Increased demand for credit a key driver of growth in Rwanda’s banking sector

Rwanda's banking sector has continued to demonstrate positive growth in 2019, with data from the Central Bank of Rwanda indicating a significant uptick in various aspects of the industry. Peace Uwase, Director General of the Financial Stability Department at the Central Bank of Rwanda, shed light on the key drivers behind this growth in a recent interview with CNBC Africa. One of the primary factors contributing to the sector's expansion is the increasing demand for credit. Loans have emerged as a substantial portion of the banking assets, accounting for nearly 60% of the total. The surge in credit demand during 2019 played a pivotal role in propelling the growth of banking assets. Banks effectively utilized their capital to meet this demand, underscoring the crucial role of credit in driving sector growth. Additionally, the robust performance of Rwanda's economy has been instrumental in fueling growth within the banking sector. With a projected double-digit GDP growth for 2019, economic progress has translated into increased deposits. These deposits are subsequently channeled into lending activities, further bolstering the sector's vitality. Despite these positive developments, challenges persist in achieving widespread access to credit among the population. Uwase identified educational and cultural barriers that hinder individuals from availing credit for productive purposes. Negative perceptions stemming from past experiences with non-performing loans often deter potential borrowers. Furthermore, structural obstacles, including lengthy loan processing times and stringent requirements, have historically impeded credit accessibility. However, the advent of digital solutions and mobile financial services is poised to overcome these barriers by streamlining the loan application process and offering quick decision-making capabilities, thus increasing credit uptake. The Central Bank's policies, notably the maintenance of the key repo rate at 5% and 5.5%, have played a pivotal role in boosting private sector credit. By reducing the Central Bank Rate (CBR), money market rates have followed suit, making lending to the private sector more attractive for banks. The declining opportunity cost associated with other investment avenues incentivizes banks to extend credit to the private sector, thereby spurring economic growth. Addressing concerns surrounding capital requirements for FinTech companies entering the payment space, Uwase clarified the Central Bank's stance. In 2018, the Central Bank established regulations for credit-only institutions, setting a modest minimum capital threshold of 50 million francs. While this amount is significantly lower compared to banks and microfinance institutions, it serves as a balance between fostering market competition and ensuring financial stability. Collaboration between new entrants and existing institutions has emerged as a viable strategy, with FinTechs partnering with established players to deliver innovative financial products. Overall, the Rwandan banking sector's growth trajectory underscores the symbiotic relationship between credit demand, economic performance, regulatory frameworks, and technological advancements. By addressing barriers to credit accessibility, leveraging economic momentum, and implementing prudent policies, Rwanda is poised to unlock further growth in its banking sector.