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IMF says bank rates in Rwanda are dangerous

by Jean de la Croix Tabaro
1:40 pm

The International Monetary Fund (IMF) is concerned commercial banks in Rwanda are ripping off customers with acute interest rates, derailing growth.

Interest rates on credit are surging between 18% and 20% and an average of 5% on deposits, yet central bank repo rate remains at 6.5%.

The IMF says the trend is dragging Rwanda’s development progress.

“We do see this as an impediment to development of private sector which, as time passes, should be removed,” said Paul Drummond, the IMF Chief of Mission to Rwanda.

But commercial banks have come in defense saying the rise in interest rates is an effort to recover high overheads.

Maurice Toroitich, Managing Director for Kenya Commercial Bank in Rwanda, told KT Press for every Rwf 100($ 0.14) they make, they spend Rwf 76($ 0.10) on labor force, electricity, and other heavy costs.

Yet, in defense of his bank’s 19% interest rate, he said with the same earning in Kenya and Uganda, on Rwf 100($ 0.14), the bank spends only Rwf 40($ 0.05) and Rwf 55($0.07) respectively.

The business community is demanding the central bank, as the regulator, push commercial banks to revise their rates.

Vice Governor of Central Bank, Monique Nsanzabaganwa, says indeed the rates are high, but the regulator cannot set a ceiling, but rather encourage the market to demand for lower rates.

The IMF has advised Rwanda to mobilise public savings to increase deposits in commercial banks and force banks to lower their rates.

Its also advised the country to fasten response to electricity and transport pressures. Electricity bills go up to $ 0.24/kwh for the big consumers, including banks, and $ 0.13/kwh for household use.

Finance Minister, Claver Gatete, says Rwanda is investing in energy production, targeting a 70% energy penetration by 2017, up from 18% today.

The country has just finalised an agreement with Ethiopia to supply  400MW.

A single customs territory agreement with Kenya and Uganda has been established to facilitate transporters along the northern corridor -Mombasa port- to use maximum 5 days to Kigali, from 2 weeks previously.

This week, Heads of States of Uganda, Kenya and Rwanda are meeting in Kampala, Uganda to discuss tools to facilitate economic growth.

Once the bottlenecks are addressed, Toroitich says he would lower the interest rate to 13 %.

By Jean de la Croix Tabaro