Document Handling and Confidentiality

NBR Financial Education Manual 2025

• This is a financial education manual written by the National Bank of Rwanda (NBR)
• It is confidential

Introduction to the National Bank of Rwanda

• NBR is Rwanda's central bank, established in 1964.
• The primary goals are price stability and maintaining a sound financial system
• The Supervision Function allows NBR to supervise and regulate financial institutions
• NBR strives to be a world-class central bank, promoting economic growth and development
• The bank uses monetary policy tools for stable market prices
• It ensures financial stability, innovation, inclusiveness, and economic integration
• NBR's mission is to ensure price stability and a sound financial system towards becoming a world-class central bank
• The strategic plan has six key focus areas
  • Monetary policy formulation and implementation
  • Financial system stability
  • Reserves management
  • Currency management and banking services
  • Financial sector development and market conduct
  • Business excellence
• The Board of Directors governs NBR with a Governor, a Deputy Governor, and up to seven other members
• The headquarters are on KN 6 Avenue in the Nyarugenge district of Kigali
• NBR has branches in Musanze, Huye, Rwamagana, Rusizi, and Rubavu

Key Functions and Roles

• NBR formulates and implements monetary policy to maintain price stability
• As the government banker, NBR maintains government accounts and facilitates fund transfers
• NBR holds reserves for banks and facilitates interbank transactions as a lender of last resort
• NBR designs and issues Rwanda Franc banknotes and coins
• NBR conducts economic research and advises the government and other stakeholders
• NBR manages foreign exchange reserves and issues government securities
• NBR establishes and maintains a safe, efficient national payment and settlements system
• NBR supervises and regulates financial institutions to ensure stability
• Reserve requirements are set, audits are conducted, and guidelines for prudent banking practices are established
• NBR goalis to establish a robust and resilient financial sector that can withstand economic shocks
• NBR operates under Law n° 48/2017 of 23/09/2017

Understanding the Economy

• Global economies differ in natural resources, policies, and structures
• Key indicators help assess a nation's economic health and performance
• Macroeconomic stability balances controlled inflation, sustainable economic growth, stable currency, and a sound financial system
• Macroeconomic stability depends on internal factors like natural resources and external factors like international events
• Economic frameworks are established to manage these factors
• The frameworks in Rwanda span three key areas of economic policy
  • Monetary Policy: Central bank actions to regulate money, credit, and interest rates
  • Fiscal Policy: Government use of revenue collection and government spending to influence the economy
  • Structural Policy: Institutions and regulations that shape the economy
• Institutions oversee each policy area to maintain macroeconomic stability
  • Monetary Policy managed by National Bank of Rwanda (NBR)
  • Fiscal Policy managed by Ministry of Finance and Economic Planning (MINECOFIN)
  • Structural Policy managed by sector ministries and government agencies
• Balance is required on the following four areas:
  • Price within target band
  • Economic growth
  • Stable exchange rate, reflective of economic fundamentals
  • A stable financial sector
• The Central Bank collaborates with MINECOFIN and the IMF to set annual targets

Sectors of the Economy

• Economic policies are designed by analyzing the accounts of the economy's key sectors
  • Real Sector: Includes producing units like factories, farms, and businesses
    • Focuses on how much is produced, consumed, and invested
  • Monetary Sector: Deposit-taking institutions like banks
    • Focuses on credit and money creation
  • Government Sector: Central and local governments, and public corporations
    • Focuses on how much the government collects & spends
  • External Sector: The rest-of-the-world
    • Focuses on international trade, including exports and imports
• Sectoral accounts track interactions, detailing transactions between sectors
  • Real sector accounts track national product and income via information on how much the economy produces
  • Monetary accounts focus of assets and liabilities in banks and other deposit-taking institutions
  • External sector accounts include the Balance of Payments and International Investment Position
  • Government sector accounts record government revenues, expenditures, assets, and liabilities
• Sectors are interconnected meaning change in one sector can influence another through accounting identity
• Analyzing how these sectors interact assists in interpreting economic changes and whether policies align with macroeconomic goals
• Key indicators monitored across all sectors consist of unemployment levels, inflation, exchange and interest rates

Tools of Macroeconomic Stability

• Two key tools to achieve economic stability are the following:
  • Monetary policy: Influences the money supply using tools like interest rates
    • Handled by the Central Bank, or a monetary regulating authority, in Rwanda which is the National Bank of Rwanda
  • Fiscal policy: Involves adjusting taxes and government spending
    • Handled by the government, in Rwanda which is the Ministry of Finance and Economic Planning (MINECOFIN)

Monetary Policy

• Monetary policy is how the central bank regulates the money supply and borrowing costs.
• The National Bank of Rwanda (NBR) regulates Rwandan currency flow to maintain price stability and support economic growth
• The main goals are low, stable inflation and sustainable economic growth
• Low, predictable inflation makes it easier for people to plan spending and investments

Types of Monetary Policy

• Expansionary: Boosts the economy during slow growth by lowering interest rates, which encourages spending and investment
• Contractionary: Used when inflation is too high by increasing interest rates, thus reducing spending
• NBR aims to keep inflation within a target range of 2-8%

