Kigali's banks seek a wider role in East Africa

Diane Karusisi is well placed to know what the future might hold for Rwanda and its banking sector, given her experience in both government policymaking and the private sector. 

Between late 2012 and early 2016, she was one of president Paul Kagame’s closest advisers. As his head of strategy and policy and chief economist, she was intimately involved in shaping the government’s strategy for growth. Now, as chief executive of Bank of Kigali, Rwanda’s largest bank, she has first-hand knowledge of how the private sector fits into these plans and is forthright in her ambitions for the financial industry.

Rwanda and its banks can play an important role in spurring the financial and economic development of east Africa, she says.

“This is what we would like to be, a financial centre,” or hub for a neighbourhood that includes larger economies such as Kenya. It’s not such a far-fetched model – look at the role that tiny Singapore plays as the financial centre in southeast Asia.

Under Kagame, who became president in 2000, Rwanda has been transformed. 

Outside Africa, what most people remember about the country are the shocking events of 1994, when the population was ripped in two and close to 1 million people were killed in the four-month-long genocide. Many who have never been there still think of it as a poverty-stricken, dangerous and desolate land. 

“Most people have heard about Rwanda, but what really sticks is the genocide,” Karusisi says. “It’s unbelievable to think that 20 years ago, people were dying at the fastest pace in human history. Today it’s completely safe.”

In recent years, the country has made every effort to shake off the negative image. The government has pushed through one reform after another to create a safe, business-friendly environment that would attract investors and their money. 

Kigali, the capital, is at the forefront of those efforts, with its new $300 million convention centre and neighbouring luxury hotel. Now Kagame spends much of his time extolling the country’s economic potential – for example in early July, during the annual general meeting of Afreximbank at the Kigali convention centre, attended by bankers and businessmen from across the continent. 

The reforms are paying off. In the World Economic Forum’s Competitiveness Index of 2016/17, Rwanda ranked third in Africa, behind Mauritius and South Africa, after leaping up the league tables. The WEF’s 2010/11 report put Rwanda in 80th place worldwide, below Botswana, Morocco, Namibia, even Iran and Colombia. It now ranks 52nd worldwide, ahead of Turkey and well ahead of its regional rivals. Kenya is the closest east African state, a long way behind in 96th place.

Rwanda’s banking sector has changed as a result of this increased attractiveness, with many foreign banks buying up existing financial institutions, or opening branches of their own. Now the country’s bankers hope they can create a niche for themselves in an already saturated regional banking market as a tech-savvy, business-friendly alternative. 

The east African harmonization of banking regulation may facilitate those efforts.

The ease of doing business – a nebulous concept that can cover many factors – has consisted, in Rwanda, of a number of reforms to reduce the size of the public sector in favour of the private sector, remove restrictions on entry to the country and make starting a business as simple as possible.

Nowadays, visitors can easily obtain a visa upon arrival in Kigali’s still tiny international airport, a new company can be officially registered in a matter of hours and the government has been selling off assets, including stakes in the state banks, to bolster the private sector while raising revenues.

Steps to improve transparency have helped the banks in particular. Karusisi says that banks have access to a database containing information about where each individual person banks and their personal credit rating. Each parcel of land in the country has been given a unique identifier, and banks can now check the land registry to verify if a mortgage has already been taken out against a specific plot. 

“That makes it very easy for us to do business,” Karusisi says.

Thanks to privatizations and asset sales, a banking sector that was once dominated by home-grown, state-owned institutions now looks very different: virtually all the banks are in private hands, and a number of foreign banks and investors have moved in, eager to explore the opportunities.

When the state sold its 20% stake in I&M Bank Rwanda, the Rwandan division of Kenya’s I&M, earlier this year in an IPO, demand was more than double the size of the offering. 

In 2015, Bob Diamond’s Africa banking platform Atlas Mara bought a majority stake in Banque Populaire du Rwanda (BPR) and merged it with the commercial arm of Banque Rwandaise de Développement (BRD), which it had purchased the year before and which had previously been owned by the state.

John Rwangombwa, the central bank governor who was the minister of finance and economic planning at the time of Bank of Kigali’s IPO in 2011, wrote then that the government’s sale of a 45% stake in the bank gave “an opportunity to the public to share the success of a well-managed and financially sound bank”. 

The government is also thought to be considering divesting from Guarantee Trust Bank Rwanda.

“It’s government policy to try as much as possible to get out of private investments, and leave it to private investors,” says Faustin Byishimo, an executive director at I&M Bank Rwanda.

I&M Bank Rwanda used to be called Banque Commerciale du Rwanda before it was acquired by Kenya’s I&M. 

