30 November 2010

Rwanda: Zigama Advised Against Becoming a Commercial Bank

Members of Zigama-Credit and Savings Society (Zigama-CSS), were told by consultants that it was strategic to maintain the saving society as a cooperative to protect and achieve its mission of providing affordable services to members.

This was during Zigama-CSS's annual general assembly held at the Ministry of Defence headquarters and chaired by the Minister of Defence, Gen. James Kabarebe, and other top army and police officers.

"This is actually a strategic move to protect Zigama. If you become a commercial bank, you will be exposed to full regulation. You will be exposed to business practices that no longer can apply to you as a cooperative," said Wilson Kinyua, a consultant.

"For example, the aspects where you are able to provide members with interest rates that are below the market can no longer be possible. Even in your classification of loans, most commercial banks don't provide long term loans and yet your members require this kind of service," he added.

The MCA consultant observed that if transformed, Zigama CSS's cash ratio requirements to meet clearing operations would be much higher. He added that certain other benefits, including tax holidays, given to Zigama CSS's would cease if it became a commercial bank.

"As long as you remain a cooperative, which is specifically for the forces, that part [tax holidays] of the business can be protected."

Capt. Corneile Nkundimana, the Zigama CSS chief accountant, revealed that negotiations with BNR are progressing.

Zigama-CSS was initial set up as a special vehicle of the Ministry of Defence to meet the welfare needs of its employees.

However, while it was established as a cooperative, it is regulated as a microfinance business by the central bank (BNR).

It controls more than 50 percent of the assets and liabilities and nearly all the profits in the microfinance sector. Due to its relative size and success, it tends to distort the actual financial situation prevailing in the microfinance sector and consequently, there has been pressure from BNR for it to convert into a commercial bank so that it can be regulated under the banking act.

Concerned members agree that there is a strong case for retaining Zigama CSS in its present form in order to prevent a "mission drift" and hope that BNR will accept the logic of retaining it as a cooperative while meeting adequate regulation, something they are keen to comply with.

Acknowledging that transformation into a supervised bank is a threat, Capt. Nkundimana said that Zigama CSS is committed to the adopting and complying with BNR guidelines applied for banks as well as best practices for long-term sustainability.

The Monday general assembly also unveiled a five-year [2011-2015] business plan highlighting, among others, key issues likely to impact on Zigama CSS's growth and financial projections; monitoring performance; and basis for organizational review.

During the presentation of the 2009 financial report, in March, it was revealed that Zigama-CSS's profits had surpassed the target of Rwf 1.9 billion to earn over 2 billion.

Zigama-CSS is expanding its network countrywide and now has 14 branches and over 60,000 members.

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