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Getting Credit
Lending in Rwanda is currently a high-risk endeavor. The situation is improving, with nonperforming loans dropping from roughly 60 percent in 2000 to approximately 23 percent today, but there is a great deal yet to be done. Fortunately, substantial reforms that should change access to credit substantially over the medium and long terms have already been started or are in the planning stages.
The availability of affordable credit arises from a complex system of laws, regulations, standards, practices, and knowledge. Credit terms - interest rates, fees, and maturities - are affected by a wide range of forces, from prudential regulation of banks to availability of personal identity cards. This Gordian knot of challenges, however, can be understood and addressed effectively through a comprehensible, comprehensive approach.
Lenders, like all businesses, prosper when revenues from their services exceed the costs and risks of providing those services. Banks, microfinance institutions (MFIs), and non-bank financial institutions (NBFIs) such as leasing companies cannot simply absorb these costs or risks; instead, problems in extending credit must be priced into the terms. Risks, even more than costs, are hard to manage and identify, so higher risk leads to higher interest rates, shorter terms, and higher fees.
These costs and risks occur on the demand side of lending (among potential borrowers) as well as on the supply side (among banks). Rwanda has problems on both sides of the equation that need to be addressed systemically, systematically, and comprehensively over time. Much work is underway, but given the country's exceedingly high demand for investment finance and commercial credit, much work is still needed.
The World Bank's most recent Doing Business report ranks Rwanda ranks 158th out of 178 countries for Getting Credit. The World Bank's measures look primarily at the status of credit information and the ability of lenders to register and enforce interests in collateral. These aspects of the issue are essential, of course, but are only the tip of the iceberg. This report analyzes that iceberg more extensively, including bank regulation, secured lending laws, enforcement, leasing, and insurance, as well as other laws and institutions affecting the availability of credit.
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