Rwanda News Agency/Agence Rwandaise d'Information (Kigali)
25 April 2008
Kigali — The World Bank is to inject an additional $6 million (Rwf 3.3 million) in support of the government reform program of the small and struggling financial sector, RNA reports.
The grant is to enable government deepen ongoing reform of the microfinance sector, aid development of auditing and accounting standards as well as strengthen regulation and supervision of Non Bank Financial Institutions (NBFI), a World Bank country Office statement said.
The new financing for the Financial Sector Development Program (FSDP) is part of the wider business environment reform plan - the Rwanda Competitiveness and Enterprise Development Project (CEDP).
The additional grant also builds on the achievements of the original International Development Association (IDA) credit of US$40.8 million (Rwf. 22.5 billion) which was approved in 2001 for major project.
The national pension fund and the National Social Security Fund or the Caisse Sociale du Rwanda (CSR) will also tap from the new grant that also targets adding more effort into the modernization of the payment system.
With the new activities supported by the grant, the World Bank said Non Bank Financial Institutions and Micro Finance Institutions are expected to be better supervised with the capacity of the microfinance industry strengthened.
In 2006, chaos rocked the micro finance sector resulting into the Central Bank decision to close 8 - citing mismanagement and big losses after they lent out to thousands of often none-credit-worthy clients.
The Central Bank also pointed to failure to meet minimal conditions for licensing, loss of customer confidence resulting in massive withdrawals of deposits and failure to attract any more new deposits.
The Bank - itself charged with supervision of the sector said there were then up to 150 such institutions - a good number of which were yet to even register.
Thousands of their mainly rural and low income depositors saw their savings melt away but some have since been repaid by Government. Since then, control and supervision has tightened - that most of those that exist today are growing considerably.
The Financial Sector Development Program was completed in 2007 and is an important part of the Government's recent long term development plan - the Economic Development and Poverty Reduction Strategy (EDPRS).
The new grant from the World Bank is to also aid government to fasten changes to its auditing and accounting methods to international standards. These are to be adopted and implemented by all financial institutions. The Automated Clearing House (ACH) and a Real Time Gross Settlement (RTGS) system are to be introduced.
The Auditor General Evelyn Kamagaju told Parliament in March that she had discovered at least Frw5.3 billion government moneys unaccounted for during the fiscal year 2006. Her report also showed that tenders valued at over Frw7.8 billion were sanctioned without proof.
"The additional financing grant is timely. It will support the implementation of the FSDP and, hence, contribute to strengthening the growing financial sector in Rwanda, said Amadou Dem, World Bank Task Team Leader for the Project.
The ongoing reforms are part of government's thirst to shift the investment rankings of the country for the longer term but a 12-member expert-team from the World Bank in January called for "immediate and focused short term reforms".
The International Finance Corporation team said the reforms are necessary to achieve greater improvement.
Rwanda has been shifting in almost similar positions in earlier reports lagging behind regional partners - though only better against Burundi - and of course DR Congo.
The team, brought in by government recommended the immediate establishment of a credit registry by the Central Bank.
A credit registry is a database of information on the credit history of all people and it is supposed to be publicly accessible to all financial institutions such that they know loan defaulters. This avoids situations where loan defaulters could get loans from different banks without the banks noticing.
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