It covers payment methods and information on, banking systems, foreign exchange controls, and U.S. and correspondent banking.
Methods of Payment
Importers and exporters can comfortably choose from a wide range of payment methods. Below are some of the most common payment methods:
Letters of Credit (LCs), also known as Commercial or Documentary Credits: The letter of credit allows the buyer and seller to contract a trusted intermediary, in this case a bank, that will guarantee full payment to the seller provided the seller has shipped the goods and complied with the terms of the agreed-upon letter. The LC serves to evenly distribute risk between buyer and seller since the seller is assured of payment when the conditions of the LC are met and the buyer is reasonably assured of receiving the goods ordered. This is a common form of payment, especially when the contracting parties are unfamiliar with each other. LCs are irrevocable, which means that once the LC is established it cannot be changed without the consent of both parties. At least four parties are involved in any transaction using an LC: Buyer or Applicant, issuing bank or Applicant’s bank, Beneficiary’s bank or receiving bank, and Seller or Beneficiary.
Money transfer agents: Exporters and their clients can send money internationally, process money orders, bill payments, and prepaid services through international money agents. Agents such as Western Union and MoneyGram offer these services in Rwanda and partner with several banks including Bank of Kigali, Banque Populaire du Rwanda (BPR)/Atlas Mara, Kenya Commercial Bank, I&M, and Ecobank.
Documentary Collection: To collect payment from a foreign buyer using documentary collection, the seller sends a draft or other demand for payment with the related shipping documents through bank channels to the buyer’s bank. The bank releases the documents to the buyer upon receipt of payment or promise of payment. It is generally safer for exporters to require that bills of lading be “made out to shipper’s order and endorsed in blank” to allow them and the banks more flexible control of the merchandise. Documentary collections are only viable for ocean shipments.
Drafts (bill of exchange): A draft (sometimes called a bill of exchange) is a written order by one party directing a second party to pay a third party. Drafts are negotiable instruments that facilitate international payments through respected intermediaries such as banks but do not involve the intermediaries in guaranteeing performance. Such drafts offer more flexibility than LCs and are transferable from one party to another. There are two basic types of drafts: sight drafts and time drafts.
Open Account: Open account means that payment is left open until an agreed-upon future date. It is one of the most common methods of payment in international trade. Payment is usually made by wire transfer or check.
Credit Card: Some banks now offer buyers special lines of credit that are accessible via credit card to facilitate (even substantial) purchases.
Cash in Advance: Cash in advance is risk-free except for consequences associated with the potential non-delivery of the goods by the seller. Cash in advance is usually a wire transfer or a check. Although an international wire transfer is more costly, it is often preferred because it is speedy and does not bear the danger of the check not being honored. For wire transfers the seller must provide clear routing instructions in writing to the buyer or the buyer’s agent. These include:the full name, address, telephone, and telex of the seller’s bank; the seller’s full name, address, telephone, type of bank account, and account number.
For more information about the methods of payment or other trade finance options, please read the Trade Finance Guide.
In July 2021, Fitch affirmed Rwanda’s sovereign credit as B+ but downgraded its outlook from stable to negative, citing shrinking fiscal space and increased indebtedness. In August 2020, S&P downgraded Rwandan outlook from “Stable” to “Negative” citing higher public debt and deteriorating exports, tourism revenues, and diaspora remittances. In October 2020, Moody’s changed Rwanda’s outlook from stable to negative due to potential lowering of returns on past GOR’s investments in transportation in tourism that would “raise credit risks associated with Rwanda’s relatively high debt burden, which had been rising before the coronavirus shock and is being exacerbated by it.”
Rwanda’s banking system is still highly concentrated but is growing increasingly competitive as foreign banks look to enter the country.
