Across the world, crypto-currencies such as bitcoin are increasingly becoming acceptable as currency to transfer funds. Crypto-currency is a digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank. However, in Rwanda, despite the interest of a number of players to introduce the development, the central bank has been hesitant.
The New Times’ Collins Mwai spoke to Central Bank Governor John Rwangombwa on the government’s hesitance to regulate the digital currency among other things. In the interview, Rwangombwa also explains why the previous cashless payments campaign may not have succeeded as had been expected and remedies being rolled out.
Below are excerpts:
Across the world including in the region, we are seeing uptake of crypto-currencies such as Bitcoin. However, the central bank seems somewhat hesitant to legalize and regulate it in Rwanda. Is this assumption correct?
It is a tricky area, it is a new development and many regulators across the world are handling it with care. Most of them like us are trying to analyse and study the impact and usability as well as what it means.
There are risks associated to it but there could be positives but the general consensus and overview is that this is a risky area that we need to handle carefully.
Our stand today is that we have a team that is looking at it, we are talking to our colleagues at RURA and the ministry of ICT and we want to form a national team and see what we can do as our response to this development.
You have seen big personalities coming out to warn the world about this and we are really taking time to observe what is happening and we are trying to do our own investigations and assessments, what does it mean? What does it require?
If we are to issue one it has to be done by the central bank to avoid the risks we see with what is issued privately. But that is still something on the horizon; we are still trying to understand it.
We would want to focus on digital money and digital payment systems, we would not want to focus too much on new developments when we are yet to maximize on electronic payment systems.
Cashless payments initiative has failed to take off as had been projected probably due to the reliance on cards as opposed to mobile phones. What have you learnt from the somewhat failed process and how can we get back on track?
There are two main problems; one is with the infrastructure, today its working and tomorrow it’s not. While we would promote cashless economy, we should be able to find these gadgets (points of sale machines) wherever you go.
If you travel out of town, you should be able to move with your card or phone and be able to make payments. That footprint is not across the country. You should be able to go without cash wherever you go.
That has been difficult because the rollout of these gadgets is still low because they were found to be expensive though the government has removed all taxes on them.
It however remains slightly expensive.
Because of that, it creates another problem whereby the merchants are unwilling to pay the 2.5 per cent fee that is charged when they use the point of sales.
That has been a bit of a hindrance for merchants to promote the payment of non-cash means. What we are trying to do is to have new technologies in place where you have easy means of payment using mobile phones - using the QR codes
This only requires one to have a phone. It removes the cost barrier in the distribution of payment points. A paper with a QR code can be stuck anywhere and can be flashed anywhere and one pays.
Distributing these across the country should be easy as it brings down the cost.
However, there has been another issue of lack of understanding the benefits of using non-cash means.
Even with the 2.5 per cent that the merchants were paying, when you look at the cost of cash handling itself, a study done by international experts shows it accounts for about 2 per cent of sales per day.
That is just cash handling, when you add the risks of having the money stolen, counterfeits, it goes up to about 4 per cent. If merchants would embrace this, they would save costs despite the small fee.
As we move on, we will reduce the fee to almost 0.5 per cent which will make it easier. We are trying to educate the merchants.
You are rolling out a new cashless campaign this week, what’s the new approach?
This week, we are launching a campaign on educating business people on the benefits of using non-cash payments.
We are going to rollout this campaign across all the sectors in the country, all the chambers will be meeting and getting different challenges to understand what is hindering them from up taking non-cash means.
We will go upcountry and engage everyone. We want people to understand the benefits and the cost of using cash as we work with banks to redistribute payment points.
I would like to agree with you that ATM is not cashless; it helps expedite the process of getting cash. It is good to expedite movement of cash but we want you to use mobile money to pay for goods.
A few months back, The New Times highlighted the spread of ‘loan sharks’ in the country and the risk they pose. Among the feedback was that legalizing and regulating the players would solve the challenge. Would you consider this?
I think we have few that are registered and operating this business legally. We have funds in town that are non-deposit lenders that have lending and have no objections from us.
We have not been officially supervising operations but the new law that was published about two weeks ago gives us power to regulate these institutions as well. We are now coming up with writing regulations that will guide these institutions.
To us we do not think that they are a threat at this moment, the loans they are issuing are still very low.
The fact that the law now allows us to regulate them means that we can ensure that they operate without disrupting the market.
The biggest problem are the ones that you wrote about, they are not registered at all and are illegal. Those ones are the problem. From the exchange, some people were proposing that they be legalized but the response was that after all, they are avoiding legality.
We can try to mobilise them to legalise their business if they are serious about lending money. It is not taboo but you need to do it in a legal way that is known and can be supervised.
For now they cause a big threat to their customers mainly who can lose property and money. We think that in one year, we can be able to put order in this business and deal with the illegal ones.
