Memoire Online - The rationale and impact of Banques Populaires transformation from a cooperative to a commercial bank

I, UKWIBSHAKA Alexis, hereby declare to the best of my knowledge, this dissertation entitled: The rationale and the impact of banques populaires transformation from a cooperative to a commercial bank, here in presented, is my original work and where another's work has been used, it is indicated in quotations and the bibliography. It has never been presented any where for a similar award at Umutara Polytechnic or in any other academic award.

CERTIFICATE

This is to certify that this work titled « THE RATIONALE AND THE IMPACT OF BANQUES POPULAIRES TRANSFROMATION FROM A COOPERATIVE TO A COMMERCIAL BANK» was done by UKWIBISHAKA Alexis REG n° BCUP/0027/E/06 a student in the option of Finance at Umutara Polytechnic in partial fulfillment of the requirements for the award of the bachelor's degree of commerce under my guidance and supervision.

DEDICATION

This work is dedicated to the Almighty God, My spouse Rosine UMUTARUTWA, my daughter Milliam, the loving memory of my late parents: NZAMUGURA Jacquéline and RUBADUKA Céléstin for their vital support in my education. It is also dedicated to my brothers: HAKORIMANA Aphrodis and NIYONSABA Pascal, the late beloved brother NSABIMANA Théoneste, to my sisters: NYIRAMARIZA Angélique, MUKAYIRANGA Dorothy and VUGUZIGA Grace for their crucial assistance during my long education, finally this book is dedicated to all my uncles and aunts and all relatives for their help to achieve this work.

ACKNOWLEDGMENTS

Enough has been done throughout my education, thanks be to GOD THE ALMIGHTY for granting me life and courage throughout my work.

Many people contributed to the completion of this work; I would like to express my sincere thanks to everyone who assisted and supported me to reach the completion of this work.

I wish to express my sincere gratitude to my supervisor Dr. Eugene NDABAGA for his vital professional guidance, patience and careful supervision, which have made this work genuine.

I would like to recognize all the staff of Umutara Polytechnic, especially my lecturers and classmates for their generous and brilliant encouragement given to me to overcome some huddles during my studies.

May the founder members of this institution find my cordial thanks for their work of launching this superb institution.

I am indebted to my supervisor Dr. Eugene NDABAGA, who has been determinant to my academic research, without him, this work would not be possible. Dear Sir, I appreciate and recognize your kind support for my work. God Bless you.

I wish to express my sincere gratitude to the families: NSENGIYUMVA Fulgence, SIBOMANA Laurent, RURANGWA Antoine, RUHAMANYA Francois, MURENZI Eric, NARAYISENZE Aristote, MUGABE Anthony and HAKIZAKUMEZA Innocent for their support.

Special thanks be delivered to my spouse UMUTARUTWA Rosine for the great efforts and support that led to my life and academic accomplishment; Thanks My dear wife.

I owe my thanks to my sisters and brothers, uncles and Aunts, my friends, who scarified their time, comfort and support throughout my work and success and all others whom we shared the struggle for success.

God bless you each and every body mentioned and unmentioned for their support in the realization of this work.

TABLE OF CONTENT

LIST OF ABBREVIATION AND ACRONYMS.

MINICOM : Ministry of Commerce,Industry,Investment promotion, Tourism and Co-operatives.

LIST OF FIGURES

LIST OF TABLES

Table 1 : Distribution of respondents according to their relationship with the bank.

Table 3 : Distribution of respondents according to their levels of education.

CHAPTER ONE: GENERAL INTRODUCTION.

I.1. INTRODUCTION

I.1.1 THE BACKGROUND OF BANQUE POPULAIRE

The first Banque populaires was created in German by Wilhem Raiffeisen and Herman Schulze in 1864. By that time, the industrial development of European countries created a large number of salaried populations in the city from the mining of coals and metals.

The workers and subordinate employees who were poorly paid had difficulties in surviving; the social security and life insurance did not exist at that time. The families with modest revenues were required to get the credits for solving extra ordinary expenses incurred. The banks did not grant those kinds of credit but money lenders granted credits at the highest interest rate.

It become important to change that situation through the creation of credit co-operatives to have access to credit by low income earners, to put together their financial capacities in order to have access to credit with low interest rate. Thereafter the creation of «BANQUE POPULAIRES» expanded quickly in German, Italy and other European nations. After Europe, Banques populaires were extended to Canada where Alphonse Desjardins established the first Banque populaire at Levis in Quebec. In 1970, there were 79,206 Banques populaires around the world and 1795 were in Africa.

A world association credit and savings cooperatives( CUNA international) was established in 1958 and was replaced by a world council of savings and credit cooperatives (WOCCU) in 1970 which comprised of seven members and among those, there were credit and saving associations in Africa (ACECA).

Banque populaire was introduced in Africa in 1946 and English speaking countries were the first to receive them in Africa. Banques populaire quickly expanded in Africa because Africans were carrying out the savings and credit societies practically through traditional associations.

The first Banque populaire was created in 1948 at Kampala in Uganda by a group of teachers through a Ugandan priest «Emmanuel KABILIGE». Other countries followed such as Tanzania (1950), Malawi 1952, Nigeria 1953, Ghana 1955, Lesotho 1961, Cameroon 1963, Kenya 1964, Liberia1965, Zambia 1967 and Togo 1968. (www.banquepopulaire.fr)

I.1.2 BANQUES POPULAIRES IN RWANDA

In Rwanda, the idea of saving and credit by rural population was started from independence.In 1963, «caisse d'épargne du Rwanda» was created and its main objective was to offer means of saving and credit by rural population and particularly to farmers. In 1968, it was reported that the caisse d'épargne du Rwanda failed to achieve its objectives. For that reason, the government of Rwanda asked France, Switzerland and Canada technical and financial assistance to create a financial institution capable of granting credit and keeping savings of rural population, in 1973, the government of Rwanda and Switzerland signed an agreement to start the project of saving and credit for rural development. In the same year, four Rwandans went for training in the Swiss cooperatives of saving and credit called «Caisse RAIFFEISENNS WISSES». After the training, they come back and put in practice the knowledge they acquired from the training (www.ubpr.com.).

The first Banque Populaire in Rwanda was opened officially at Nkamba on 4^th august 1975 in Kabarondo the former Kibungo province now the Eastern Province. From that year, Banques populaires expanded at significant rate and by December 31, 2006 there were 148 banques populaires in the whole country. In Rwanda the saving and credit cooperatives are called Banques populaires. They were supervised by the state through an institution called «orientation bureau».

v To serve as the central bank for managing the deposits of all Banques populaires;

v To prepare accounting materials and Books for all Banques populaires in the country;

In 1968, the orientation bureau was replaced by Union des Banques populaires du Rwanda (UBPR). Banques Populaires in Rwanda did not distribute the benefits to their members. The annual benefits were affected in the reserve fund, which constituted the guarantee for their creditors and for their members and expand investments such as acquisitions of equipment and placement buildings.

