The growing demand for credit, especially by small-and-medium enterprises (SMEs) spur productive activities in the economy, Sanjeev Anand, the Rwanda Bankers Association boss has said.
Anand said the growing appetite for development finance will help prop up growth and create more jobs as development projects are implemented by the private sector.
“We expect the industrial sector activities to pick up this year, calling for more support in terms of credit to the sector to help them increase development-oriented activities,” Anand noted.
The economy grew by 5.9 per cent and 5.7 per cent in the first and second quarters of 2013, respectively before slowing down to 3.9 per cent in the third quarter.
Loans to the private sector grew by 12.2 per cent to Rwf848.8b in the same period from Rwf755.8b in the second quarter of 2013. It is hoped that this will boost businesses, especially SMEs.
According to government, International Monetary Fund and World Bank projections, the economy could grow by between 7.2 per cent and 7.5 per cent this year, thanks to improving local and global economic environment, among other factors.
Anand, who is also the I&M Bank Rwanda managing director, urged banks to finance the private sector at competitive rates to facilitate businesses growth.
“It is important for the banking sector to have interest rate policies that promote enterprise growth,” he noted during the signing of a €8m (about Rwf7.59b) credit facility from the European Investment Bank last week. The funds are targeted to support small-and-medium businesses.
Anand also called on banks to sensitise entrepreneurs to help them improve their financial literacy, saying the move will reduce the number of bad loans.
SMEs make up about 80 per cent of local businesses.
The central bank cut the key repo rate to 7 per cent in June last year to encourage private sector lending.
This had a huge impact on the money market rates, with the repo rate decreasing from 6.68 per cent in June to 4.4 per cent this month.
The interbank rate was down from 9.58 per cent to 6 per cent and the deposit rate declined from 10.6 per cent to 8.54 per cent over the same period, while the commercial banks’ lending rates reduced from an average of 17.65 per cent to 17.19 per cent as of end last year.