Rwanda: African Central Bankers Coordinate Financial Growth Vision

From Monday May 30 to June 1, 2011, a group of African central bankers, representatives from African Development Bank and economic experts gathered in Kigali to discuss how African central banks can play a leading role in financing development to help the continent achieve its Millennium Development Goals (MDGs), in particular its target of halving poverty levels by 2015. The seminar was attended by 60 delegates from 21 institutions and the representatives of African and international institutions.

On average Africa should have Foreign Direct Investments amounting to 30 percent, savings worth 20 percent and a growth rate of seven percent if MDG's are to be attained. Figures from Africa Economic Outlook indicate that the continent is expected to grow at 5.2 percent this year, and before the global financial crisis, domestic savings in Sub-Saharan Africa was at 22 percent of GDP, compared to 30 percent in North Africa.

The theme of the 35th annual African central banks meeting was selected to mitigate the new risks that emerge with globalization and interconnectivity. Last year, a similar meeting focused on payment system and creating conducive infrastructure to ease operations.

In three different plenary sessions participants discussed strengthening synergy between all stakeholders, mobilizing domestic savings for the development and financial sector, and financial inclusion.

"You can't coordinate macro-economic policy if you cannot coordinate fiscal and monetary policies," explained Vice Governor of National Bank of Rwanda, Monique Nsanzabaganwa. "If there is anything that is very harmful to the economy it is when one player has information another one doesn't have. The imbalance in information was one of the factors that contributed heavily to the global financial crisis."

In 2009, the government of Rwanda launched a campaign to mobilize citizens to form grassroots-based savings and credit cooperatives, known as Umurenge Saccos, after many micro-finance institutions were reported to be mismanaged while others went bankrupt. Although the initiative is still facing management challenges, public confidence in Umurenge Saccos has picked up, with their membership rising to more than 1.2 million.

During the meeting, central bankers explained that further growth in the banking sector, which includes innovation and introduction of new financial products, increase use of information technology and increasing global and regional integration of African financial markets, impose new challenges.

To meet these challenges central banks will facilitate the development of specialized schemes such as the deposit insurance scheme, agriculture insurance scheme and a small and medium enterprises (SME) guarantee scheme. Other recommended solutions include strengthening credit reference bureaus, which provide and maintain background information on all people seeking financial credit to facilitate lenders in the evaluation of the client's loan requests, as well as collateral registries, which register securities created by borrowers to secure credit facilities.

"We see African Banking industry with an abundant liquidity, which is a result of different reforms, and central banks need a close supervision of activities," said Samuel Maengo, Executive Secretary of Association of African Central Bankers. "Africa is indeed lagging behind in terms of development...as central banks we need to go beyond price stability."

Given the different history of African states, the meeting also pointed out that government's dominance in financial market contributes to low confidence by investors. "There is dominance of government in monetary system," a representative from Ghana observed. "Government should withdraw from financial markets, borrow less and give incentives to private sector."

Prof. Paul Collier, a Professor of Economics and Director for the Centre for the Study of African Economies at Oxford University, warned that the challenge for Africa is to avoid repeating its history of the 1970s when the continent's commodity boom lead to debt accumulation in the 1980s. "Africa's central banks are key institutions in ensuring that Africa learns from its history rather than repeating it," said Collier during the meeting.

Collier also pointed out the opportunities that African economies must exploit to increase national gross debts and developing the mortgage market for ordinary people. "This will be a double win, create many job opportunities and provide simple but sound homes for many ordinary people," he stressed.

Another substantial challenge for the continent will be developing financial markets and different financial products to rural communities. In turn rural citizens must also embrace the reforms to improve their lives. In Rwanda for instance, there is still weak bank coverage in rural areas. Although the country has eight commercial banks, only two have a wider network in rural Rwanda.