I.1.3 KEY DATES IN BANQUES POPULAIRES HISTORY

1975: Inception of the first Banque populaire of NKAMBA in Kibungo, Eastern province. This was followed by the establishment of many others around the country.

1986: The various autonomous Banques Populaires du Rwanda formed an umbrella called Union des Banques Populaires du Rwanda (UBPR) with a cooperative mission.

January 2008: Basing on its strong experience of 33 years in the Rwandan financial sector, UBPR was transformed from a cooperative Bank into a commercial bank «Banque Populaire du Rwanda S.A». (www.bpr.rw)

I.2 BACKGROUND OF MICROFINANCE IN RWANDA.

Micro-finance is an important part of the financial sector in Rwanda, led by the Union des Banques Populaires du Rwanda, a network of micro-finance institutions that served as micro-lenders and micro-banks for nearly two-thirds of all depositors in the country. This institution controlled over 97% of the micro-finance sector in Rwanda. (Rwanda Microfinance Sector Assessment 2005)

The microfinance sector in Rwanda has been dominated by the network of Banques Populaires especially in terms of a number of recipients of the financial services and volume of activities.

In 1972 Switzerland agreed to help Rwanda duplicate the Caisses Raiffeisen model in

2. To stimulate the creation of Small and Medium Enterprises (SMEs) by democratizing credit. (Steven 2004)

In 1994 before the war and the genocide in Rwanda, UBPR had more than 130 affiliated

Banques Populaires servicing 366.799 members throughout the country. During the war 1990 - 1994

UBPR reopened gradually after the war and in 1996 the system comprised of 42.000 members

and only 20% of its old staff. Between 1996 and the 1998 operations of credit were stopped

because of the important level of nonperforming loans. The distribution of credit started again

in 1998 and at the end of 2002 UBPR counted 315.356 members and 148 Banques Populaires.

The 27th General meeting of the UPBR of April 21, 2007 decided to transform this very important coopec (Cooperative d'épargne de credit ) into commercial bank which would keep the cooperative principles of governance while offering a range of varied financial services to its members. This was in line with the recommendations of the Financial Sector Development Program adopted by the Government. Beginning of the year 2008, these Banques Populaires and their Central Caisse were transformed into a commercial bank, called Banque Populaire du Rwanda SA (BPR SA) (WOCCU report 2002).

The Banques Populaires transferred all their assets to UBPR after their evaluation. The capital of UBPR was increased by the value of these assets. Thus the revalued capital increased by 35% which were bought by Rabobank the strategic partner (Rabobank gives the technical assistance necessary to transform BPR into a true commercial bank). The shareholders of BP became shareholders of BPR SA. UBPR modified its network by transforming the 18 principal Banques Populaires into branches of BPR and other BP in sub branches. BP has a structure of a cooperative banking license with commercial objectives while maintaining its cooperative characteristics and by preserving the shareholders role and its bond with the local communities.(www.bpr.rw)

The Government of Rwanda is aware that poverty reduction can not be achieved without access to financial services to the poor. As a result, microfinance is considered a powerful tool to reduce poverty and the current Poverty Reduction Strategy (PRS) Paper emphasizes it.

A number of initiatives to boost the microfinance sector in Rwanda have been put in place so far, including the development of a legal and regulatory framework. The development of a sector policy is underway. SNV, in its attempt to strengthen the private sector and make a dent into the poverty level in Rwanda, deemed it necessary to carry out an analysis of the microfinance sector in Rwanda, in order to develop an appropriate microfinance strategy which would ensure effective provision of financial services.

Consequently, an assessment of the microfinance sector in Rwanda was conducted by Enterprising Solutions. It focused on the range of financial services available; who has access to them and who does not, the key constraints and opportunities to providing microfinance, the key stakeholders, and their respective roles in creating an enabling environment and access of the poor to financial services (Microfinance Assessment paper 2005 ).

I.3 STATEMENT OF THE PROBLEM

In the last decade, Rwanda like most other sub-Saharan Africa countries has religiously followed the economic liberalization program, privatized the financial sector to reduce financial depression, encourage market determined prices of financial services, encourage entry of international players and entrance market competition.In 1999 the national Bank of Rwanda act (i.e. the Rwanda central bank act) was revised to grant its independence, to formulate and implement monetary policy and ensure financial sector stability.

In addition, the central bank supervisory capacity was strengthened to enhance regulatory frameworks, Reduce regulatory forbearance, ensure market displine and comply with the basic principles of effective supervision. However, despite of all the reforms, the Rwandan authorities recognized that the financial sector's ability to play its role of mobilizing saving, conducting effective intermediation and financing it's ambitious economic reform agenda was still far from achievable.

The authorities invited the joint world bank/IMF Financial Sector Assessment Program (FSAP) with a mission to carry out financial sector assessment program and make a diagnostic of the sector and make recommendations for further reforms. The conclusion of the 2005 FSAP report not surprisingly describes the Rwandan financial sectors as "narrow and shallow» with an oligopolistic banking sector and very low penetration of insurance services as well as undiversified financial products. The Financial Sector Assessment Program (FSAP) further recognized, High interest rate, poor savings rate, scarcity of long term capital, unregulated pension and insurance sectors and malfunction of payment system. (Financial Sector Development Program 2008)

In the context of addressing the weaknesses raised in the FASP and in line with Rwanda's vision 2020, the long term vision for the development of the country, the government launched the FSDP in 2006.

The overarching vision of the «FSDP» is to develop a stable and sound financial sector that is efficiently deep and broad, capable of mobilizing and allocating resources to address the development needs of the economy and reduce poverty".

The government of Rwanda recognizes the importance of the financial sector and has made the FSDP one of the key components of the growth flagship in its Economic Development and Poverty Reduction Strategy (EDPRS Paper 2006).

The scope of FSDP was to address weaknesses in four areas: access to finance, capital market development, regulation of non-bank financial institution ( NBFI ) and payment systems.

Access to banking and other financial services out side Kigali and other major towns is still very limited. In 2005 the combined branch net-work of the 7 commercial banks was only 38. In terms of business services commercial banks accounted for about 75% of total deposits and loans yet only about 10% in terms of customers. A net work of cooperative and credit union, union des banques populaires du Rwanda UBPR with a national wide outreach of 148 savings and credit outlets, as well as other financial other MFI accounted for 90% of customers but only 25% of total deposits and loans.

In addition, Microfinance Institutions (MFI) which should normally play a significant role in bridging this gap was still weak lacked adequate financial management systems, had weak internal controls and poor governance structures.(FSAP paper 2008)

UBPR, the apex body of microfinance institution that controlled over 97 % of the microfinance sector in Rwanda with about 90 % of all customers served by Rwandan financial sector, had weaknesses such as inability to offer full commercial services such as the use of checks, international transfers and inability to grant long term loans.

