Rwanda’s banking sector is set for cut throat competition as they increase their core capital following a recent directive by the central bank to increase the minimal core capital for commercial banks four-fold or 300 per cent from Rwf5 billion to Rwf20 billion.

The move was partly prompted by increasing financing needs of the economy as well as the need to increase financial stability and protect public deposits.

While it is expected that some banks will struggle to raise the additional capital, the ongoing exercise provides an opportunity for the sector to attract real investment that will in the end benefit ordinary Rwandans.

The ongoing consolidation is a great opportunity to scale up financial inclusion, which means that individuals and businesses have access to useful and affordable financial products and services that meet their needs transactions, payments, savings, credit and insurance delivered in a responsible and sustainable way.

Currently, Rwanda has the highest proportion of their adult population accessing financial services in East Africa with close to 90 per cent of its adult population accessing both formal and informal financial services, according to 2019 FinAccess Household survey, making it financially inclusive. Specifically, 68 per cent of the adult population has access to formal financial services. Various factors affecting supply and demand of financial services inhibit the access of individuals and firms to financial services.

While some of the unbanked people and firms exhibit no demand for accounts, most are excluded because of physical, economic, administrative and psychological barriers such as cost, travel distance, amount of documentation and lack of trust.

These barriers tend to have a disproportionate effect on the poor, women, youth, rural populations, informal workers and migrants.

Affordability of accounts is a major constraint, as fixed transaction costs with small amounts of transaction may disproportionately represent a heavy burden. Low bank branch penetration in rural areas could significantly increase the costs of access.

Documentation requirements for opening an account may exclude those in the informal sector owing to the lack of official paperwork such as pay slips.

Yet being able to have access to a transaction account is a first step toward broader financial inclusion since a transaction account allows people to store money, and send and receive payments.

Even when more Rwandans have access and are able to open accounts, usage rates often remain low because transactions are too costly, insecure, or inconvenient. We hope that the ongoing consolidation in the banking sector will not only enhance access to formal financial services, but also foster effective and inclusive access to financial services that will not only enable more poor people to access financial services and improve their lives, but also help drive business expansion and increase youth employment.