the legal and regulatory framework for MFIs.

Prior weaknesses in land ownership and registration, which were hampering the development of mortgage products, have been addressed, paving the way for a functioning housing finance framework.

Rwanda is a member of the East African Community (EAC), which as well includes Burundi, Kenya, Tanzania and Uganda. EAC nations established a common Customs Union in 2005 and are working towards a Common Market in 2010 and subsequently a Monetary Union by 2012.

Official remittance flows play a minor role in Rwanda’s economy. 2008 estimates indicate that annual remittances were roughly equivalent to 1 % of GDP.