The structure of UBPR also reduced its loan granting capacity because each branch was considered separately , considering the above weaknesses , these branches needed to be consolidated and transformed into a bank that has an extended loan granting capacity and offering full range of banking services in line with FSDP and 2020 vision , hence becoming a commercial bank. Therefore the researcher wanted to find out the rationale and the impact of «banques populaires transformation from a cooperative to a commercial bank».

I.4 OBJECTIVES OF THE STUDY

ü To identify the rationale of «banques populaires» transformation from a cooperative to a commercial bank.

ü To find out the impact of «banques populaires» transformation from a cooperative to a commercial bank.

I.5 RESEARCH QUESTIONS

The questions for which this study has to struggle to find solutions to are the following:

Ø What was the rationale of «banques populaires» transformation from a cooperative to a commercial bank?

Ø Is there any impact of «banques populaires» transformation from a cooperative to a commercial bank?

Ø Has the transformation of «banques populaires» from a cooperative to a commercial bank improved its services?

Ø Has the transformation of «banques populaires» from a cooperative to a commercial bank improved its economic activities?

I.6 PURPOSE OF THE STUDY

The purpose of the study is to find out the rationale and the impact of «banques populaires» transformation from a cooperative to a commercial. The researcher therefore, would like to find out if there is any positive transformation for economic development and as a result of this, formulate any recommendation that may help the bank in its financial development.

I.7 SIGNIFICANCE OF THE STUDY.

A part from academic use as a requirement to complete a bachelor's degree, this research will offer awareness of the structured changes and operations of BPR SA and help its customers to be aware of its day-to-day work. It may also help other researchers in related fields and finally the stakeholders especially shareholders and the clients of the bank benefit from this research on BPR transformation.

I.8 THE SCOPE OF THE STUDY

The study was carried out in Banque Populaires du Rwanda SA at its head quarters by interviewing a group of sixty respondents involving twenty employees, thirty five customers and five members of board of directors.

I.9 LIMITATIONS OF THE STUDY

^{The first limitation of the study was to
deal with busy people, some of whom do not have time to be interviewed or to
fill questionnaires. Getting the sufficient information from such people was
very difficult.}

^{Time stipulated for this study was in such away that the
collection, compilation and submission of the research work was not enough
because of limited resources. However, the results are significant and pave
away for further research.}

^{Another problem encountered was that of non-response.
Some of the respondents reserved their views. However, the researcher used
probing approach to deal with this problem.}

^{Overall, although the researcher faced many problems, the
respondent's general involvement in the whole exercise was remarkably good.
This made the present study possible and fruitful since all respondents reacted
positively to the study.}

I.10 ORGANISATION OF THE STUDY

This study is organised in five chapters; the first chapter is the general introduction which includes introduction, background of the study, statement of the problem, purpose of the study, research questions, the significance of the study ,the scope of the study , limitations of the study, organisation of the study and definition of terms. The second chapter is literature review. The third chapter is titled research methodology. The fourth chapter is titled data presentation and analysis of data and the last chapter of recommendations and conclusions.

CHAPTER TWO: LITERATURE REVIEW.

II 1 BANKING TOWARDS THE DEFINITION

II 1 1 DEFINITION

A bank is a financial institution licensed by a government. Its primary activities include borrowing and lending money. For example Banks are important players in financial markets and offer financial services such as investment funds. In some countries such as Germany, banks have historically owned major stakes in industrial corporations while in other countries such as the United States, Banks are prohibited from owning non-financial companies. The level of government regulation of the banking industry varies widely, with countries such as Iceland, the United Kingdom and the United States having relatively heavier regulation of the banking sector, and countries such as China having relatively heavier regulation (including strict regulations regarding the level of reserves)(www.wikipedia/bank).

II 1 2 ORIGIN OF THE WORD «BANK»

The name bank derives from the Italian word banco »desk/bench», used during the renaissance by Florentine bankers, who used to make their transactions above a desk covered by a green tablecloth. However, they are traces of banking activity even in ancient times. In fact, the word traces its origins back to the Ancient Roman Empire where moneylenders would set up their stalls in the middle of enclosed courtyards called macella on a long bench a bancu, from which the words banco and bank are derived. As a moneychanger, the merchant at the» banca» did not so much invest money as merely convert the foreign currency into the only legal tender in Rome (www.wikipedia/bank)..

II 1 3 TRADITIONAL BANKING ACTIVITIES

Banks act as payment agents by conducting checking or current accounts for customers, paying cheques drawn by customers on the bank, and collecting cheques deposited to customer's current accounts. Banks also enable customer payments via other payment methods such as telegraphic transfer, EFTPOS (Electronic Funds Transfer Through Point of Sale) and ATM (Automatic teller Machine).

Banks borrow money by accepting funds deposited on current accounts, by accepting term deposits, and by issuing debt securities such as bank notes and bonds. Banks lend money by making advances to customers on current accounts, by making installment loans, and by investing in marketable debt securities and other forms of money lending.

Banks provide almost all payment services, and a bank account is considered indispensable by most businesses, individuals and governments (www.wikipedia/bank).

II 2 A COOPERATIVE TOWARDS THE DEFINITION

II 2 1 DEFINITION

A co-operative bank is a financial entity which belongs to its members, who are at the same time the owners and the customers of their bank. Co-operative banks are often created by persons belonging to the same local or professional community or sharing a common interest. Co-operative banks generally provide their members with a wide range of banking and financial services (loans, deposits, banking accounts...)(www.wikipedia/cooperativebank).

Co-operative banks differ from stockholder banks by their organization, their goals, their values and their governance. In most countries, they are supervised and controlled by banking authorities and have to respect prudential banking regulations, which put them at a level playing field with stockholder banks. Depending on countries, this control and supervision can be implemented directly by state entities or delegated to a co-operative federation or central body (www.wikipedia/cooperativebank).

II 2 2 FEATURES OF COOPERATIVE BANKS

Even if their organizational rules can vary according to their respective national legislations, co-operative banks share common features:

· Customer-owned entities: In a co-operative bank, the needs of the customers meet the needs of the owners, as co-operative bank members are both owners and customers. As a consequence, the first aim of a co-operative bank is not to maximize profit but to provide the best possible products and services to its members. Some co-operative banks only operate with their members but most of them also admit non-member clients to benefit from their banking and financial services.

· Democratic member control: Co-operative banks are owned and controlled by their members, who democratically elect the board of directors. Members usually have equal voting rights, according to the co-operative principle of «one person, one vote» (www.wikipedia/cooperativebank).

· Profit allocation: In a co-operative bank, a significant part of the yearly profit, benefits or surplus is usually allocated to constitute reserves. A part of this profit can also be distributed to the co-operative members, with legal or statutory limitations in most cases. Profit is usually allocated to members either through a patronage dividend, which is related to the use of the co-operative's products and services by each member, or through an interest or a dividend, which is related to the number of shares subscribed by each member(www.wikipedia/cooperativebank).