Pan-African banks Ecobank and Bank of Africa are also present in the country. Then there are outposts of Kenya’s KCB and Equity Bank, and of Nigeria’s Access Bank and GT Bank. The latest bank to open in Rwanda, Crane Bank Rwanda, launched in 2014 and signed an agreement to be bought by Kenya’s Commercial Bank of Africa in June.

The entry of all these foreign banks suggests that efforts to make Rwanda attractive are bearing fruit. Ismail Douiri, co-chief executive of Attijariwafa Bank, tells Euromoney Africa that Rwanda provides “an entry into east Africa”. He regards it as a small, easy-to-manage and well-regulated market, where Attijariwafa’s goal of expanding in English-speaking countries has been made easier.  

“People continue to speak French even though it is not the business language, so we can work in French,” he says, giving another reason why an institution based in francophone Africa might find the country attractive. 

Atlas Mara has also located its regional fintech business in Rwanda. 

“It’s a highly supportive regulatory environment for banks and other firms doing digital financial services,” says Atlas Mara’s Kigali-based head of fintech, Chidi Okopala.

Of the 11 commercial banks in Rwanda, only two – Bank of Kigali and Cogebanque – are essentially Rwandan banks of a decent size, rather than the arms of bigger foreign-based groups. But even those two have foreign shareholders. Bank of Kigali’s IPO attracted international investors, and the bank now wants to raise $175 million of capital by late 2018, which could come either from a foreign listing or from a stake sale to Morocco’s Banque Centrale Populaire. In either case, foreign ownership will increase. 

Late last year, following a state visit by the Moroccan king to Rwanda, Morocco’s Attijariwafa Bank announced that it would buy a 75% stake in Cogebanque.

Such changes could have led to fears in Rwanda that the country was losing control of its banking sector. But Rwangombwa, who was appointed governor of the central bank in 2013, sees this as a positive development. “In general we welcome foreign investment,” he says, “and in fact the biggest chunk of our banking sector is owned by foreign investors.” He says these banks have had the muscle to increase capital when needed, to support the real economy.

“We are a small economy that needs capital to grow,” he says. “We don’t have the luxury of closing our borders. So we’ve been attracting foreign capital, and we think it’s positive.”

In any case, the arrival of all these new players has made Rwanda’s banking sector more intertwined with east Africa, and the whole continent, than ever before. That trend is only likely to continue.

Indeed, the states of east Africa have been partnering to unify banking regulation across the region. 

“Every now and then there is new regulation to harmonize credit practices, capital requirements across the region,” Karusisi says. “Central bankers have to meet regularly and they have a road map.”

Rwangombwa welcomes these moves: “It’s part of the drive towards a monetary union. By that time, we’ll have one supervisor of financial institutions, of financial services. We start with harmonizing our legal and regulatory framework, which is good.”

He says the central bank is promoting this transition, as the region’s states would benefit from thinking of east Africa as a single market, a single economy.

“An investor coming to any of us should deal with us in the same way as they would deal with the market of Uganda or Kenya, or whatever. So it’s a drive we are all working together to achieve, and we think it will be good for the region.”

Asked how much longer it will take before market standards are perfectly uniform and the groundwork has been done, he says: “It’s a process. We expect that we’ll have it before 2020, so hopefully we can achieve it.”

Such harmonization will also make it easier for Rwandan banks to enter neighbouring markets, a move which hasn’t happened yet even though Rwanda has opened its doors to east African lenders.

Bank of Kigali is considering such a regional expansion, Karusisi says: “Harmonization makes it very easy for banks to open branches across the region. We, as a purely local bank, don’t have branches across the region. But when we do it will be easier.”

Regional growth is a logical next step for Bank of Kigali, considering its dominant position in Rwanda, Karusisi says, but she wants to avoid growth through brick-and-mortar operations. “For us the region is a natural way to grow, but we believe just opening branches is not the right thing to do today.” 

Instead, the bank could simply expand its business by targeting foreign companies and catering to their needs through digital services, she says. The increased digital savvy of Rwanda’s banking sector will help that push, when it eventually happens.

For now, though, the country’s banks and banking regulator still have plenty of problems to fix. 

Rwangombwa says he is working with the banks to bring down lending rates: the average lending rate of 16% is “still high” in his view. 

Nor do the banks lend as much as they should in order to support the economy, he continues. Credit to the private sector rose 6.9% in the first five months of 2017, according to the central bank at the end of June after its quarterly financial stability committee and monetary policy committee meetings.

“We see growth [in credit] to the private sector that is positive, but still below our targets,” Rwangombwa tells Euromoney Africa, adding that the central bank has targeted a 16% increase in credit to the private sector this year. 

“Generally, our message to the financial industry is encouraging them to go out and lend more,” he says. “We see good conditions, and so we have room to allow more financing, which is needed to allow the economy to grow.”