Monetary Policy Framework

• Strategies used by the central bank to reach stated policy goals
  • Policy objective: The central bank's main goal like keeping inflation around 5% in the medium term
  • Monetary policy instruments: The tools the Central Bank uses to influence the economy, like interest rates, reserve requirements etc
  • Operating target: The 7-day interbank interest rate
  • Intermediate target: The inflation forecast
• Monetary objectives- long-term like- low inflation and maintaining the value of money
• Intermediate targets guide the Central bank (money stock, outstanding credit, long-term interest rates)
• Operating Targets: Variables Central bank controls (short-term rates, reserve money that Influence intermediate targets)

Relationship between Targets and Objectives

• Intermediate targets help monitor variables like inflation and money supply.
• Controlling these leads to broader objectives like low inflation or economic growth.
• Short-term interest rates (operating target) can affect long-term interest rates.

Measuring Success of Monetary Policy

• Success is measured by Central banks that use indicator variables or economic signs, ie. the amount spent to see if current policies are beneficial
• The targets are based on:
  • Measurability via reliable tracked figures
  • Control- have influence over target
  • Predictability of targets for achieving policy objectives

Monetary Policy Instruments

• National Bank Rwanda transformed its approach to monetary policy since establishment in 1964

1. Direct monetary policy (1964-1990)- Interest Rate controls
2. Financial Liberalization (1990-1997)- Allowed fair market
3. Use of Indirect Monetary Policy (1997-2018)-Open Market Operations (OMOs) and Central Bank Lending
4. Price-Based Monetary Policy (2019-Present)- Uses interest rates, supported by (FPAS)

• The price-based framework advantages include Transparency, predictability and accountability (5% in medium term)

Monetary Policy Targets

• Intermediate Target: The inflation forecast
• Operating Target: The 7-day interbank rate (Managed to stay close to CBR)

Monetary Policy Channels & Prerequisites

• Bank lending and exchange rate channels effectively influence Rwanda's economy according to research
• A strong legal and regulatory framework ensures the central bank operates independently and efficiently
• Deep and broad financial markets effectively transmit central bank policies
• Understanding monetary transmission lags is necessary for adjusting policies effectively
• Accurate and timely economic data allows the National Bank of Rwanda to respond to changes effectively

Price Stability, Deflation, Coordination

• Price stability key to helping with financial decisions without worrying about sudden value changes (5% or less long term)
• Price stability maintains purchasing power, allows for long planning, creates lower interest rates and results in little overreaction
• Policymakers use fiscal and monetary policy differently
  • Monetary policy: Influences through money supply (National Bank of Rwanda)
  • Fiscal policy: Influences through government borrowing and spending (MINECOFIN)
• Deflation, like too high inflation, hurts economy
• Coordinated with Ministry of Finance and Economic Planning ensures taxing aligns with central bank

Fiscal Policy, Fiscal Sustainability, and Debt Dynamics

• Fiscal policy are government's decisions that influence revenue generation -Manages business cycle, stabilizes economy but remains sustainable by not increasing unsustainable debt
• Fiscal sustainability is about ability to service without policy change
• Impact are short and long term
• Short term: Directly impacts aggregate demand
• Expansionary boosts economic growth by cutting taxes
• Contractionary slows inflation by reducing taxes or raising taxes
• Long term: Sustainability becomes critical because debt can influence resources used for health and education

Pro-Cyclicality and Counter-Cyclicality

• Pro-cyclical fiscal policy increases government spending during economic booms
• Counter-cyclical fiscal policy increases spending during recessions
• COVID forced nations like Rwanda to implement expansionary fiscal policies to increase healthcare and aid

Debt Dynamics and Management

• Governments can borrow through issuance of debt securities, in local financial markets and issue bonds.
• Multilateral and bilateral loans from word bank can also offset development costs and stabilize crisis.
• Debt management includes:
• Economic Growth
• Interest Rates
• Primary balance
• Debt sustainability is about maintaining debt at sustainable levels with:
• Solvency
• Liquidity
• Realistic Adjustment

Understanding Money Supply

• Money facilitates the exchange of goods and services and acts as a store and standard of value.
• Money supply defines the total amount of money available in an economy

Ways to Measure Money Supply

• Base money Includes currency in circulation & bank reverses
• M1 Includes cash & checking and savings banks
• M2 Includes savings accounts
• M3 Includes Large Investments
• Money supply has increased due to modern payment sytems but regulated with Open Market Operations

Open Market Operations

• NBR controls using OMO Securities to add or substract economic bonds.
• OMO Helps keep stability while (FMOC) estimates the amount of national money.

Understanding How Money is Created

• Money is created By either lending to financial assets or setting Federal Reserve.
• Fractional Resolve Banking allows loan expansion while depositing funds.
• The total money is derived into a geometric series with the Money Multiplier formula.
• Rationale is based out from geometric series with 2 assumptions.

1. Banks only hold fraction and lend out.
2. Each loan is deposit after being lent

Why Doesn't Rwanda Print Money?