Co-operative banks are deeply rooted inside local areas and communities. They are involved in local development and contribute to the sustainable development of their communities, as their members and management board usually belong to the communities in which they exercise their activities. By increasing banking access in areas or markets where other banks are less present - SMEs, farmers in rural areas, middle or low income households in urban areas - co-operative banks reduce banking exclusion and foster the economic ability of millions of people. They play an influential role on the economic growth in the countries in which they work in and increase the efficiency of the international financial system. Their specific form of enterprise, relying on the above-mentioned principles of organization, has proven successful both in developed and developing countries(www.wikipedia/cooperativebank).

II 3 A COMMERCIAL BANK TOWARDS THE DEFINITION

II 3 1 DEFINITION

A commercial bank is a type of financial intermediary and a type of a bank. Commercial banking is also known as business banking. It is a bank that provides checking accounts, savings accounts, and money market accounts and that accepts time deposits. After the Great Depression, the U.S. Congress required that banks engage only in banking activities, whereas investment banks were limited to capital market activities. As the two no longer have to be under separate ownership under U.S. law, some use the term "commercial bank" to refer to a bank or a division of a bank primarily dealing with deposits and loans from corporations or large businesses. In some other jurisdictions, the strict separation of investment and commercial banking never applied. Commercial banking may also be seen as distinct from retail banking, which involves the provision of financial services direct to consumers. Many banks offer both commercial and retail banking services (www.wikipedia/commercialbank).

Commercial bank is the term used for a normal bank to distinguish it from an investment bank. This is what people normally call a "bank". It raises funds by collecting deposits from businesses and consumers via checkable deposits, savings deposits, and time (or term) deposits. It grants loans to businesses and consumers. It also buys corporate bonds and government bonds. Its primary liabilities are deposits and primary assets are loans and bonds.

Commercial banking can also refer to a bank or a division of a bank that mostly deals with deposits and loans from corporations or large businesses, as opposed to normal individual members of the public (retail banking)(www.wikipedia/commercialbank).

II 3 2 THE ROLE OF COMMERCIAL BANKS

· Processing of payments by way of telegraphic transfer, EFTPOS, internet banking, or other means issuing bank drafts and bank cheques accepting money on term deposit

· Lending money by overdraft, installment loan, or other means providing documentary and standby letter of credit, guarantees, performance bonds, securities underwriting commitments and other forms of off balance sheet exposures safekeeping of documents and other items in safe deposit boxes sale, distribution or brokerage, with or without advice, of insurance, unit trusts and similar financial products as a «financial supermarket» traditionally, large commercial banks also underwrite bonds, and make markets in currency, interest rates, and credit-related securities, but today large commercial banks usually have an investment bank arm that is involved in the mentioned activities(www.wikipedia/commercialbank).

II 4 OVERVIEW OF A FINANCIAL SYSTEM IN RWANDA

The National Bank of Rwanda (NBR) i.e. the Central Bank has the sole responsibility for monetary policy and its principal objective is to ensure price stability within the system. All financial institutions are subject to supervision and regulation by the NBR under the Banking Law of 1999.

On 31st December 2007, the Rwandan financial sector was made up of six commercial banks; a development bank; a housing bank; a micro-finance bank; a discount house and two hundred thirteen (213) micro-finance institutions, from which two hundred (200) were cooperatives while twelve (12) were public limited companies and one (1) private limited company. Among other financial institutions operating in Rwanda, there was the unit of the Giro Account of the Post office, five (5) insurance companies and the Social Security fund of Rwanda (SSFR)(Annual report on bank supervision period 1995 to 2007).

Micro-finance is an important part of the financial sector, led by the Union des Banques Populaires du Rwanda, a network of micro-finance institutions that served as micro-lenders and micro-banks for nearly two-thirds of all depositors in the country. This institution controls over 97% of the micro-finance sector in Rwanda.

Recently, most commercial banks have centered their operations on trade finance as opposed to long-term debt financing. This has triggered off to lack of productive investment activity, thus there is urgent need to focus attention on the reform and strengthening of the financial sector. These appeals for introduction of more banks, financial products and capital market.

There are a number of opportunities for investment into mortgage banks to enhance access to property, agricultural banks to offer credit to farmers and introduction of new financial products including leasing and venture capital to minimize hardships of opening business as well as its continued successful operation NBR (Annual report on bank supervision period 1995 to 2007).

II 5 EXTENDING RURAL FINANCE IN POST-CONFLICT ECONOMY IN RWANDA

During the eight years since the end of the civil war and genocide that ravaged Rwanda's society and economy in 1994, Rwandans and international partners have worked diligently to rebuild the country. The genocide not only led to more than 1 000,000 deaths and many more refugees and internally displaced people, but also, in 1994, the GDP fell by 50%. Still today, at least 60% of Rwandans live below poverty line according to the U.S. Agency for International Development (USAID) and the International Monetary Fund (IMF) report 1999, approximately 80% of the population lives in rural areas. Immediately, before the war, the Union des Banques Populaires du Rwanda (UBPR - the national federation of Rwandan credit unions) and over 130 affiliated banques populaires (individual credit unions) located throughout the country, served 366,799 member clients. During the war, roughly $7 million was stolen. The UBPR closed its doors, like other all financial institutions including the Central Bank of Rwanda, during the war in 1994.The UBPR reopened gradually with most banques populaires resuming operations in 1996. By the end of 1996, there were 42,000 members and only 20% of the pre-war staff. Between 1996 and 1998, credit operations were halted since virtually all loans that had been granted before the war were non-performing. Most pre-war borrowers were deceased or displaced and most collateral as well as banque populaire records had been destroyed. Banques populaires resumed lending in 1998. ( WOCCU report 2000).«Rwanda has

The World Council of Credit Unions (WOCCU) received funding totaling of $3 million from USAID/Rwanda to carry out a four-year program of rehabilitation and institutional strengthening of both UBPR (the federation) and a limited number of pilot banques populaires. The WOCCU Rwanda program fits within USAID/Rwanda's strategic objective of expanding economic opportunities in rural areas, particularly under the rubric of improving access to financial services. The program also responded to the desire of the Central Bank of Rwanda for the banques populaires to provide credit for rural development. The UBPR system, 148 banques populaires at year-end 2002, has the widest geographical coverage of any financial institution in Rwanda.

The WOCCU Rwanda program (8/00-8/04),working in close collaboration with the UBPR, set out in late 2000 to restructure the UBPR and guide it from a loss-making position to a solvent position (WOCCU report 2000).

II 6 ACCESSING FINANCIAL SECTOR DEVELOPMENT IN RWANDA

Rwanda's financial sector is comprised of a central bank, eight commercial banks, several foreign exchange bureau, a stock exchange market, as well as microfinance institutions. Commercial banks account for over 75 percent of total deposits. The financial sector development plan of the Government of Rwanda aims at addressing four main weaknesses in the financial sector: access to finance, capital market development, regulation and supervision of non-bank financial institutions and the development of payments systems(FSAP Paper 2005).