There has been talk of the registration of private pension schemes in Rwanda to complement RSSB thereby giving clients more options, are we likely to see new entrants in the local market soon?
Since the law was published more than one year ago, we have been encouraging and mobilising private pension funds to register. There are two categories of these institutions;
There has been existing pension funds in institutions most of them were managed by the insurance companies and through banks.
So far, four of them have registered officially with us. We also have personal pension schemes and now there are five pension funds that have come to register with us like RSSB.
These are pension funds that will mobilise pension from anybody. Today we have 3 registered and we have another one in the pipeline. They are just taking shape now and we expect to see them mobilizing people to save with them next year.
So far we have registered one custodian, two investment managers and two administrators that can help to support pension funds that are coming up.
The local insurance sector has not had much positivity despite the growth of insurable assets in the country and new regulations by your office. What are we missing?
I think we have seen a positive turn from September this year, for once we see the global capitalisation of the private insurance sector is positive now. For once we have gone up to 160 per cent as the insolvency margins for all insurance companies.
I think it is only two that have gone below the required minimum of 100 per cent and this we discussed with them to establish what is happening. One of them is bringing capital this month and the other is at the end of the year.
In terms of the biggest challenges has been capacities within the insurance companies, their staff; we do not have enough expertise in actuarial science which has been a challenge in terms of capacities.
We are working with the Association of Insurers to build capacities within the institutions. The other has been negative practices within the insurers such as undercutting prices, now the association is coming up with practices to reorganize themselves and we are working to remove negative competition.
We have issued regulations and directives that have helped to reduce these negative practices such as insurance on credit.
There has been also fraud across the industry across garages, clinics and pharmacies. I am happy that today we see a serious association of these players to try and work with us to remove all these negative practices.
We hope that we can see a completely new industry by next year.
Because of the issues with capacities, the other challenge that remains is on innovation in terms of products, very few and similar products fighting to sell to a very small population that is insured.
Innovation will bring in more people to the insurance sector and widen their customer base. That is a common challenge that we see is faced by this industry.
If I said that there has been a missed opportunity to drive up formal financial inclusion through mobile money platforms partnership with banks, would I be entirely wrong?
Is it a missed opportunity or an opportunity? When you look at the development in this industry, the development has been tremendous.
A Finscope study that was done in 2016, showed that the formal financial inclusion had increased from 42 per cent to 68 per cent and mobile money services contributed 23 per cent of this increase.
If anything, we think it has led to increasing formal financial channels.
The biggest use of mobile money is buying airtime for example. Now many people are using this to pay for electricity and school fees, the most important thing that has come up is the micro-savings and Micro-loans.
MoKash started this year and within a very short time it had generated savings of about Rwf 220M and total loans issued was about Rwf 1.5B. These are very small loans but over time it has grown. Similar products are coming up in other banks and telecom companies. The other important thing coming up is more opportunities to pay for goods and services with mobile money.
Going forward, I would not say it is a missed opportunity but an opportunity that we have been using but maybe we have not maximized the opportunity. But we can see developments and the future is bright.
It is believed that some sectors in the country including mining, agriculture and recently hospitality are less attractive to financial institutions in terms of accessing credit. How can they be brought back into fold?
The hospitality industry has not fallen out of favour, it is still the biggest borrower in the market.
The industry has had a few challenges, there were probably a lot of investments in a very short time and some of the investors probably invested without much due diligence.
As an industry, it remains the biggest beneficiary to credit to the private sector from banks.
We probably do not expect to see many new hotels being financed, there are probably enough in the market at the moment, the issue is to make optimal use of what we already have.
The main problem is with agriculture and mining. That has been mainly from two angles; mining is artisanal mining with most of them having low skills to generate bankable projects.
I remember a while back in 2014 together with the ministry of industry and commerce; we had a meeting with miners and bankers trying to bring the two together.
The capacities of the miners has been a bit of challenge, the modern miners that have been coming in have been bringing a bit of financing from outside because these are lucrative projects.
That can generate a lot of exports. Mining is not a very big problem because it is being financed from outside.
The banks are also trying to build capacity to understand the sector. The banks have previously failed to understand the sector and develop loans around it. That is one area that should not be a big problem because it easily generates revenues.
The main problem is agriculture because it has not been commercialized. We have been trying to improve our agriculture but only a very small portion of our sector is commercial.
Because of that it is a very risky area and the farmers in it are not strong enough to generate bankable projects and mitigate risks associated with it. The ministry of finance has started an initiative to de-risk the sector, entire value chain starting from the inputs, marketing, products handling among others.
After de-risking it, they can be able to bring in the financial sector. At the moment, the structure of our sector is that it cannot attract financing at all, despite the fact that it is very small, if you look at Non Performing loans, it is the highest.
The best thing is the solution being fronted by the government.