Senators call for cheaper loans and better financial services | The new times
The senators called for strategies to ensure that Rwandans have access to affordable financial services, such as low-interest loans, to help them invest in income-generating activities to improve their lives and to restore economy.
They made the request on Tuesday, June 7, 2022 during a consultative meeting on the delivery of inclusive financial services, which was held in parliament.
Senator Juvenal Nkusi, Chairman of the Economic Development and Finance Committee, said that currently the interest rates charged by banks and other financial institutions are high and prohibitive.
Currently, the average interest rate on commercial bank loans in the country is 16%.
However, Nkusi said there are additional fees which actually increase the interest rate to 20%, calling for cheap loans and ease of process.
Worse still, he said, the Umurenge savings and credit cooperatives (SACCOs), closer to the people (currently present in all 416 sectors of the country), charge an even higher rate of interest on loans.
“This issue needs to be resolved,” Nkusi said.
Central Bank Governor John Rwangombwa told senators that all SACCOs charge up to 24% of their loans, but account for around Rwf177 billion or 39% of total financial sector assets.
About 3.5 million Rwandans are banked with SACCO, according to Rwangombwa.
“This means that SACCOs are the component of the financial sector that impacts the lives of Rwandans and their development,” he said, observing that their members should have a say in defining an interest. that is affordable to them.
Deeper financial inclusion
Nkusi praised the fact that 93% of the approximately 7 million adults – 16 years or older – in Rwanda were financially included (including formal and informal financial products/services), according to the FinScope Rwanda survey conducted in 2020.
However, he expressed concern that many young people in the country do not have access to financial services compared to other categories of the population.
The survey showed that young people in the 16-24 age group are financially excluded at 18%, which is significantly higher than the national average of 7% exclusion.
“Yet young people need capital to create their own jobs. How can this investment be obtained for them to start running businesses,” he wondered.
Rwangombwa said lending by financial institutions in Rwanda was equivalent to 28% of the country’s gross domestic product, which he said is still low compared to the sub-Saharan Africa average of 37%.
He said the fact that there is a weak savings culture in Rwanda means that financial institutions only get money from big companies, but at a high cost. It also forces banks to charge high interest rates to customers.
Noel Muhawenimana, managing director of Umutanguha Finance Company Plc, said that about 35% of loans from this financial institution were for financing agriculture.
But he said he was concerned about cash flow volatility, which is caused by an inadequate savings culture.
“To meet such a problem, we resort to borrowing money from foreign countries at a high cost of about 12 or 13% interest rate, and we give loans to the farmer at about 22%,” he said, indicating that the institution would charge less if it secured affordable funds.
He proposed that well-functioning microfinance institutions should be facilitated to access deposits by the Rwanda Social Security Board, which are relatively affordable.
“We also want to be able to access the deposits of the Rwanda Social Security Board, which is the biggest provider of this money,” he said.
Uzziel Ndagijimana, Minister of Finance and Economic Planning indicated that such a request for access by micro-finance institutions to RSSB deposits will be examined.
Other proposed solutions
Rwangombwa said that better financial services will be achieved through the implementation of different means such as strategies to increase the culture of long-term savings, because the money that banks lend to customers comes from the save people.
These include the EjoHeza long-term savings scheme and the Rwanda National Investment Trust (RNIT) [Iterambere Fund].
Also, in an effort to encourage savings, he said the government has put in place incentives for people who venture into long-term savings, whereby when saving in a bank for over a year [without withdrawing it]there is tax exemption on accrued interest, while for [the interest on] capital savings in the capital market are taxed at only 5 percent.