Financial sector reforms in Rwanda started in 1994/95 with the establishment of five new banks after the war. Overall, Government has been cautious in its efforts to undertake financial sector reforms. Among all these aspects of reforms mentioned above, the main areas of reform focused on strengthening prudential supervision and regulation of the financial sector. 80 percent of «Banque Commerciale du Rwanda» were sold to foreign investors in 2003/04. The National Bank of Rwanda also started comprehensive annual inspections of banks in 2004. In an effort to support the mobilization of long-term savings, the Rwandese Government has set up a Working group to spearhead the establishment of the Rwanda stock exchange project in June 2004. The stock exchange was eventually established in January 2007 (FSAP Paper 2005).

As regards the current state of the financial sector reform, it was noted in the statement of the IMF Staff Representative at the Rwanda Donors' meeting in Kigali, November 26-27, 2007 that the Government of Rwanda had developed a comprehensive and detailed «Financial Sector

Development Plan» (FSDP), based on the 2005 Financial Sector Assessment Program (FSAP), which the Government had submitted to the donors in May 2007. The plan for the financial sector reforms focused on five main areas:

II 7 1 UBPR TRANSFORMATION FROM A COOPERATIVE TO A COMMERCIAL BANK UNDER RABOBANK : HISTORICAL PERSPECTIVE

The National Bank of Rwanda (BNR) licensed Bank Populaire, a highly successful local savings and credit union with 148 branches nationwide into a fully-fledged commercial bank in January 2008. The decision was part of a wide range of recommendations by a team of consultants hired to advise BNR on the financial sector reforms.

Banque Populaire had the largest bank depositor base of over 500,000 clients. The Banque Populaire was just a union of cooperative savings and had some limitations such as inability to offer a full range of financial services and so on (East African Business 2008)

II.7 2 RFID INVESTS FRW 6.5B INTO BPR

In 2008 Rabobank acquired a minority share of 35 percent in BPR, to share up and shape the long-term cooperation by means of management and support. The customers of BPR become the shareholders, confirming once more its grass roots in Rwanda. This eventually enabled both BPR and the economy of Rwanda to take a major step towards of financial services. The network of credit unions at BPR has a number of unique features. It is by far the country's largest provider of financial services outside the urban areas. It bears a cooperative signature based on Rabobank's principles and is now considering the choice between becoming a fully-fledged retail bank, thereby meeting widespread demand, or continuing to work as a purely member-based cooperative. Facilitated by Rabo Development, a strategy has been devised to retain the strengths of the cooperative structure while benefiting from its transformation into a one-tier, one-stop shop for financial services ( www.bpr.com).

Building on the strategic outline that BPR has now embraced, an extensive technical assistance programme has been designed to build the products, provide the desired channels (including ATMs and mobile banking) and serve all customers, not just members. The fact the former members became shareholders of BPR, it became a unique bank owned by over 500,000 shareholders and offering full banking services while maintaining its cooperative features. Rabo Development has become a strategic investor as a fully-fledged bank. It organizes the expertise required to restructure the bank and provide management services as well as board members and hope to become a leading bank in Rwanda that will reach out to rural parts of the country ( www.bpr.com).

II.7.3 RABOBANK IN PERSPECTIVE

Rabobank Group is the largest financial services provider in the Netherlands, with an extensive network of international offices. It is comprised of a diverse range of business units that began in the late nineteenth century as a collection of small agricultural cooperative banks. Although much has changed, some things have remained the same since the bank's inception - Rabobank's cooperative structure and its commitment to local involvement have remained the cornerstone of Rabobank's values and practices for more than a century( www.rabobank.com).

The history of Rabobank has always been characterised by its cooperative nature: people working together, banks joining forces and specialised business divisions combining their knowledge. A distinguishing feature of the cooperative structure - one that underpins every move that Rabobank has ever made (and continues to make) - is a primary commitment to serving the best interests of the customers ( www.rabobank.com).

II.7.4 RAIFFEISEN AND THE FIRST COOPERATIVE BANK

Friedrich Wilhelm Raiffeisen founded the first agricultural cooperative bank in Germany in 1864. As a rural mayor Raiffeisen had witnessed first the poverty suffered by some members of the farming community. In his first efforts to assist that community, Raiffeisen set up a charitable foundation that would provide financial relief to farmers and their families. However, over time Raiffeisen came to the conclusion that self-help was more likely to bring about lasting improvements in the farming community than charity. So in 1864 he transformed his charity into the first agricultural cooperative bank. This first cooperative - "Heddesdorfer Darlehnskassen-Verein" - collected the savings of rural citizens and used them to create a fund for providing loans to the local agricultural community ( www.rabobank.com).

II.7.5 THE EVOLUTION OF THE COOPERATIVEBANKS IN THE NETHERLANDS

In the late 1890s, the German cooperative movement got many followers in the Netherlands. One of the first Dutch sponsors of the new cooperative banking idea was the priest called Gerlacus van den Elsen. Van den Elsen established a number of local agricultural cooperative banks in the southern part of the Netherlands. The priest saw his work with cooperatives as a mission that was simultaneously exalted and down-to-earth. He viewed the role of the cooperatives thus: "To ward off the shylocks, stand by the farmer in his hour of need, as well as promote frugality, charity, industriousness and temperance" ( www.rabobank.com).

Following in the tradition established by van den Elsen, most of the earliest cooperative banks were founded on the initiative of clerics and other local notables, such as mayors, entrepreneurs and educators. Other proponents of the new cooperative banking idea were wealthy farmers who established cooperatives for the benefit of their less successful colleagues.

Although the driving force behind the cooperatives was idealistic, the working method that the banks devised was based on pragmatic business principles, including:

- Association with a cooperative central bank (whilst still retaining local independence).

It was largely these business elements - the practical pillars of an idealistic philosophy - that were responsible for the successful development of the agricultural cooperative banks. From their very first day of operation both cooperative banks were financially successful. Local member banks operated at the heart of the local community and consequently knew their customers personally. In contrast to lenders from the city, they were adept at selecting creditworthy farmers and keeping a close eye on their loans. As a result, the agricultural cooperative banks were able to provide the agricultural community loans with better interest rates and generate and retain a loyal customer base( www.rabobank.com).

II.7.6 UTRECHT AND EINDHOVEN

Today the two most important locations of Rabobank in Netherland are Utrecht and Eindhoven. The prominence of these locations dates back to the existence of two central cooperative banks, both founded in 1898, that existed alongside each other for three-quarters of a century. Six cooperative banks in the northern part of the Netherlands joined forces to found the Coöperatieve Centrale Raiffeisen-Bank in Utrecht. Twenty-two cooperative banks in the south together founded the Coöperatieve Centrale Boerenleenbank in Eindhoven. The two banks established their different domains in part along geographic lines. However, they were also, at the end of the 19th century, divided by political and religious differences. In spite of their very similar structure and provenance, the Northern and Southern cooperative organisations followed separate paths. The bank in Eindhoven was run as a Catholic institution, whereas the bank in Utrecht, although formally non-denominational, in reality was Protestant. Additionally, the management in Eindhoven was more stringent and centralized than in Utrecht, where the tendency was to emphasize local autonomy( www.rabobank.com)..

