VENTUREAFRICA 28 FEB 2020
Official statistics revealed that only 421,000 people which represents 3.5 percent of the population received credit last year from commercial banks in Rwanda. The National Bank of Rwanda (BNR) also revealed on Tuesday, February 25, 2020, that even fewer people borrowed in 2018 – with just 308,000.
Bankers attribute the relatively small number of people who seek loans to the limited number of formally banked population. However, economic analysts say that most major local banks in Rwanda focus more on serving corporations as opposed to individuals.
In an article by The Africa Report, Twagirayezu, a taxi driver from Rwanda said he got a $2,600 loan from a commercial bank in Kigali but “the bank charged me 20 percent interest, and I had to deposit my land title to secure the loan.” He added that “I knew it was very expensive, but I didn’t have a choice, most banks have lengthy procedures which make it almost impossible to get a loan.”
Most Rwandans told The New Times that they have never sought a bank loan because they consider themselves ineligible. They blamed this on the fact that they work in the informal sector, which does not allow for commercial banks to access important details about their financial status thereby making it difficult for lenders to ascertain their repayment capacity.
Some blamed it on lack of collateral and high-interest rate with an average of 16.47 percent, which is why they preferred microfinance institutions because their services are more tailored to their needs.
Experts point out that the low lending rate reflects the reluctance of banks to ease loan requirements or lending procedures. Robin Bairstow, President of Rwanda Bankers Association revealed that the majority of Rwandans are served by Savings Credit and Cooperative Societies (SACCOS) and other Micro-Finance Institutions, as well as other forms of informal lending mechanisms.
However, Bairstow, who is also the Managing Director of I&M Bank Rwanda, said the number could soon grow due to improvement in the quality of data at the Credit Reference Bureau, greater experience of local banks, digitization of banking services among other factors. According to him, improved quality data enhances the chances of increasing unsecured loans.
A total of Rwf25.41 billion was disbursed in digital loans in 2019 alone. Digital loans are characterized by shorter processing time, fewer requirements and are more convenient for low-income households as opposed to conventional loans.
Although more access to unsecured loans for individuals in Rwanda translates to more money in circulation which is good for the country, when done excessively, however, it could have a negative impact on the economy. With money in sight, people gravitate towards a buying frenzy known as consumerism which in the long run overburdens them with debt and ultimately affects future economic growth. The Rwandan government should, therefore, ensure that access to these loans is monitored to avoid an uncontrolled surge in individual debt.