WASHINGTON, September 13, 2012 - More convenient ways to pay, on-time payments and regular salaries. These financial transactions, which are made possible by strong and stable financial infrastructures, are often taken for granted. But not in Rwanda, which transitioned to a modern payments system less than three years ago.
Before the introduction of electronic payments, Rwandans dealt mainly in cash and paper-based payments that were prone to delays and human error. Government salaries were paid irregularly, which made it difficult for civil workers to budget their money and qualify for loans with scheduled loan repayments. A dependence on spreadsheets and calculators meant that payroll administrators sometimes miscalculated withholding for healthcare and taxes and misspelled names. The reliance on cash and paper-based transactions also impeded financial inclusion, since people were unable to benefit from payments and other financial services linked to financial accounts.
Economic growth and development prospects were affected as well. Without a payments system that could reliably support economic activities and minimize systemic risk for the financial sector, Rwanda couldn't hope to compete with neighboring countries that did. It also risked the stability of its currency, and a loss of confidence in the financial system.
With development assistance from the World Bank's 'Financial Sector Development Program', Rwanda took a step towards a modern payments system that could support a growing economy and the needs of its citizens. In February 2011, the National Bank of Rwanda implemented a real-time gross settlement system for high-value payments. This type of system is used in about 120 countries worldwide to enable instant, reliable, and secure time-critical banking transactions.
The impact is already being felt all over the country. Thanks to a modern and interconnected payments system, thousands of teachers, students, civil servants and urban workers are now able to make payments, pay bills, borrow money, save and invest through their commercial banks. Indeed, the modernized financial environment is benefiting Rwanda’s low-income citizens by giving them access to broader financial services.
The automated payments system has made it easier for the government to send stipends to scholars at the National University of Rwanda. As one student, Steven Bucyama explained “I'm an orphan, so if I didn't get that allowance, I couldn't come here [to study].”
Improved financial infrastructure reduces costs and expands access to financial services. There are more remittance providers today than ever before and transferring money is now easier and less expensive. Urban workers like Dominique, who sends home US$20 a week to support his family outside Kigali, can trust that their hard-earned money is safely reaching their intended beneficiaries. “I send money to my brother because it's better than going 80 kilometers to give it to him. It's a good system because sending and receiving money is easy and fast,” he says. “No time is wasted.”
In Kigali, high school teacher Toms Tibigambwa has finally realized his dream of building a house for his family. Ever since the Rwandan National Bank began paying his salary on-time, he has been able to make regular loan repayments. “Because the pay is little, saving it is rather hard. If you don't get a loan, it is hard to improve your socio-economic welfare,” he said. Thanks to the Rwandan government's commitment to a modern banking infrastructure, Tom is now getting the opportunity to make things better for himself and his family.