II.7.7 THE MANAGEMENT STRUCTURE OF RABOBANK NEDERLAND

Reflecting the management structure of the Coöperatieve Centrale Boerenleenbank (one of the two central banks that merged) at the time of the merger in 1972, Rabobank Nederland has five governing bodies: the general meeting at which the boards of all the local banks were represented, the Central Delegates Assembly, the Executive Board, the Board of Directors,and the Supervisory Board. In 2002 this fairly complex management system of Rabobank Nederland was simplified somewhat. The influence of members - the control of the local banks - was strengthened by giving the Central Delegates Assembly greater authorities. The Board of Directors was abolished. The executive management was made responsible for the integral managing and is now called the Executive Board. So this board now not only has the task of managing the banking business, but is also responsible for serving the interests of the local member banks. The independent, supervisory role of the Supervisory Board was strengthened. The chairman of this board now leads the Central Delegates Assembly. The Central Delegates Assembly is particularly what makes the management structure of Rabobank Nederland distinctive from other large Dutch banks ( www.rabobank.com).

II.7.8 INTERNATIONALISATION OF RABOBANK

Although the name Rabobank International only dates back to 1996, the Rabobank Group's international activities actually began much earlier. During the course of the 1970s Rabobank's business customers began to demand more and better services abroad. In response to those demands Rabobank sought to ensure that it could serve its customers abroad, slowly building the network that has now become Rabobank International:

- Opening branch offices in Europe, North America, Asia and South America, primarily to serve larger business customers

- Entering into strategic alliances with allied European partners. The most well-known examples of such alliances are ADCA in Germany and PIBA in Australia. In 2002 the Rabobank Group acquired the ACC Bank in Ireland and the Valley Independence Bank in the United States. These acquisitions fit in with the Group's modern strategy of exporting expertise in the field of consumer banking and the agricultural sector to promising markets abroad. Each branch office of Rabobank International in the key trading countries within Europe now has a Dutch Desk to serve Dutch SME customers. ( www.rabobank.com)

II.7.9 RABOBANK TODAY: MARKET LEADER IN THE NETHERLANDS

Today Rabobank is the market leader in the Netherlands in almost all areas of financial services, with a considerable market share in the agricultural sector. From a historical perspective, agricultural financing is the Rabobank's forth. The market share in the agricultural sector still fluctuates between 85 and 90 percent. Over time the non-agricultural small- and medium-sized enterprise sector has become an important target group of the cooperative banks. In the mid-1970s the Rabobank already had a thirty percent share of this market and since then it has risen to around forty percent. In 1987 of all the loans issued to the business community, for the first time, the number of loans to non-agricultural companies was greater than agricultural companies. Lending to the primary agricultural sector currently accounts for slightly less than eight percent of the group's total lending operations ( www.rabobank.com)..

II.8 FINANCIAL SECTOR CHALLENGES IN RWANDA

The rwandan financial sector faces a number of challenges; some of them are inherent to the limited access to banking and other financial services outside Kigali and the provincial towns (www.bnr.rw):

ü MFI's which should play a significant role in filling the gap has been marred by a weak financial base, and inadequate management;

ü Lack of long-term resources for funding investments due to undeveloped debt and equity market;

II.9 THE ROLE OF THE FINANCIAL SECTOR IN PRIVATE SECTOR DEVELOPMENT

Domestic capital formation is fundamental to any country's economic development and effective financial institutions are a prerequisite. Financial sector promotes private sector development through the following pillars (www.bnr.rw):

ü Enhances savings mobilisation and efficient allocation of resources into productive investments hence increasing productivity;

ü Intermediating between savers and users of capital thus reducing transaction costs;

ü Increase the access to financial services and reduce informal sector business transactions;

II.10 POLICY GEARED TO INCREASE ACCESS TO BANKING SERVICES:

Accessibility of financial services is one of the prerequisites for a country to boost and ensure its sustainable development, the following are policies geared to increase access to banking services (www.bnr.rw):

ï Strengthen Banking and MFI sector through adequate capitalisation, improved regulation and Institutional capacity building through Bankers association and Umbrella MFI;

ï UBPR to operate like a de facto commercial bank while maintaining those aspects regarding cooperative principles;

ï Continue to raise debt capital from external sources on long term to be able to on-lend locally;

ï BRD will diversify its loan portfolio to minimise risk while investing in all targeted key economic sectors;

II.11 DEVELOPMENT OF LONG TERM FINANCE AND CAPITAL MARKETS

Capital market refers to that financial market where long-term funds are raised. long-term investments are needed for strengthening national economy, and this requires to be funded by long-term funds, for ensuring the sufficient supply of long-term funds the government through the central bank taken the following decisions:

ï Develop Long-term government bonds to build a yield curve by securitizing Government Debt to CSR (Caisse Sociale du Rwanda) and reissue the existing stock of Treasury Bills on a long-term basis;

ï Create a sound and facilitating environment, legal, regulatory and operational guidelines for an OTC (Over The Counter) market and for issuance of corporate and municipal bonds;

ï Facilitate creation of private pension funds and mutual trust funds by establishing a legal and regulatory framework and inbuilt tax incentives;

ï Consolidate regulation of contractual savings institution ( Insurance and Pension) into a department of BNR, specifically charged with that responsibility.( www.bnr.rw)

CHAPTER THREE: RESEARCH METHODOLOGY

III.1 INTRODUCTION

^{This chapter is about the overall approach to the
research process, from the rationale underpinning the study to the collection
and analysis of the data. The chapter explains how the researcher collected the
data, the nature of data, which was collected, where data was collected, and
how it was analyzed. It presents the methods and methodological techniques and
approaches that applied in data collection, sampling techniques as well as
problems encountered in the study.}

III.2 METHODOLOGY

^{Bailey (1978: 26) defined the term methodology as the
philosophy of the research process. This includes assumptions and values that
serve as rationale for research and the standards the research will use for
data collection, interpreting and researching conclusions.}

^{Cohon and Mario (1985) argue that
research is best understood as the process of arriving at the dependable
solution to problems through systematic collection, analysis, interpretation of
data.}

^{It is a paramount tool for promoting knowledge, progress and
to enable humans relate more effectively to their environment and accomplish
their purposes and solve their problems with reference to the research
questions.}

^{It is important to decide on the sources of data that would
give most appropriate responses to the questions and which methods and tools
most appropriate to collect the relevant data. Therefore, this research used
triangulation methodology, which combines qualitative and quantitative.}

