Have you ever wondered what might happen to your hard-earned savings if your bank or microfinance institution were to fail? If so, you’re not alone. Many people share this concern, often because they are unaware of the mechanisms designed to protect depositors, one of the most important being the Deposit Guarantee Fund (DGF). In Rwanda, the National Bank of Rwanda (BNR) plays a central role in supervising the financial sector. Through robust oversight and a strong regulatory framework, BNR works to ensure that financial institutions remain sound, while also protecting the interests of depositors. Nevertheless, history both in Rwanda and globally has shown that no system is entirely immune to institutional failures. Recognizing this reality, Rwanda took a proactive and strategic step by establishing DGF, a safety net intended to protect depositors in the rare but possible incident when a bank or microfinance institution becomes insolvent. Deposit protection schemes’ history Deposit protection mechanisms around the world are largely a response to financial crises that have shaken public trust in the financial system. One of the most impactful examples was the Great Depression of the 1930s, which devastated economies worldwide and led to widespread bank failures. In the aftermath, the vulnerability of depositors became starkly evident, prompting the United States to establish the Federal Deposit Insurance Corporation (FDIC) in 1933. This initiative was designed to restore confidence in the financial system and to prevent mass withdrawals that had the potential to deepen the economic crisis even further. In the years that followed, other countries introduced similar measures, often in response to their own financial crises. The Asian Financial Crisis of 1997, for example, served as a wake-up call for many nations, demonstrating the need for more resilient financial safety nets. As the need for international cooperation grew, the International Association of Deposit Insurers (IADI) was launched in 2002 to help countries build effective deposit insurance systems. Over the years, IADI has become a key player in promoting global financial stability, offering guidance, setting standards, and facilitating the exchange of experiences and best practices among its members. In a milestone development, IADI recently surpassed 100 member institutions, reflecting the growing importance of deposit protection worldwide. Today, millions of people who use banks/microfinance institution across the globe feel safer that they can regain their money, should their financial institutions fail. Rwanda’s Deposit Guarantee Fund (DGF) Although Rwanda's financial sector is widely acknowledged for its resilience and stability, no system is entirely insulated from potential external shocks or internal vulnerabilities. Effective supervision, spearheaded by BNR, has indeed played a critical role in maintaining financial health, but even the most comprehensive oversight cannot completely eliminate risk. Understanding this, Rwanda established the Deposit Guarantee Fund (DGF) to provide an additional layer of protection that complements the existing regulatory and supervisory measures. This safety net not only protects depositors but also contributes to the resilience and trustworthiness of the entire financial system. Initially governed by Law No. 31/2015, The DGF, was significantly enhanced through the enactment of Law No. 039/2024. This legislative update expanded the Fund’s responsibilities, moving it from a basic “Pay-Box” model, which focuses solely on reimbursing depositors, to a more advanced “Pay-Box Plus” model. Under this new framework, the DGF can provide financial assistance to member institutions facing temporary distress, thereby helping to prevent institutional failures before they occur. The Fund performs several critical functions. They include collecting premiums from all licensed banks and deposit taking microfinance institutions. The collected contributions are then invested carefully to ensure the availability of funds when needed. In the event of a failure, the fund steps in to reimburse eligible depositors. Furthermore, under its expanded mandate, the DGF can offer financial support to member institutions that are experiencing difficulties, thus helping to preserve financial stability. Oversight of the Fund is carried out through two key committees. The Advisory Committee and the Investment Committee. The advisory committee provides technical guidance to the management of the fund, ensuring that its operations align with best practices and regulatory standards. On the other hand, the investment committee is responsible for setting investment strategies and monitoring the Fund’s financial performance, ensuring that resources are managed prudently and sustainably. Liquidation and payout process experiences The practical importance of the DGF was demonstrated in September 2019 when CAF ISONGA, a microfinance institution was placed into liquidation. Despite various recovery efforts by the National Bank of Rwanda, CAF Isonga ’s persistent financial and governance challenges could not be resolved. In accordance with the legal framework, BNR initiated the liquidation process, and the DGF successfully reimbursed all the affected depositors. This intervention underscored the Fund’s critical role in protecting public savings and maintaining confidence in the financial system. Today, much as none would wish their financial institutions to fail, the fund stands ready to intervene and reimburse depositors in case of failure. Rwanda is not alone in dealing with such challenges. Across the continent, similar mechanisms have proven effective in managing institutional failures. For instance, in Uganda, the Deposit Protection Fund stepped in following the closure of EFC Uganda Limited in January 2024. After the Bank of Uganda revoked the institution’s license, the DPF managed to compensate 76 percent of insured depositors within 90 days. This proved the value of a well-structured deposit protection scheme in safeguarding public trust. Protected depositors under DGF While the DGF in Rwanda offers broad coverage, it is important to note that not all types of deposits are protected. Deposits held by other banks or microfinance institutions, as well as those belonging to government agencies, insurance companies, pension funds, and collective investment schemes, are excluded. However, ordinary savers and businesses with deposit accounts such as savings, current, and fixed deposits are fully eligible for protection under the scheme. The impact of the Deposit Guarantee Fund on public confidence cannot be overstated. By assuring depositors that their funds are safe even in times of financial uncertainty, the DGF helps foster a stable financial environment. This assurance encourages individuals and businesses to save within formal financial institutions rather than resorting to informal or risky alternatives. In doing so, the DGF supports not only personal financial security but also the broader economy by promoting a culture of saving and long-term investment. Moreover, the existence of a reliable deposit insurance mechanism reduces the likelihood of panic withdrawals during economic shocks, thereby preventing the kinds of bank runs that have historically led to wider financial crises. By serving as both a protective mechanism for individual savers and a stabilizer for the financial system, the DGF plays a dual role that is essential to Rwanda’s financial resilience. Ultimately, the Deposit Guarantee Fund stands as a robust and strategic pillar supporting financial inclusion, trust, and stability in Rwanda. It provides assurance to depositors, enhances the resilience of the financial sector, and reinforces long-term economic confidence. The author is a Senior Analyst, Financial Stability Monitoring at the National Bank of Rwanda.