• Printing too much causes economic inflation and prices go up
• The economy must improve production to match economic growth by using technology because only printing more causes harm to economic levels.

Understanding Economic Growth

• Economic Growth increase in goods for a set time doesn't mean its better
• There are several indicators such as
• GDP- Measure Production
• GNP- Measure services of domestic/ international economics + NFI
• GNI- Diff of citizen earnings but excludes foreigners in country
• The Formula
• GDP= C+l+G+NX
• GDP Shows a production divided of how much output per population.

GDP Calculations and Limitations

• There are three main methods:
• Expenditure Approach- Adds Spending on final goods
• Income Approach
• Productivity Output approach- adds value at each stage of production.
• GDP Is not as simple or synonymous with Economic Development
• There are Key differences between GDP & GNP
• GPD growth rate shows much a country gdp decreases or raises.
• There are 3 Key Factors:
• What doesn’t capture?
• What is Recession?
• What is Depression?
• Nominal v. Real growth (adjusts by comparing output with rates)

What is Inflation?

• Rise is prices lowering buying meaning
• Can impact, lead to, and prevent;
• Raises cost of living
• Higher operating codes
• Uncertainty government
• Moderate helps Economic growth too high destabilizes economy

Types of Inflation?

• Creeping- Is slow
• Running- Is Rapid
• Walking- Is Moderate
• Hyperinflation- Has extreme rising levels

Measuring Inflation?

• CPI Consumer Price Index is most often used to compare what households typically by.
• CPI Is often created by a chart and keeps track of services by checking prices often Helps to show economic change over various periods for stability.

GDP Deflator

• Helps find price levels for all domestically produced products in that economy
• Major Limitations of gross to product with no account

What is Rubasing?

• Updating baseline used for calculatinig GDP better to reflect the economy to which it shifts in.
• Doesn't capture non market (household). The key indicators will include CPI and GDP Differences

Inflation Rate

• Contribution
• Core v. headline- excludes to show longterm price trend Monetary Policy

Balance of Payments

• Understanding a country economy is tied with analysis involving trade
• The entries involved are either stock of flows, Stocks at are point
• Flows depicts changes of assess and liabilites.
• It is said that its main external debt and has concept and flow types.
• Transaction and Provision can be one or twosided for a transfer
• BoP Is important for external analysis and debt.
• Debt sustainability analysis (DSA)- Forward exercisable assessment used when government has to sustain its depth.
• External sustainability approach evaluates rates while establishing current debt with economic fundamentals.
• Twin Deficits - when government increases spending, domestic demand leads with high account Deficit

Rwanda Financial Systems

• Intermediaries that involve capital exchange
• 687 Institutions, rise in June 2023 , but driven by new institution that lack deposit.
• Financial systems main components include; Legal obligations money, financial marketing
• Macro Financial Analysis focuses on the Stability.
• Financial Stability Is used for allocation with economic resources.

Consequences And Structure

• Structural is the economic structure and helps reduce risk of economy
• Tools used for macro include indicator and assessment monitor in key sectors.
• There are regulators.
• Indicator used is Lending Institution and rate control.
• Central Banks play pivotal role in maintaining

Non-bank Financial Institutions (NBFIs)

• Facilitate activities suck insurance
• Supervised by Nat's Bank of Rwanda (Includes; micro, forex, money remitters, lending services insurance)
• Licensed companies carry out these actions with some having credit (SACCOs)
• Supervisions include licensing and regulating; Conducting inspections.
• Foreign Exchanges need Authorization to engage and conduct business with rates.

NBR Role with Foreign Exchanges

• No Selling or buying Foreign Money.
• Public to buy only under authorized dealers.

Money Remittances Services

• Carrying out Financial Exchanges transfer with people in any location
• Note money services are not for those who are allowed to take deposits

Non-Deposit Taking Financial Service Providers (NDFSPs)

• Legal entities that don't accept deposits
• Provide services such loans based out;
• Mortgage Services- Helping Loans for Property.
• Refinanciing Services- Banks Get Funds To Assist Loans.
• Development Finances Institutions Funding Community.
• Capital for category 1, 100 FRW capital category 2 is 50 FRW.

Registration Categories

• NDFSP's Actively Funded.
• They show there information with the financial consumer act.
• They should subscribe to credit and tell the bureau the clients.

Deposit Guarantee Fund

• Managed by The National Bank of Rwanda where people contribute
• Has created from source.

Financial Markets

• Places whether buyers and sellers make economic decisions that effect mobilization towards financial investment promoting a safety and growth

Financial Instruments

• Equities- Securities showing ownership in the company
• Bonds Enables investments and profits

Role In Economy

• Mobilizing savings
• Channeling funds
• Enabling small savers
• Economic growth

Main Topics of the Report

• Interest Rate: Price for Money Percentage
• Types: Vary On what you have; Formula is interest times percentages
• Commercial Banking Rate- Lending and Deposit rates
• Spread Difference: in banks profits
• Factors Influencing- Funding costs, Risk factors
• NBR- Allows banks to compete