^{Quantitative is an approach that believes in quantifying
responses in different levels, it uses mathematical conclusions such as mean,
percentages, standard deviation etc... to show the degree of correlation of
responses from different respondents.}

^{In this research data was analysed through the sample
tabulation of the targeted population and percentages was calculated to
describe the degree or level of correlation of the results collected from
different respondents.}

^{Qualitative approach on the other hand, it may use some
mathematical conclusions and analysis, it stresses the human interaction
through explanations, descriptions, relationships or reactions and so many
other human interactions. In this research, qualitative approach was used to
analyse some expressions from respondents such as having been satisfied by BPR
becoming a commercial bank.}

III.3 RESEARCH DESIGN

^{This study was carried out in BPR SA from its
headquarters, Interviews and questionnaires were used with the intention of
accessing the rationale and impact of Banques Populaires transformation from a
cooperative to a commercial bank and find out possible recommendations to other
financial institutions so that they could achieve efficiency in their
operations. It can also be defined as a pre-arranged program for collecting and
analyzing the information needed to satisfy the study objectives at the invest
cost (Williamson et al., 1987: 39)}

III.4 SOURCES OF DATA

III.4.1 PRIMARY DATA

^{According to Audrey (1989: 57), primary data comes
straight from the people a researcher is researching from and is therefore the
most direct kind of information a researcher can collect. The primary data is
said to be the first hand observation and investigation. In this research, the
primary data is composed by information from interviewees.}

III.4.2 SECONDARY DATA

^{Secondary data is usually extracted from the original
data and is often the examination of the study someone else has carried out on
a subject or an evaluation of commentary, or summary of primary material
(Audrey, 1989: 57). The secondary data of this research was extracted from
different bank and government reports, textbooks, statistics and other previous
research documents in the same field.}

IV. POPULATION AND SAMPLE SIZE

^{Bailey says that «the population is
universal objects over which research is to be carried out». The ideal
practice in research would be to gather information from the entire population;
this will ensure maximum coverage of the population concerned in the research.
But due to limited time and funds the entire population of the research can not
be covered and the sample defined as a sub set of population was used.}

^{Duttolph et al (1986) argue that if the sample is
selected properly, the information collected about the sample may be used to
make statements about the whole population.}

The target population of this research was a group of sixty stakeholders interviewed, and the group was composed of twenty five employees and board of directors and thirty five customers interviewed in this research in relation to Banques Populaires transformation from a cooperative to a commercial bank, its rationale and impact. This Group of interviewees was chosen because they are involved in Banques Populaires activities directly or indirectly, they were supposed to have all the information regarding the life of the bank.

IV.1 SAMPLE SIZE AND SAMPLING TECHNIQUES

^{In selecting the sample size, stratified sampling was
applied. Arkin and gult (1987) point out that in determining the sample, 10% of
the total population estimate is required.}

^{Category of respondents}	^{Employees and board of directors}	^Customers	^{Total number of customers}
^{Number of respondents}	²⁵	³⁵	⁶⁰

V. DATA COLLECTION TECHNIQUES

^{Data collection for this study was collected through
documentary sources, observation, questionnaires and structure and unstructured
interviews.}

^{According to Mbaaga (1990: 29), documents are materials,
which contain the information about a phenomenon that researchers wish to
study. In this study the documents targeted are government reports, laws and
international reports, previous researches about Banques Populaires,Commercial
banks and financial sector in Rwanda.}

^{According to bailey, as cited by Rwigamba (2001: 46), an
observation is the primary technique for collecting data on the non-verbal
behavior. Although observation commonly involves sight or visual data
collection via other senses such as hearing, touching and smelling, observation
was used especially to categories of those respondents who do not want to
reveal their personal status with regard to what they own.}

^{Mbaaga (1990: 25) defined a
questionnaire as a set of questions which are asked to get information from a
respondent. It is also currently used to mean a set of questions, which are
self-administrated. A questionnaire was designed and pre-tested before the
researcher submited it to the selected respondents.}

^{An interview can be defined as
face-to-face conversation between an interviewer and the respondent conducted
for the purpose of obtaining information (Mbaaga, 1990: 338). Two types of
interviews have been used: the formal (structured) interview and the informal
(unstructured) interview.}

VI DATA PROCESSING

^{Normally, data collected from
respondents was in a row form, which was easy to interpret and analyze for
conclusions. Data processing was used to transform the respondent's views into
meaningful test.}

^{Therefore, enough was done to process it before proper
analysis could be made. On this note, editing, coding and tabulating of data
was done in order to be able to handle it easily.}

^{Mbaaga (1990: 155) defines editing as the process whereby
errors in completed interview, schedule and the mail questions are identified
whenever possible. For some unclear responses, the researcher went back to the
respondents so as to make them clarify their responses.}

^{According to Kakooza (1996: 29), coding refers to the
«assigning of symbol or a number to a response for identification
purpose». This was used to summarize data by classifying different
responses, which was made into categories for easy interpretation and
analysis.}

^{Frequency distribution tables were used after editing and
coding of data. Tables were constructed according to the main themes in the
questionnaire to summarize all the findings of the study.}

CHAPTER IV : DATA PRESENTATION, ANALYSIS AND INTERPRETATION.

4 1 .INTRODUCTION.

This chapter presents the findings from the research carried out in BPR SA. The data collected in this research was collected through questionnaires, documentary sources, structured and unstructured interviews. The interviews attracted a group of respondents implicated from banques populaires du Rwanda SA.

This chapter depicts the views, feelings and comments from respondents regarding banques populaires transformation from a cooperative to a commercial bank.

The researcher attempted to analyze the data in view of answering the research questions set at the beginning of this study and in particular establishing the rationale and impact of banques populaires transformation from a cooperative to a commercial bank. Consequently, the analysis here was based on the views gathered from the respondents.

This chapter is organized into four sections, the introduction, the profile of respondents, the rationale of banques populaires transformation from a cooperative to a commercial bank and the impact of banques populaires transformation from a cooperative to a commercial bank

4 2 .THE PROFILE OF RESPONDENTS

The population targeted in this research was made up of bank populaire' stakeholders which are (a) board of directors, (b) employees, (c) shareholders and (d) customers; the sample used in this research was selected using stratified and random sampling technique.

Table 1 : distribution of respondents according to their relationship role in the bank.

Stakeholders with the bank/ relationship	Number of respondents	Percentage
Employees and board of directors	25	41.6%
Shareholders and customers	35	58.4%
TOTAL	60	100%

The stakeholders were grouped into two categories according to the questions that the researcher intended to ask them; those are the category of employees and board of directors and the category of shareholders and customers.

From the table above, it is shown that 58.4% of the selected groups were shareholders and customers because they constitute a big number of bank stake holders; and the category of employees and members of board of directors constitute 41.6% of the sample size.

Sex	Frequency	Percentage of frequency
male	42	70%
female	18	30%
total	60	100%

Table 3 : distribution of respondents according to their levels of education.

