20 May 2014

Rwanda: Of Bad and Good Money As BNR Turns 50 Years

Formed in 1964, the National Bank of Rwanda (BNR) is celebrating 50 years of reforms in the most challenging industry.

Why would this be important to me or any other Rwandan? It is significant because presently Rwanda is an open economy and central bank is no longer involved in credit management.

According to John Rwangombwa, the central bank governor, BNR was at one time operating in a state that was not monetised. "This led to bad money represented by lack of policy package that enables wealth-creation and thus slow economic growth," he notes.

Good money represents cash that is linked to an economic policy package, which is conducive for creating wealth thus economic prosperity since money is a medium of exchange and cannot bring prosperity by itself.

Until 1990, the central bank controlled interest rates, monitoring credit approved, foreign exchange was tightly monitored, and it controlled the export/import businesses, a situation that stifled enterprise development.

"For 30 years, Rwanda was a closed economy, with everything being controlled and GDP was at an average of 2.2 per cent, while inflation was maintained at 7.5 per cent," Rwangombwa recalls.

Over the past five or so years, Rwanda has maintained asn average growth rate of 8.6 per cent and has contained inflation at a single digit of about 6.5 per cent of the same period. In 2008, during the global economic crisis, however, the inflation rate hit a record high of 22 per cent, and it went through the roof top (100 per cent) during the 1994 Genocide against Tutsi.

After the 1994 Genocide against Tutsi, the government instituted numerous reforms and all removed controls, opening up the economy, a move that attracted more players in the market leading growth.

From two banks in 1994, Rwanda now has 15 banks and 496 micro-finance institutions.

Some of the monetary policies and prudential measures introduced to grow the economy, as well as keeping inflation to single digit include regulating the key repo rate, a rate at which central banks lends to commercial banks, to keep liquidity in the system and strong co-ordination between monetary and fiscal policies. A team was also established to monitor inflationary pressures.

These prudent monetary policies has enabled BNR to perform its primary objective to stabilise the currency and continue to maintain that stability to facilitate long term economic growth through loans that are given to priority sectors in the economy.

IT execution:

The central bank introduced information technology as a modern tool to manage the bank's operations in 1980.

In the earlier years after the Genocide it was difficult to get people with the necessary skills, but International Monetary Fund (IMF) helped the central bank to have its staff trained in different specialised programmes like financial stability and monetary policy.

"It was rare to have skilled people, but in the context BNR staff was working in, they were the most skilled personnel," says Rwangombwa.

Currently, BNR has a strong IT department which keeps the institution on top of the game; and it continues to implement new systems like the Rwanda Integrated Payments System (RIPPs), Real Time Gross Settlement (RTGS) and Automated Transfer System (ATS) to efficiently serve the complexity of the sector.

RIPPS will be integrated with regional and international systems to handle all forms of interbank transactions swiftly.

Rwangombwa says central bank is testing the system with its counterparts in East African Community (EAC) bloc and targeting to go live on East African Payment System by the end of by June, a move expected to easy doing business between EAC member states.

"We have done an overhaul in payment system from when payment was basically manual, to automation and now we are talking of harmonising our payment system within the region."

Available data from central bank indicates that between December 2012 and June 2013, the number of Automated Teller Machines (ATMs) increased by 10.7 per cent, from 292 to 323, while the number of point of sale terminal devices increased by 19.7 per cent, from 666 in March 2013, to 797 in June 2013. However, handle these challenges successfully, bankers have to develop a culture of continuous learning for themselves because IT dynamic and changing rapidly.

The central bank's weakness:

Though it has been successful in maintaining the stability of Rwandan currency and economic growth, central bank has been lagging behind in establishing a strong research depart that would help people in monetary-related decision-making.

Established in 2011, the research department is yet to publish forecasts on major economic indicators. In the pipeline, is the research on their recent financial literacy campaign where they predict some challenges, whose magnitude the department is yet to ascertain.

The writer is the co-ordinator of the exports department at PSF

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