The Development Bank of Rwanda (BRD) will work towards addressing issues that affect the recovery of students loans, the banks Chief Executive Officer has said.
Kanyankole’s remarks follows the bank’s takeover of the higher education students’ loans scheme from the Rwanda Education Board (Reb).
Kanyankole said there is need to get students and the general public to understand that the funding is in form of a loan and like any other financial institution, at some point you have to pay back the loan together with an interest.
“People need to understand that it will not be scholarship but a loan that people will have to pay back. Between now and the next three months we will agree jointly with the Ministry of Education on modalities before implementation by September 2015,” he said.
The government is struggling to recover some about Rwf70 billion it has lent out through the Students Financing Agency (SFAR) since the 1990s.
In a detailed interview, Alex Kanyankole, spoke to The New Times’ Collins Mwai on how the bank plans to handle students loans and other issues including changes within BRD in the wake of Atlas Mara Group acquiring a majority stake within the bank.
BRD recently underwent reorganisation and restructuring. What are the new features of the bank?
The recent reorganisation saw the creation of the commercial bank wing that will be tasked with retail commercial banking products, short and medium term lending while the development bank will focus on long term high impact projects that can contribute toward poverty reduction and the realisation of EDPRS2 goals, projects that increase employment. That is the kind of division of labour that will take place.
Atlas Mara is acquiring 100 per cent the commercial bank entity while the development bank entity will continue to be owned by previous shareholders such as the government.
Do we have a case of the government owning a commercial bank?
The commercial wing is not owned by the government, it is private sector owned.
How will the government benefit from the restructuring?
It is very exciting having Atlas Mara Group own a bank in Rwanda with the background of the founders’ knowledge and expertise in the country and financial services sector. The strategy they are trying to employ is one of reaching out to the underserved segment of the public and also going out to the east African region.
They are expected to bring expertise which is going to be a plus to the banking industry in Rwanda. The fact that one of the founders, Ashish Thakar, has been operating technology businesses in the rest of Africa, the services to do with technology will be further enhanced. It will help the country achieve goals in the financial sector and further developing the financial services.
What are some of the expected outcomes of the just concluded deal?
The development bank will remain focused on high impact developmental projects and Atlas Mara is going to feed into that process. Atlas Mara will also play a role in resource mobilisation from outside the country because commercial banks specialise in collection of deposits out of which they lend, development banks mobilise money from everywhere. There will be more expertise and more resources and investments in high impact projects will contribute toward the realisation of EDPRS2 and Vision 2020.
There is word that there was some restructuring of employees in the bank. How did that go?
The reorganisation brought about two entities and as a result, some staff of the bank switched sides while others were redeployed to various roles in the bank. It is a work in progress and we continue to identify areas where we have gaps as well as bring in more expertise.
We have very competent staff working in the bank, though you can never be complacent. We are trying to benchmark ourselves with other banks in the international Arena.
Prior to the commencement of the just concluded deal, there was an ongoing initiative to have the bank take over the students’ loan scheme from Rwanda Education Board (Reb). What is the fate of the project after the reorganisation?
Our new partners have been made aware of the new project to take over the higher education’s loans from Reb. Following the completion of the deal, we are now engaging in discussions to find out how exactly we are going to complement each other in the implementation process.
Will it be under the development bank or under the commercial entity of the bank?
We will be having shared roles, it will be under the management of the development bank but there are certain specific functions that we may delegate to the commercial arm of the bank.
What are some of the emerging issues in the process of coming up with modalities of the loans scheme?
We are comfortable with the findings of the surveys and feasibility studies conducted.
We do not foresee any problems going forward. Actually we rightly diagnose issues that affect the current system. We first have to get students and the general public to understand that the funding is in form of a loan and like any other financial institution, at some point you have to pay back the loan with an interest.
The criteria on who will get the loan also needs to be worked on. Its implementation will mean that some will qualify while others will not. There will definately be outbursts by those who will not qualify. A good way to address this is to ensure that there are enough resources as well as the borrowers being made to understand that they can also pursue other sources and not necessarily depend on the loans.
People need to understand that it will not be scholarship but a loan that people will have to pay back. It will also call for various departments such as creation of savings scheme and recovery programme among others. In the next three months, we will work closely with the Ministry of Education on modalities before implementation by September 2015.
One of the challenges faced by the scheme previously has been defaulting on repayment of student loans, doesn’t this worry you?
That is one of the reasons the government settled on the Development Bank of Rwanda handling the scheme.
First of all a financial institution has got the experience for debt recovery as it is part of our role to lend money and collect repayments.We have already agreed upon tools and mechanisms to be employed in debt administration and recovery. We have also discussed the tools to identify our borrowers wherever they may be, be it in college, in employment or travelling abroad.
Onto matters of access to capital for small and medium enterprises, what has been the bank’s role in filling the access to finance gap?
BRD had a role to play in creating Business Development Fund (BDF). We have always beefed up the small and medium enterprise funds such as BDF and it is the reason why BDF has been able to guarantee and facilitate loans for youth and women going into entrepreneurship but without enough collateral. Right now, BDF is reaching out to provinces with a major aim of taking services closer to the borrowers.
They are also changing their business model, previously a client would have to approach a bank with a potential project and once it is approved and collateral is the only remaining issue, they would then approach BDF.
But soon clients at district level will approach BDF, who will conduct the quality assurance of the project and thereafter present them with a certificate to present to the bank. It will be good news to banks as BDF will have evaluated the project as well as a surety of the guarantee. We expect that this will largely increase access to finance as well as capacities of small and medium enterprises.
As an expert, what would you recommend as a way forward in addressing access to finance especially for SME’s
For all stakeholders in the access to finance objective to succeed, there is need for an approach where you address the gaps in business management. At times, there are business ideas that do not have the logical framework of implementation. When you hear of complaints that there is lack of finance, it is mostly a simplified way to describe issues around business and projects. We need a multifaceted approach that will address issues of skills and business management making access to finance easier. All banks are willing to give out money; it is just that there is an element of risks with lack of business management skills being one of them.
What are the future priorities of BRD?
In the near future, we want to concentrate on financing some sectors through the private sector. We want to put efforts toward the energy sector, agriculture, affordable housing, education as well as other export-oriented sectors. We will be scaling up our financing to the members of the private sector in such areas. We will prioritise financing of projects with high impacts in terms of development.