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Financial sector support to the private sector’s long-term plans. Outline:. The role of the financial sector in supporting private sector development Challenges of the Rwanda financial sector How they are being addressed What is the role of development partners?.
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Financial sector support to the private sector’s long-term plans
Outline: • The role of the financial sector in supporting private sector development • Challenges of the Rwanda financial sector • How they are being addressed • What is the role of development partners?
The role of the financial sector in private sector development • Domestic capital formation is fundamental to any country’s economic development and effective financial institutions are a prerequisite. • Financial sector promotes private sector development through these pillars: • Enhances savings mobilisation and efficient allocation of resources into productive investments hence increasing productivity
The role of Financial sector- contd • Facilitating trade, capital flows in form of FDI and remittances from abroad • Intermediating between savers and users of capital thus reducing transaction costs • Increased access to financial services reduce informal sector business transactions
Financial sector challenges in Rwanda • Very limited access to banking and other financial services outside Kigali and the provincial towns: • Commercial banks have a combined 38 branches only all located in towns • Insurance products are undiversified and its penetration is still very low • MFI’s which should play a significant role in filling the gap have been marred by a weak financial base, and inadequate management
Challenges in the Financial sector • Narrow, shallow, non-competitive financial sector- Financial depth measured by M2: GDP of 18.1% , credit to private sector: GDP of 10.9% are still low even by sub Saharan Africa levels • Poor saving culture • Lack of long-term resources for funding investments due to undeveloped debt and equity market • Inadequate capitalisation.
Challenges-contd • Undeveloped Payment system infrastructure • Weak legal and regulatory framework for the NBFI • Poor quality, and culture of auditing and accounting in most organisations. • Low level of human and institutional capacity
What is being done? • Rwanda government has developed a financial sector development plan (FSDP) whose vision is: • To develop a stable and sound financial sector that is sufficiently deep and broad, capable of mobilising and allocating resources to address the development needs of the economy and reduce poverty.
Specific objectives • Enhance access and affordability of banking and other financial services • Develop an efficient, competitive banking sector with a diversified array of financial instruments • Enhance savings mobilisation by introducing appropriate instruments, developing institutions and providing incentives for long-term savings • Facilitate development of long-term financing instruments and an efficient capital market
Specific objectives- contd • Develop appropriate policy, legal, regulatory and institutional framework for contractual saving Institutions • Develop sufficient institutional and human capacity to deal with the challenges of the sector
The scope of FSDP • Banking sector, specialised lenders and MFI • Contractual savings industry • Long-term finance and capital markets • Payment system infrastructure
Policy geared to increaseAccess to banking services: • Strengthen Banking and MFI sector through adequate capitalisation, improved regulation and Institutional capacity building through Bankers association and Umbrella MFI. • Establish deposit guarantee schemes for banks and MFIs • UBPR to operate like a de facto commercial bank while maintaining those aspects regarding cooperative principles
Access- contd • BHR to Issue mortgage backed bonds to raise long term capital • Banks including BHR to develop mortgage savings accounts • BHR to organise the property market sector, real estate evaluation • Banks to continue to develop leasing products
Access- contd • BRD to attract new equity shareholders as long as it maintains its mission • Continue to raise debt capital from external sources( AfDB,IFC,EIB) on long term to be able to on-lend locally • BRD will diversify its loan portfolio to minimise risk while investing in all targeted key economic sectors . • BRD to design bonds backed by good loans as a vehicle to raise more capital
Development of Long term Finance and capital markets • Develop Long term government bonds to build a yield curve by securitizing Govt Debt to CSR and reissue the existing stock of TBills on a longer term. • Create a sound and facilitating environment, legal, regulatory and operational guidelines for an OTC market and for issuance of corporate and municipal bonds • Establish a Capital Markets advisory council • Enact the company Act and Accountants bill
Long-term finance -contd • Facilitate creation of private pension funds and mutual trust funds by establishing a legal and regulatory framework and inbuilt tax incentives. • Increase penetration of CSR to include the self employed • Consolidate regulation of Contractual savings institution ( Insurance and Pension) into a department of BNR, specifically charged with that responsibility
Development of Payment system • Establish National payment council to develop and implement a national payment strategy. • legislation on use of electronic payment, once the payment infrastructure is fully operational. • Strengthen Simtel to accomplish its task of providing an electronic payment platform
The role of the development partners • Financial and technical support to the financial sector reform agenda including institutional capacity building. • Financial contribution to establishing the MFI deposit guarantee fund • Extend long term credit lines to Rwandan Financial Institutions for on-lending. • Provision of credit risk guarantee on corporate and municipal bonds, at least during the initial period. • Financial support towards public education in the area of finance and entrepreneurship.