Local banking sector is currently made up of 611 financial institutions among them 16 banks of which 11 are commercial banks.

The financial sector remains highly concentrated as banks account for about 67.2 percent of total financial sector assets, according to the National Bank of Rwanda (BNR).

On Friday, KCB Group announced that it had received regulatory approval from the National Bank of Rwanda (BNR) to merge its newly acquired Banque Populaire du
Rwanda (BPR) and KCB Bank Rwanda. The merger means the two banks will operate as a single entity named BPR Bank Rwanda Plc with KCB Group as the majority shareholder with effect from April 1.

Analysts expect stiff competition in the banking sector to not only reduce the cost of borrowing but also increase access to affordable financial services as the existing banks fight to retain and expand their market share.

The expectation is that as banks compete against each other, they have to provide great services for their customers — otherwise people will switch to another, better, bank.

This makes banks more efficient and productive, which is good for the economy. Banks are also expected to lower their prices to retain or attract new customers.

However, there is a limit to how cheap banks can make their prices because they still have to cover the costs of their own activity. With increasing competition, the expectation is that local banks will be creative and come up with more financial products that are affordable.

In particular, many Rwandans continue to struggle to access affordable finance. Despite recent intervention by the central bank, the cost of loans is still high, well above the central bank estimates of 16-17 percent average cost of finance.

For the majority, banks charge at least 18 percent which is very expensive. Inadequate access to finance also remains a major obstacle for many aspiring entrepreneurs. Now, optimism is high that with the new merger, commercial banks will be forced to lower their charges to retain clients.

This is in addition to improving service delivery. Luckily for customers, the central bank already launched a platform to allow them to compare the charges — the new mobile app will lift the lead on those that have been charging exorbitant prices.

However, as we have seen in the past, markets don’t correct themselves, the regulator will have to strengthen supervision of the sector to ensure that customers benefit from expansion of the sector. A strong financial sector is good for the country's quest to increase financial inclusion and better services.

However, the collapse of some lenders in the regions reminds the regulator that surveillance and strict rules are important to protect depositors' money and investments associated with the banks. This will improve confidence and trust of potential bank customers that is requisite for the campaigns for financial inclusion.