Enhancing Domestic Saving Mechanisms Towards Self- reliance National Dialogue Council December, 13-14th 2012

The Challenge Ahead of Becoming Self-reliant is Considerable Key Vision2020 targets: Annual GDP growth of 11.5 pct. From 2013 Domestic savings rate moving from 13.2% in 2011 to 20% in 2020 Private sector investment rate to GDP moving from 21.4% in 2011 to 30% by 2020. Financial Sector Deepening indicator: credit to private sector to grow from 12.8% to 30% by 2020. Current gap of 313 bn to finance investments If the economy grows by 11.5% p.a, the targeted national savings amount to Rwf 1,470 billion in 2017. Whilst the targeted investments in 2017 will be 2,205 bn Rwf The gap in savings and investments will be 735 Bn in 2017. With the current savings rate, our gap will be 1,235 bn.

Mechanisms to enhance domestic saving Mobilization Build on SACCO’s experience to develop longer term saving schemes such as Rural Private Pension Funds and Childrens’ Education Funds Expand the coverage and diversify RSSB pension scheme In Cooperatives: Promote Performance Management systems (IMIHIGO) targeting investments. Enhance Local and Regional Investment Groups (RIGs) Unit Trusts: Will allow all willing people to participate in capital markets but can also be a vehicle to accellerate market based investments in key infrastructure projects. Aso a highly relevant investment object for diaspora. New life insurance products

1) SACCOs: Rwf 30 bn saved since 2010 but potential for more SACCOs have successfully contributed to raise financial inclusion from 21 to 42% in the last three years, but there is potential for more savings Members with remitted shares: 1.36m by Oct 2012 (up by 200% from 0.69m in 2010) 24% of working age population (80% targeted for 2017) Saving deposits have increased to 30 Bn since the inception in 2010. Institutional development of SACCOs is needed to maximize the impact on domestic saving mobilization

1) Potential for Rwf 30 bn through new savings in SACCOs SACCOs have proven an effective tool for financial inclusion and can be utilized to initiate new modes of saving: Rural Private Pension Scheme - Protected long-term savings accounts made available upon retirement or to survivors of deceased workers Rural Private Education Schemes Savings made by parents early in child’s life, available upon reaching adulthood Example: If the real interest rate is 5%, a person who saves Rwf 5000 a month will have Rwf 3.04m after 25 years. After 40 years, the value is Rwf 7.91m Implication for national savings: If 500 000 people from rural areas save each Rwf 5000 a month through SACCOs, the annual National Savings will increase by: Rwf 5000 * 12 months * 500 000 members = 30 bn Government to undertake massive outreach campaign for financial literracy and consolidate of SACCOs

2) Expand coverage & diversity of RSSB Pensions schemes to Generate Rwf 21.6 bn Enrolling for pension benefits is compulsory for formal sector employees, currently 292,810 or 7% of the active population. This is low compared to 20-50% of the working age population in developed countries. Great Potential in the self-employed population. The way forward is to increase the incentives for voluntary contributions to pensions and to increase awareness of the importance of saving up for retirement. A new drafted law (currently in parliament) proposes a Provident Fund Fully funded model with benefits directly linked to contributions. There will be pre-retirement benefits through a special savings account (e.g. housing, education and health). Contributions will be tax free. Implication for National Savings: If 300 000 self-employed people with a monthly average income of Rwf 100.000 sign up, savings will increase by: Rwf 100.000 * 12 months * 6% contribution * 300 000 people = Rwf 21.6 bn

3) Cooperatives: IMIHIGO for Saving & Investment can Generate Rwf 20 bn annually The cooperative can mobilize savings from members and invest in projects that are key for the cooperative Some districts have already started signing Savings and Investment targets can be incorporated in the performance contracts (Imihigos) of the cooperatives. Implication for national savings: If 1000 among the existing 5000 cooperatives agree to save Rwf 20 M on average annually, they will generate a total of Rwf 20 bn

4) Local and Collective Investment Groups can generate Rwf 35 bn+ Local Investment Groups – Are Collective Investment Schemes working like investment clubs that can grow into successful investment companies. They are going to be fundamental vehicles for domestic savings. 31 recently surveyed LICs had a total layout of about Rwf 70 bn of which about 50% are currently ongoing. The investment groups Some examples: CHIC: Raised Rwf 7 bn for 12-storied commercial complex. CopCom: Raised 1 bn and borrowed 2.5 bn for commercial buildings in Gisozi ADARWA: Raised 1.8 bn for a commercial complex DUHAHIRANE: raised 1.6 bn for a commercial complex The main challenge for LICs lie in the project management skills and the governance structure The Government will provide technical assistance through a Public Private Partnership mechanism

5) Enabling all Rwandese to save through a Unit Trust 5) Enabling all Rwandese to save through a Unit Trust. Savings can increase by Rwf 10 bn The new Trust Law generate possibility for several new collective investment schemes. One of particular interest is the Unit Trust mechanism: These are schemes where individuals can invest by buying units of small amounts. There is no lower bound for the size of investment. This gives any Rwandan the opportunity to invest. The unit trust can also be an investment objects for Rwandan diaspora. Lessons can be learned from the Unit Trust of Tanzania Initiated 2003 Now has total assets of TZS 96.9 bn = Rwf 37.8 bn If 1 Million Rwandans invest Rwf 10,000 on average per year, annual savings increase by Rwf 10 bn Important to provide the right legal framework Success stories ESMER Fund (Israel) Indian Unit Trust Tanzanian Unit Trust Challenges Governance Financial literacy Special Skills gap

6): Life Insurance Products: Rwf 9.9 bn Gross private life insurance premiums constitute Rfw 6.7 bn today. BNR projects a 20% annual growth of savings mobilized through life insurance projects Thus projected gross premiums in 2017 are Rwf 16.6 bn. This increases national savings by Rwf 9.9 bn

Summing up With these enhanced mechanism there is a potential to increase national savings by approx. 126 Bn annually. The Government will emphasize: Mobilization and awareness Providing the relevant legal framework and incentives Provide technical assistance and enter PPP where necessary

Thank you for your kind attention Ministry of Trade & Industry