Landscape of investment in Rwanda
Introduction:
The report presents an in-depth analysis of the landscape of investment in Rwanda. It provides useful data on existing DFI investors, the type of instruments they use to invest, and the investment environment they operate in. The report forms part of The Centre for Affordable Housing Finance’s Investor Programme which aims to quantify the breadth of investment activity with respect to housing and housing finance across Africa and establish a mechanism to track this on an ongoing basis. This project has collected data and highlights gaps and opportunities in the investment landscape. With the aim of stimulating greater investment in affordable housing and connecting investors with potential investments, the report profiles investors and investment instruments with the greatest impact on the housing finance market within the EAC Region.
Growing financial sector experience and increasingly sophisticated financial instruments are driving investor interest in African real estate. This includes new market opportunities related to a rising urban middle class, an increasingly localized construction material industry and innovations in housing finance such as the emergence of Real Estate Investment Trusts and mortgage liquidity facilities across Africa.
Local Institutional Investors:
The Pension Sector:
For long-term finance, commercial banks have inevitably had to rely on pension funds, given the low performance of capital and secondary markets. The Rwanda Social Security Board (RSSB) is the largest provident fund in the country providing up to 34 percent (over RWF 250 billion of its assets) to various commercial banks as term deposits. RSSB has invested in commercial banks through both equity and debt instruments.
The Stock Exchange:
Transactions on Rwanda Stock Exchange have been few and distant. Looking at the bond side, two bonds have been issued since 2010. I & M bank issued a RWF 10 billion loan to support access to long terms funding. The other hugely successful transaction is the IFC Umuganda bond issued and listed in 2014. The IFC bond, though not in any way supportive of the budding housing and housing finance sector, was a success and demonstrated that the Rwandan capital markets welcomed domestic and international investors.
The IFC “Umuganda” bond was aimed at developing the capital market. Prior to the bond issuance, IFC had invested $2.5 million and $2.4 million in AB Bank Rwanda and Urwego Opportunity Bank respectively to support the expansion of microfinance services in the country and also increase access to finance for farmers, start-up businesses, and women entrepreneurs. IFC had also concluded a $25 million facility to support IHS Rwanda, a telecommunications infrastructure company, to expand the reach of Rwanda’s existing networks.
Foreign Institutional Investors:
Rwanda is home to 16 DFIs, collectively, mobilizing US$ 5.3 billion, in the period 2000 to 2017, to fund multi sectoral programs. USA (through its resident institution, the World Bank – US$ 2.1 billion) is home to the biggest investor in Rwanda, followed by China, through the Exim Bank – US$ 900 million. 10 out of the 16 DFIs (USA (HFHI), Norway (NORFUND), Austria (OPEC), Kenya (PTA), Kenya (Shelter Afrique), Uganda (EADB), Finland (Finn fund), USA (IFC), Luxembourg (EIB) and Germany (KFW), committed less than US$ 100 million, in the period 2000 to 2017, to the Rwanda economy. The section below provides details on the investors’ source of capital and other characteristics of their investment model.
Total Assets versus Investments in Housing and Housing Finance Related Activities:
In the period 2000 to 2017, 9% (US$ 470 million) of the total assets (US$ 5.5 billion) was invested/committed to activities in the housing and housing finance sector in Rwanda. The biggest investors in the sector were WB (US$ 140 million), Shelter Afrique (US$ 30 million), IFC (US$ 35 million) and Exim Bank (US$ 55 million).
Landscape of investment Activity in Housing:
This sections analyses the different investment tools targeting the housing and housing finance sector in Rwanda, their investment horizon and the period of investment.
Top Performing Investment Tools:
In the past two decades, financial institutions have formed strong partnerships with DFIs to ensure a constant supply of loanable funds, for their diverse portfolios. As is the case in Kenya, loans and lines of credit dominate (95%) the investment tools, in Rwanda. EIB and BRD have been instrumental in boosting I&M bank’s ability to offer long term finance to the housing sector. EIB advanced facilities of over EUR 5M for 7 years to I&M Bank to support SMEs involved in various business sectors including construction and manufacturing, thereby providing vital inputs to the housing sector.
Impact of Landscape of investment on Rwanda’s Housing Industry:
Several housing estates have emerged around the city of Kigali. Most of these developments are however targeting high end clients interested in luxury housing units (above US$ 35,000 per unit). The only exception is Batsinda project which is expected to deliver the first affordable housing units, starting with 530 units with support from government. Provision of standard housing units is far below the annual housing need of 35,000 units per annum, growing at rate of 20%, per year.
Challenges to deepening and broadening the Landscape of investment:
A combination of factors including inadequate supply of long term mortgage finance, relatively high inflation rates (over 6.2% on average for the last 10 years) and low levels of competition among the few existing mortgage lenders account for the high interest rates on mortgages. The main providers of housing finance products include the Rwanda Development Bank (BRD), I&M Bank, Bank of Kigali (BK), KCB Bank (KCB) and microfinance institutions – Urwego and Opportunity MFI. Funding for the banks is drawn from various sources (local and foreign institutional investors and internal funds), while MFIs are limited to internal sources.
Conclusion:
Rwanda’s housing and housing finance sector is yet to benefit from credit enhancement facilities and guarantees. Nonetheless, a programme of note is USAID’s Development Credit Authority (DCA) that was created in 1999 to mobilize local private capital through the establishment of real risk sharing relationships with private financial institutions in USAID countries. The tool has been used as a vehicle for providing much needed credit to an array of enterprises and underserved sectors. In Rwanda, this guarantee has benefited the agricultural sector. In 2001, USAID/Rwanda implemented several technical assistance projects to support Rwanda’s National Coffee Strategy.
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