Financial sector assessment timely

The recent monetary policy and financial sector review released by the National Bank of Rwanda (NBR) is of paramount importance.

The recent monetary policy and financial sector review released by the National Bank of Rwanda (NBR) is of paramount importance.

Diagnosis of the financial sector will help the bank in identifying constraints and opportunities that need to be addressed so as to have the full participation of poor households and micro and small firms in the financial sector.

The nature of the review is also expected to increase prominence of Financial Sector Policy in Rwanda and reflects the greater general awareness of the role of finance in the processes of economic development and poverty alleviation.

Conversely, the reverse would show a badly-managed or inadequate financial system that is detrimental to the stability and development of Rwanda and any other society. It may provide inefficient and expensive services that may run hidden or explicit losses, which in the end may have to be covered by private and public money

a well developed financial sector is necessary for a country’s overall economic growth and stability. It also improves the services provided to the individual citizens. A well-functioning financial services industry facilitates the transformation of savings into productive investments. It assumes, transforms and distributes risks to those willing and prepared to hold them. It facilitates payments between people and companies. The financial sector is an instrument to promote the smooth functioning and sustainable development of the whole economy.

It would be disastrous if the financial sector became gradually more inefficient and cannot progress in line with external developments. It would eventually fail to provide the necessary new financial services to support the overall economy of a country like Rwanda that is undergoing reform and modernisation. But an efficient financial sector like the Rwandan one, has the capacity to contain a broad range of institutions and markets. It can specialise in certain activities and instruments and improve competition and diversity. This ultimately reduces the risk concentration on the banking system which implies that the overall economy will be less gravely hit, if there is a systemic banking crisis.

There is however great need to increase supervision based on a combination of offsite observations, where the supervisor analyses financial and prudential reports and other information; onsite visits where the supervisor verifies the information it has received and focuses on the governance and control processes in the bank; and personal contacts with banks’ auditors, owners, boards, management and staff in order to gain a good understanding of the bank’s business and of the competencies of the leading personalities. Failure to do this leads to financial losses like the recent number of micro-finances in Rwanda. Modernising the financial system requires considerable effort and it is well worth the price. The industrial and service sectors of any economy can not run and develop smoothly and efficiently unless supported by a modern financial sector.

In the Rwandan poverty reduction strategies and national financial sector development plans, as well as Financial Sector Assessment Programmes, reviews of this nature gives the nation great hope.

There is no doubt that for a couple of years now Rwanda has taken major steps in modernising the finance sector and a bright future can be foreseen.

mugitoni@yahoo.com

 

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