15 March 2019

Rwanda: Government Slashes Lending Rates to Cut Poverty

Rwandans under Vision 2020 Umurenge Programme (VUP) could again start enjoying cheaper loans if a draft cabinet paper seeking to reduce lending rates for the country's poorest folks is approved.

According to the central bank, under the proposal, the government is considering to reduce interest rates under VUP from 11 per cent to their initial levels of 2 per cent.

VUP is an integrated local development programme aimed at accelerating poverty alleviation, rural growth and social protection.

Monique Nsanzabaganwa, the central bank's Deputy Governor disclosed the development on Thursday as she was responding to senators' questions on why interest rates on financial services under VUP had risen to that magnitude.

Central bank officials were meeting the Senatorial Standing Committee on Economic Development and Finance to assess the Bank's 2017-2018 financial year activity report.

Easing lending conditions for the most economically disadvantaged people was one of the resolutions the 16th National Dialogue, Umushyikirano, held in Kigali in December 2018.

Jacqueline Muhongayire, the Chairperson of the Senatorial Standing Committee on Economic Development and Finance, wanted to know the progress and way forward on addressing the issue of the high cost of VUP financial services.

When VUP was introduced in 2008, its intent was to elevate economically vulnerable Rwandans from poverty.

Among the benefits of the programme, Rwandans under the first and second categories of Ubudehe were to access loans at an annual rate of 2 per cent to start income generating activities.

However, a cabinet decision of July 29, 2014 regarding the implementation of VUP financial services in partnership with Umurenge Savings and Credit Cooperatives (Umurenge SACCOs) raised rate to up to 11 per cent.

Increasing interest rate was, according to the officials, due to the fact that the VUP financial services were given a new administrator - Umurenge SACCOs, which is a microfinance institutions that needed to make profits through managing people's funds.

Normally, SACCOs give loans at between 11 and 15 percent interest rates.

Consequently, more people abandoned the scheme as they felt burdened by the huge interest rates.

Nsanzabaganwa said that policymakers including the National Bank of Rwanda and the Ministry of Local Government are reviewing the policy.

"The spirit is that the social protection aspect of the initiative be restored such that those resources be really reserved for the poorest and are not treated as commercial products but rather as a revolving funds that should be sustained," she said.

Among the proposals in the draft cabinet paper is to transfer the management of the scheme from SACCOs to districts.

Nsanzabaganwa said that some issues being deliberated on include the decision on who will make the analysis, underwriting, knowing the loan risks, follow-up, evaluation, recovery among other functions which are currently done by SACCOs.

Senator Chrysologue Karangwa said that the problem is that SACCOs act as if the resources belong to them yet they come from government coffers.

"Is the move going to apply to all people including those who got the loans before?" he asked.

High rates blamed for slow progress in poverty reduction

Speaking during Umushyikirano last year, Prof. Anastase Shyaka, the Minister of Local Government, said that when VUP started, just over 50,000 needy Rwandans benefited from the funds every year.

In 2014 and 2015, he said, the number of needy Rwandans who benefited from the VUP funds increased to about 80,000.

However, he said that last year and the previous year, the programme was implemented in over 250 sectors and benefited 30,000 people because of increased interest rates.

The poverty reduction in the 2006 to 2011 period, and 2011 to 2013, was higher than the performance of the last three years.

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