Around 76 percent of all bank assets are held by five of the largest commercial banks (Bank of Kigali, BPR Atlas Mara, I&M Bank, COGEBANQUE, and Equity Bank). The largest, partially state-owned Bank of Kigali (BoK), holds more than 30 percent of all assets. Currently, the banking sector is stable and well capitalized despite the COVID-19 crisis, with an industry total capital adequacy ratio (total qualifying capital of banks to their risk weighted assets) of 21 percent, which is above the 12.5 percent central bank regulatory requirement. Rwanda’s banking industry is composed of commercial banks, development banks, cooperative banks, and microfinance banks. Due to pandemic-related economic contraction, gross non-performing loans (NPL) increased to 6.6 percent in March 2021 from 4.9 percent in December 2019. NPLs remain high in mining (70.7 percent) and trade (8.1 percent), according to BNR. BNR has supported the banking sector’s performance with pandemic emergency measures, including allowing loan restructuring.
As of July 2021, 16 banks were registered with the Rwandan National Bank (BNR): 11 commercial banks, three micro-finance banks, one development bank, and one cooperative bank. There are 438 Savings Credit and Co-operatives (SACCOs) and 18 limited liability microfinance institutions.
A list of licensed banks can be found at https://www.bnr.rw/financial-stability/bank-supervision/licensed-banks/. Licensing Requirements for banks can be found at https://www.bnr.rw/financial-stability/payment-system/licensing-and-accreditation-requirements/.
Local banks operate in both local currency and dollar-based accounts. While most suppliers are paid through wire transfers to their domicile bank accounts, many investors eventually open a local account at one of the main local commercial banks.
Starting in 2018, the Rwandan Central bank fixed a capital requirement of twenty billion Rwanda Francs ($5.8 million) for commercial banks. In response to COVID-19, capital reserve requirements have been decreased from 5 to 4 percent and the Central Bank loan rate has been decreased from 5 to 4.5 percent. All commercial banks have international correspondent banks operating in major cities of the world. ATMs are available but limited, with only 334 in all of Rwanda. Commercial banks are authorized to provide loans in foreign currency. The government has implemented a financial sector development plan that improves access to financial services and competition in the banking sector and in micro-finance. The IMF gives BNR, Rwanda’s central bank, high marks for its effective monetary policy.
The private sector has limited access to credit instruments. Most Rwandan banks are conservative, risk-averse, and trade in a limited range of commercial products, though additional products are becoming available as the industry matures and competition increases. While the use of credit cards is becoming more popular, Rwanda, especially outside of Kigali, remains primarily a cash-based or mobile cash money-based economy. Credit cards are not used extensively except in major hotels, grocery stores, and larger restaurants that cater to tourists. The number of domestically-issued credit cards in the country increased from 516 in 2011 to 2,236 in 2020. The number of debit cards issued in the country has grown since 2011, but it remains relatively low at 471,898 in 2020. In December 2011, Visa International opened an office in Rwanda and announced a partnership with the central bank through which the company is working to expand electronic payment services throughout Rwanda.
With COVID-19’s contactless payment requirements, credit card usage is poised to continue growing along with mobile money and debit cards. E-banking transactions increased from 378,847,720 in 2019 to 701,300,425 in 2020. Point of sale terminals increased from 227 in 2011 to 4,335 in 2020, according to BNR.
Foreign Exchange Controls
Foreign exchange is liberalized, and commercial banks are allowed to buy foreign currency following an administered floating exchange rate. Controls are limited to cash withdrawals for travelers. Exporters are required to repatriate all export earnings within three months of their export. Repatriated foreign exchange should match the value stated in the export declaration. The central bank aspires to maintain foreign currency reserves equivalent to regionally agreed upon 4.2 months of imports, but it has fallen short of this mark in recent years.
There are no legal restrictions on capital transfers in and out of Rwanda. Investors can obtain foreign exchange and make transfers at any authorized bank in order to repatriate profits and dividends and make payments for imports and services. However, some investors have reported problems with their ability to perform currency transactions. The National Bank of Rwanda holds daily foreign exchange sales freely accessed by commercial banks. Bureaucratic hurdles continue to cause delays in processing and effecting transfers. Although there is generally no difficulty obtaining foreign exchange in Rwanda, some investors reported temporary severe foreign exchange shortages and delays in hard currency payments by the government for goods and services that can be delayed by months. Foreign exchange shortages are partly driven by the country’s trade deficit, which creates instability in the domestic currency market.
U.S. Banks and Local Correspondent Banks
Most of the larger commercial banks in Kigali maintain correspondent relations with reputable U.S. banks.