MICROCAPITAL STORY: The World Bank Gives $6mn to Rwandan Government for Microfinance Sector Reforms

The World Bank will grant USD 6 million to the Rwandan government for the ongoing reform of the microfinance sector. The injection will also support the improvement of auditing and accounting standards and strengthen the regulation and supervision of non-bank financial institutions (NBFI) and microfinance institutions (MFI).

The financing will go to the Financial Sector Development Program, which is part of the wider business reform plan, the Rwandan Competitiveness and Enterprise Development Project. The grant is expected to enhance the capacity of the microfinance industry via better supervision. The National Bank of Rwanda (BNR) believes there are 150 MFIs and NBFIs, many of which are unregistered.

This follows the closure of 8 MFIs in mid 2006 by the BNR for mismanagement of funds and large losses from poor credit management practices. At the time, the Rwanda Microfinance Forum blamed the problem on the lack of a microfinance sector policy. Further details on the BNR shut down of MFIs can be found in the following MicroCapital article.

The Rwandan government also brought in an IFC team, which also stated that reforms are necessary. The IFC is a member of the World Bank Group and the first inter-governmental organization with the goal of promoting private enterprise. The team also recommended that the BNR immediately establish a credit registry, which is a publicly accessible database of each person’s credit history. This database should help financial institutions identify known loan defaulters.

Finally, the government will use the grant for two other functions. First, the national pension fund and Caisse Social du Rwanda, the national social security fund, will use the grant to help modernize their payment systems. Second, the grant will quicken the move of the government’s auditing and accounting methods to international standards. This includes the introduction of the Automated Clearing House and a Real Time Gross Settlement system.

by Jennifer Lee

Additional Resources:

AllAfrica.com: “Rwanda: Financial Sector Gets World Bank Boost”, April 25, 2008.

MicroCapital: “The Microcredit Investment Legacy of Plundering Poor People’s Savings: National Bank of Rwanda Shuts Down 8 Local Microfinance Institutions (MFIs)”, June 24, 2006.

National Bank of Rwanda: Home, Financial sector Development Program, Competitiveness and Enterprise Development Project