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AfricaJanuary 2 2019

John Rwangombwa: Delivering Rwanda's digital-driven economy, where everyone is a winner

Rwandan central bank governor John Rwangombwa explains how the government's drive to achieve a cashless society will benefit all levels of society by expanding financial inclusivity, increasing tax revenues and boosting grassroots businesses.
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John Rwangombwa

The Fourth Industrial Revolution was a theme for the 2016 World Economic Forum (WEF). In his comment on this subject, Klaus Schwab, the founder of WEF, warned that unless policy-makers adapt and embrace a world of disruptive change to maintain a competitive edge, they will face increasing trouble in this ever-changing era.  

Rwanda is part of the global community, and is not immune to this change; as a country that is always forward looking and open to explore new ways on improving the overall economic situation of its people, we have not waited for the wave to hit, but instead have taken an active role in ensuring that we reap the benefits this revolution has to offer – and our efforts are paying off.  

Digital-driven economy

With the growing technology transformation, Rwanda has set a vision of creating a digital-driven economy. This is enshrined in our need to power inclusive growth. For us at the central bank, one of the main pillars of a digital-driven economy is to enable and promote a cashless environment – an environment powered by digital payments instead of predominantly relying on cash transactions.

Our belief is informed by the idea that a cashless environment will transform financial services to better support the financing of the overall economy, and at the same time enable innovation and create efficiency in how people transact, how businesses operate and how people relate with each other.

Financial inclusion is a case in point. As a growing economy, our success will largely depend on how people relate to financial services. As the great economist Schumpeter put it, financial intermediation is key in economic growth because it helps to mobilise savings, helps to increase total factor productivity by allocating capital to the most productive projects, and helps to facilitate transactions and stimulate innovation.

A cashless vision

With concerted efforts to increase financial inclusion in Rwanda, we have observed that technology transformation is indeed a game changer. In 2008, only 21% of Rwandans were formally financially included. In 2012, 42% were formally included and this had risen to 68% in 2016. This is attributable to an uptake of digital finance, which accelerated after the government set out efforts to enable a cashless economy.  

By helping those outside the formal banking system to access formal financial services, the digital transformation promotes financial inclusion, which as a result stimulates economic activity. For example, in 2011 there was only RwFr700m ($789,000)-worth of mobile money transactions in Rwanda, and by 2017 this had increased seventeenfold to RwFr1200bn, testament to the important role played by digital transformation in boosting economic activity as well as growth in financial inclusion.

We believe that Rwanda’s cashless vision promises great benefits for economic growth, because the less that cash is transacted, the more people are pulled into the formal, tax-paying economy and the more transparent services become. A paperless system cuts delays while increasing documentation and transparency of transactions, which, as a result, helps to increase tax receipts. Indeed, our figures show that in Rwanda, payments to government grew by 355%, up from 71,655 in June 2016 to 326,210 transactions in June 2017 (in volume) and by 315% in value, (from RwFr492m in June 2016 to RwFr2bn in June 2017. This was possible thanks to Rwanda’s e-government service, Rwanda Online, a one-stop platform for the government of Rwanda that acts as a portal delivering e-governance services to all Rwandans.

Cash is data-less, which means that cash payments do not establish a history for someone who reliably pays bills. But the good credit history that would show in a user’s digital payments, for example, would enable a bank to make better lending decisions, multiplying the effect of its investments. 

In Rwanda, telecoms companies and banks are taking advantage of this shift to innovate and introduce tailored, easy-to-access financial products such as loans via mobile money, to customers. Products such as Mokash, by MTN Rwanda and Commercial Bank of Africa, are increasing national savings through micro savings and at the same time allow small-scale traders to access credit for their day-to-day business operations within minutes. This is a win-win situation because the lenders can easily – and for a lower cost – risk-score borrowers by assessing their digital transaction profiles, while customers are able to easily access working capital. As a result, this is creating a thriving small-scale business community in Rwanda.

At the forefront of change

Although public policy processes are regarded by many as mechanistic and that they follow a strict top-down approach, our experience in Rwanda shows that policy-makers need to be at the forefront of change in order to make a difference. As a central bank, we also act as regulators of the financial services sector; how we choose to act therefore impacts the evolution of the sector and how it adopts different innovations. 

This is why we decided to be enablers of the digital change: to ensure that we are not stifling innovation and change through regulation. By setting up a regulatory sandbox, we are now able to allow new innovators in digital finance and financial technology to easily enter the market, while we closely monitor developments to inform our decisions on how best to regulate. We are also in the process of reviewing the existing laws and regulations on payments systems to ensure the existing regulatory framework does not limit innovation. This is easily achievable thanks to the overall drive by the government of Rwanda to create a business-friendly environment across all sectors of our economy.  

Our target is to increase the value of electronic payments as a percentage of gross domestic product to 80% by 2024, from the current level of 26.9% (as of 2017). To achieve this ambitious plan, we believe that working with our partners in government to provide the right infrastructure – soft and hard – will be a key enabler. The government of Rwanda has been leading efforts to enhance the availability of infrastructure. Fibre-optic cables were rolled out by the government across all parts of the country. This will help to ensure connectivity across the country, the artery through which digital services flourish.

The central bank has also continued to monitor the Rwanda Integrated Payments Processing Systems (Ripps) to ensure it remains efficient, resilient and safe. Ripps is a system composed of the automated transfer system, which includes the real-time gross settlement system, the automated clearing house and the central securities depository. It constitutes the backbone of the Rwanda payment system by working as our major interbank system and providing settlement services to external clearing system. Figures show that customer transfers through Ripps has increased by 12% and accounted for 91% of the volume of total transactions, while the use of paper-based instruments such as cheques has decreased over time.

Everyone a winner  

Despite the promises that come with technology transformation, there are also downsides. Critics of the digital revolution, for example, argue that its ability to alter labour markets may lead to greater inequality and creation of a ‘winner-takes-all’ economy. As policy-makers in Rwanda, we understand such effects that technology disruption may bring, and are working to ensure we attain the benefits while minimising the downsides because what drives us is creating an economy in which everyone is a winner.

In the past two decades, Rwanda, under the visionary leadership of president Paul Kagame, has achieved impressive progress, both on measures of economic growth and human development indicators, and currently stands as one of the leading economic success stories in the emerging economies. We as a nation still have ambitious targets to achieve nevertheless, and it is reassuring that colleagues in government are also working tirelessly to ensure that we make the digital revolution a success, not just for the innovators, the shareholders and the investors, but for every Rwandan. This is our mantra as a community.

The journey so far indicates that harnessing the opportunities for a digital revolution is possible, and the National Bank of Rwanda stands ready to continue delivering on targets, to make our vision for a cashless economy a success, while working closely with government, the financial sector and fintech society, the Rwandan people and other stakeholders.

John Rwangombwa is governor of the National Bank of Rwanda

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