Members of Parliament in the Lower House’s parliamentary Standing Committee on Economy and Trade yesterday began scrutiny of a voluminous bill that seeks to amend the country’s banking law.
Approved in principle by Parliament last November, the draft law concerning organisation of banking seeks to replace the current banking law enacted in 2008 which officials say is getting outdated given recent developments in the use of technology and Rwanda’s commitment to further integrate with the rest of the East African Community (EAC).
Its review will allow Rwanda to be fully compliant with latest international principles for effective management of banking and harmonise with new commercial laws in the country that were enacted to improve the business environment.
The review will also harmonise the country’s banking legal framework with that of other EAC member states as the bloc gears up for a monetary union.
The new banking law will also bring about more and up-to-date definitions for key terms in the sector such as the legal status of a bank, and types of banks, and redefine procedures for mergers and acquisition as well as define classification of loans.
It will also define categories of risks in banking business, set outsourcing requirements for the banking sector, and recognise and define agent banking which remains a growing trend.
The Minister for Finance and Economic Planning, Amb. Claver Gatete, told MPs at the session yesterday that the amendments will help provide the country with a more sound banking system and attract more cash into the economy by creating a better environment for big international banks.
“Rwandans can expect to have banks that operate better. The new law will help the regulator (central bank) and the banks but the bottom line is to facilitate citizens who are the banks’ clients,” Gatete told journalists shortly after meeting the MPs on the Economy and Trade committee.
With 121 articles in total, the draft law concerning organisation of banking will regulate the establishment, management and supervision of banks operating within the country.
It sets standards and prudential rules to which banks are subject with a view to maintaining a safe and sound banking system in the interest of depositors and other customers of a bank.
But the provisions of the law will not apply to investment banks licensed under the Capital Market Law in Rwanda, the proposed amendment says.
The draft defines a bank as a public company limited by shares or a cooperative licensed by the central bank to undertake activities of accepting deposit and granting loans for its own account and says that development banks are prohibited to collect deposits from the public.
That stipulation left many MPs on the committee yesterday wondering whether many micro-finance institutions won’t be left out of the definition while they also provide banking services and have the potential to grow into big banking corporations.
MPs Juliana Kantengwa and Rose Mukantabana urged fellow MPs and technocrats from the Ministry of Finance that they need to specify in the draft law that micro-finance institutions such as Credit and Saving Cooperatives (SACCOs) have their own governing laws if they aren’t concerned by the general banking law.
As the debate on the proposed law began in earnest yesterday at the committee level, many MPs once again criticised the government for failing to propose in the draft law setting up caps on interest rates.
Commercial banks in the country charge between 16 and 19 per cent in annual interest rates for loans, while borrowers pay about 24 per cent to get loans from Savings and Credit Cooperatives (Umurenge-SACCOs).
Just like he did last November when he first tabled the bill in the House, Gatete remained non-committal on addressing the issue of interest rates under the draft law, explaining that banks charge their interests depending on the cost of borrowing money from their lenders as well as the lack of long-term deposits from their clients.
The scrutiny of the bill at the parliamentary committee level in the Lower House will allow for more inputs and necessary modifications before it is returned to plenary for consideration.