Innovative Financing Mechanisms Towards Self- Reliance National Dialogue Council December, 13-14th 2012

Key Messages “Every Rwandan must have the means and mindset to save and invest our own future, thereby helping the country towards self-reliance” Dimensions of strengthening Financing Mechanisms: 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 Enhance Local and Regional Investment Groups (RIGs) In Cooperatives: Promote Performance Management systems (IMIHIGO) targeting investments. 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. Moreover, it is a highly relevant investment object for diaspora.

Self reliance “The ability to initiate development activities by own resources or ability to access the resources on your own” Self-reliance intimately linked to saving and investing in future BUT: Savings relative to GDP are currently low: Gross Domestic Savings = 4.1% of GDP in 2011 (V2020 targets 10%) Gross National Savings = 13.2% of GDP in 2011 (V2020 targets 16%) = Need for innovative mechanisms to mobilize more longer term savings

SACCOs: Current Situation Financial inclusion by SACCOs on the rise but remains low Members with remitted shares: 1.36m by Oct 2012 (up from 0.69m in 2010) 24% of working age population (80% targeted for 2017) Saving deposits considerably exceed loan deposits Lending has already increased somewhat in the first 2 years Institutional development of SACCOs is needed to increase lending faster

1) SACCOs: Introducing long term saving Rural Private Pension Scheme Protected long-term savings accounts made available upon retirement or to survivors of deceased workers Functions as both a pension scheme and life insurance for rural workers Scheme will raise long term saving and positive social welfare impact 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 Rural Private Education Schemes Savings made by parents early in child’s life, available upon reaching adulthood Can be used to fund higher education, purchase a house, start a business Government will undertake an awareness & mobilization campaign among SACCOs The links between SACCOs and the rest of the financial sector must be strengthened to ensure low risk and high pay-off on SACCO savings.

2) Pension Schemes: expand coverage & diversity Rwanda Social Security Board (RSSB) offers Pension Schemes aiming at helping workers who become incapable of working and survivors of deceased workers Enrolling for pension benefits is compulsory for formal sector employees, currently 7% of the working population. This is low compared internationally. New draft Law Amends pension scheme into a more sustainable model of defined benefits Proposes new Provident Fund for high earners, inspired by Singapore Fully funded model with benefits directly linked to contributions. It has two elements: Special Savings Account – Saving up for housing, education of children etc. while receiving pay-offs from investments. Complementary Pension – Highly relevant for Rwandans that want/need additional income after retirement Tax incentives will help expand coverage, thereby increasing long term savings and investment

3) Local and Regional Investment Groups RIG and Mini RIGs – These are Collective Investment Schemes working like investment clubs that can grow into successful investment companies. Are going to be fundamental vehicles for domestic savings. 31 recently surveyed LICs had a total layout of about Rwf 70 bn and there is a large potential for further investments. Some examples: RIG: started as the first by 20 businessmen in Kigali venturing into sectors such as Renewable Energy, Agri-business, Industry(Cement factory/CIMERWA). WESPIC: Rwf 8.5 bn. Gisovu Tea Factory. Water Transport on Lake Kivu. Real Estate and hotels along shores of Lake Kivu EPIC: Rwf 4.0 bn. Nyagatare Modern Diary Project. Micro Finance. Animal Breeding Centre. Meat processing and Packing Project The main challenge for LICs lie in the management skills and governance structure The Government will develop a Public Private Partnership mechanism to facilitate and enhance LICs

4) Cooperatives: IMIHIGO for saving & Investment Cooperatives have a large potential for coordinated actions between members that have mutual interests The cooperative can mobilize savings from members and invest in projects that are key for the cooperative Savings and Investment targets can be incorporated in the performance contracts (Imihigos) of the cooperatives. E.g. Cooperative Guhiga Gukora mobilized Rwf 5 bn from members. In Northern Province Imihigos have been signed between cooperatives and mayors. Government will through a working relationship establish savings targets in cooperatives.

New Collective Investment Schemes Unit Trusts These are schemes (units). No lower bound for the size of investment giving any Rwandan the opportunity to invest. Potential investment objects for Rwandan diaspora. Examples of success in India and Tanzania. Mutual Funds These are companies (shares) Real Estate Investment Trusts Pooled investments in real estate projects Created out of future cash flow revenues like receivables( mortgages, rental income, utility bills, Diaspora inflows, etc….) Used to finance infrastructures-electricity, housing, water, education etc… Asset Backed Securities Finance for SMEs through capital Has considerable potential for impact

New Collective Investment Mechanisms - Trusts The Trust Law is underway. This will open the possibility for commercial banks to start Unit Trusts. Every Rwandan will be able to invest in Unit Trusts. Trustees Trust Funds Investors Custodian SPV Management Borrowing Organisation

New Collective Investment Schemes Important actions on Collective Investment Schemes The success of an emerging fund management industry(CISs) is the adoption of Trust Concept( Trust Law should be passed ASAP). Necessary for government to take lead by creating appropriate environment for funds to thrive as a critical mass of funds will create the industry Transfers to and from Special Purpose Vehicles must be exempted from tax, since they are temporary arrangements rather than actual transactions. Governance structure to be emphasized