Why set up a digital lending business in Rwanda?
There is a promising future for the Rwandan digital economy and the spending habits of the Rwandans as well as stable democratic regime, ease of doing business policies and the government's impressive drive towards technology infrastructural development to support digital businesses.
As of January 2023, Rwanda had about 5 million internet users with the country's internet penetration rate standing at 30.5% of the total population of 13.78 million. Available data shows that Rwanda's digital payments market is on a strong upward trend, with a total transaction value of about USD 1,417 million in 2023.
How do I set up a digital lending in Rwanda?
This digital loan method is increasingly replacing traditional offline loan application methods in Rwanda as a result of the increasing internet penetration and widespread use of mobile phones. In Rwanda, digital lenders are set up and licensed by the Bank of Rwanda ("BOR") as Non-Deposit-Taking Financial Services Providers ("NDFSPs"), which provide loans to individuals (and, in some cases, small business owners) through online loan platforms but are not allowed to take any deposit from the public. Through these online loan platforms, individuals in Rwanda can complete an entire loan application process virtually and get loan value in their bank account without moving an inch.
The first step in the process of setting up a digital lending business in Rwanda is to incorporate a financial services company with the Rwanda Development Board ("RDB"). Thereafter, a licence in the relevant category can be obtained from the Central Bank of Rwanda, which is the apex bank and regulatory of the Rwandan financial services space. Please note that a foreign NDFSP can open up a subsidiary or branch in Rwanda. Also, a digital lending business can combine financial and non-financial business as long as the financial business covers at least 70% of the assets.
Please read here to see the requirements for incorporating a digital lending company with the RDB.
What legal framework and licence categories exist in Rwanda digital lenders?
In Rwandan, digital lenders are largely regulated by the BOR's REGULATION No. 65/04/2023 of 25/04/2023 GOVERNING NON-DEPOSIT TAKING FINANCIAL SERVICES PROVIDERS ("Regulation"). Article 5 of the Regulation states that any Applicant intending to conduct financial services as a non-deposit-taking financial services provider must obtain a licence from the Central Bank (also known as the National Bank of Rwanda or NBR). As per the Regulation, all activities and changes that include appointment of board members and management; opening, relocation and closure of the place of business; change of corporate name; acquisition. amalgamation or merger; should all be approved by NBR.
The Regulation provides for three (3) categories of NDFSPs as follows:
a. Category I covers mortgage finance activities, refinancing services, and development finance institutions.
b. Category II covers credit services only, Finance Lease, credit guarantee services, peer-to-peer lending, factoring business and any other financial services that may be determined by the Central Bank.
c. Category III covers money lending, pawnshop, hire purchase or Buy Now Pay Later and any other financial services that may be determined by the Central Bank
d. Category IV covers the following:
- This regulation accommodates Saving and Credit Association (Ibimina) that have mobilized at least Frw 500 million funds in circulation among group members;
- Buy Now and Pay Later products that charge interests are accommodated;
- Money Lenders lending to only individuals not legal entities are accommodated with capital of Frw 30 million;
- Peer to Peer Lending (crowdfunding) are accommodated;
- Pawnshops are accommodated;
- Debt councilors are accommodated;
From the above, it is clear that regardless of the mode of operation, any company can carry on the business of lending in Rwanda under any of the above categories of BOR's licence.
Are there any special requirements to consider while incorporating a digital lending company?
1. What is the minimum share capital requirement?
Yes. The share capital requirement varies for the different categories of NDFI as follows:
Category I must be registered with a share capital of 100,000,000 RWF
Category II must be registered with a share capital of 50,000,000 RWF
Category III: A company seeking to set up as a non-deposit-taking financial institution under category 3 must be incorporated with a share capital of RWF 30,000,000.
Category IV: The share capital requirement under this category depends on the type of business. For instance, Saving and Credit Association (Ibimina) is required to have mobilized Frw 500 million funds; and Money Lenders lending to only individuals not legal entities are accommodated with capital of Frw 30 million.
See our previous article on How to Set up a Digital Lending Company in Lagos
2. Is an applicant for digital lending licence required to deposit the share capital with the National Bank of Rwanda?
Upon incorporating the company with the RDB, the promoters are required to immediately open a bank account for the company with a commercial bank in Rwanda. Before applying for the licence, the promoters must deposit the equivalent of the prescribed minimum share capital in the company's bank account in Rwanda and furnish the central bank with the evidence of such deposit (e.g. bank statement).
Take note that these funds should be domiciled in the bank account of the company and not with the central bank. However, the applicant must show compliance with this requirement by attaching proof that the minimum share capital is domiciled in the bank account of the company. During operations of the company, the deposited funds must not go below the minimum share capital value. If this happens, the Central Bank will request the company to inject more funds into the account to maintain the required minimum share capital.
The Regulation further allows a natural or legal person to own shares in NDFSPs up to the tune of 100%. Acquisition and transfer of significant shareholding should be approved by NBR. A single individual or corporate body can be the sole shareholder of a digital lending company in Rwanda by holding all 100% of the shares of the company.
3. What is the corporate governance requirement?
In relation to corporate governance, the Regulation provides the structure and composition of the board of directors and management for categories I and II (which are related to digital lending). Outsourcing is allowed provided it does not lead to conflict of interest, however, outsourcing material functions or activities requires NBR's approval.
The board of a digital lending company under Categories I and II of the Non-Deposit Taking Financial Service Provider must comprise of a minimum of three (3) directors with at least two (2) of them serving in a non-executive capacity.
Please note that directors of a digital lender must have relevant knowledge and qualifications in financial service or related fields. The Regulation is silent as to whether this number of directors and their industry knowledge, qualification and experience apply to all categories or only categories I and II. However, it is advisable that every digital company should be set up with a minimum of three directors regardless of the category.
A board member may serve on the board of more than one financial service provider. However, he or she must disclose this fact to the Central Bank and give an undertaking that the several positions held will not amount to a conflict of interest.
Where a director of the company is based outside of Rwanda, he or she shall show the Central Bank how he or she will fulfill the duties of directorship.
What is the procedure for processing a digital licence in Rwanda is the application submitted?
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KEY POINTS ON HOW TO SET UP A DIGITAL LENDING COMPANY IN RWANDA - Koriat Law
Originally published 18 April 2024
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