Level of education	Frequency	Percentage of frequency
university	22	37%
secondary	27	45%
primary	11	18%
other	0	0%
total	60	100%

From the table 3, it is clearly evident that the majority of the respondents, equivalent to 45% are secondary school diploma holders, 37% university degree holders and 18% primary school certificate holders.

Age group	Frequency	Percentage of frequency
18-35	44	73%
35 - 55	13	22%
above 55	3	5%
total	60	100%

As shown from the table above the largest number of respondents fall into the age group of 18-35 that makes up the percentage of 73%. This shows that the majority of bank stakeholders are young people.

It is followed by 22% lying in the age group of 35 - 55 and the last and smallest age group of above 55 five years that makes only 5% of total respondents.

4 3 .THE RATIONALE FOR BANQUES POPULAIRES TRANSFORMATION FROM COOPERATIVE TO A COMMERCIAL BANK.

According to the findings from the respondents during this study, the main reasons for bank populaires transformation from a cooperative to a commercial bank were:

- Acquiring license to offer a full range of financial services in urban and rural areas;

- To upgrade its core business from being a cooperative that offers basic savings and credit services to becoming a fully fledged retail bank;

A number of respondents stated that«mbere y'uko banki ihinduka banki y'ubucuruzi ntitwabonaga amafaranga uko tubyifuza, batangaga amafaranga make cyane kandi ibyo byatumaga abanyamuryango bakeneye amafaranga menshi bigira mu mabanki y'ubucuruzi meaning that before the bank become transformed from a cooperative to a commercial bank, it did not granted to us loans as required, they granted a very little money and this caused the flight of a good number of customers who needed a good amount of money».

Before the transformation of banques populaires from a cooperative to a commercial bank each bank was financially and administratively independent credit union; the fact that each bank was independent, the separate independence for each credit union limited the capacity for granting loans in favor of clients and this fact led to the desertion of customers who needed a reasonable amount of loans.

In terms of loan granting capacity, the transformation of banques populaires from a cooperative to a commercial bank led to the consolidation of separate credit unions assets first and second to acquire the bank license where there is no restriction on the percentage of loan to be granted in favor of one person or one group of person compared to the total deposits.

According to the interviews the majority of customers interviewed: «the waiting time for withdrawals or deposits have relatively reduced compared to the time used before the transformation of banques popularizes into a commercial bank».

Crucial in this development are the investments in buildings. Banking offices in all branches are being redesigned to become:

Each branch has a VIP (Very Important Person) reception area while the head office has a new corporate office for this new customer Segment and the VIP cards are provided; so that VIP customers are served at any branch and sub branch or outlet without delay and all this to offer quality services.

According to BPR S.A articles of association, after the transformation of banques populaires from a cooperative to a commercial bank; the purpose was both for itself and on behalf of third parties, to carry out all banking operations, particularly the following:

- Performance of all banking operations relating to discounting, rediscounting and commission,

- Investment and participation in any company that already exists or is yet to be established, within the limits laid down under the relevant legislation and regulations,

- Performance of any operations likely to benefit the development of any type of company in Rwanda and abroad,

According the views from customers interviewed in this research at the headquarters: before the bank was transformed from a cooperative to a commercial bank, there were a good number of services that were not offered by the bank which are actually now offered. Some of them are:

The customers interviewed confirm that after the transformation; services are upgraded compared to the services offered before the bank was transformed.

According to one of the interviewed customers in Nyagatare branch.» ubu igihe twamaraga ku murongo dutegereje kubitsa cyangwa kubikuza cyaragabanyutse ku buryo bugaragara kandi n'uburyo batwitaho bigaragaza ko habaye impinduka koko« meaning that «now the time for waiting to be served depositing or withdrawing is considerably reduced and the way that we are cared shows that there is a change indeed«.

Although it is difficult to evaluate the impact of this transformation after only approximately one year and a half of operations in a new system, according to the findings from this research mainly from the board of directors interviewed it should be stressed that a positive impact is quite visible:

- The new products introduced after the transformation and some of which the banks were not allowed to carry on as cooperative banks.

As depicted in the table and graph below, the number of depositors has increased with 137% in five years; in 2008 the growth was 28.2%

Years	Number of depositors
2004	398,799
2005	473,547
2006	551,401
2007	687,332
2008	991,919

- No withdrawals are allowed from the account except with a notice period of 91 days.

- The interests are calculated monthly and paid at the expiry of the six months;

- This account gives the owner preferential eligibility for a personal loan in BPR SA

The new hirwa savings account is designed to enable every Rwandan to save for a better future.

- He/she can only earn interest when his/her account balance is 20,000rwf and above

A customer is discouraged from making withdrawals. But he/she is allowed one emergency withdrawal as follows:

The more the balance of the hirwa savings account, the higher the rate of interest to earn.

The following table and chart show the five year evolution of deposits of banques populaires showing the impact of banques populaires transformation; Most members of board of directors interviewed recognized that the transformation impacted the growth of deposits.

Years	Amount of deposits frw(000)
2004	23,401,307
2005	23,887,644
2006	46,923,246
2007	63,781,798
2008	77,600,156

As shown in the table and chart below, the total loans and advances increased by 45 % in 2008; this increase is in relation with the increase in deposits and equity whereby the capital has increased with the investment of rabobank of frw 4,877,581,000, all these are the results of the transformation of the bank from a cooperative to a commercial bank.

Years	Amount of net loans frw(000)
2004	19,601,034
2005	20,161,934
2006	47,429,246
2007	57,067,076
2008	82,877,982

Going commercial BPR upgraded its core business from being a cooperative that offers basic savings and credit services to becoming a fully fledged retail bank.

The new status acquired by the bank after transformation conferred upon it the license to offer additional services that it was not allowed offer. After the transformation the bank set up new departments and launched new products in line with the new status acquired.

BPR SA set up of a commercial department having under its portfolio product development, business Development and marketing.

In product development, new products have been launched as part of the fulfillment of BPR's Mission of offering a wide range of financial services in both urban and rural areas. These include:

In business development, a corporate unit was set up as a move to add the corporate segment to a wide retail customer base. This unit has of late been very active in recruiting;

Western union that was operated under the license of banque commerciale du rwanda (BCR) is now operated under BPR's license.

Western union is the world's premier international consumer money transfer system. It is the best and most reliable way to send and receive money, person-to-person, country-to-country within a very short time.

Western union money transfers are particularly useful in emergency situations, when money is needed urgently, because of the speed of the service. As an important service for its customers, BPR offers this service at all its branches.

CHAPTER V: SUMMARY OF THE FINDINGS, CONCLUSIONS AND RECOMMENDATIONS

5 1 Summary.

The previous chapters have attempted to address the topic that the researcher identified as a pertinent issue.This chapter provides the summary, conclusion and recommendations about the findings of the study.

- To identify the rationale of «banques populaires» transformation from a cooperative to a commercial bank,

- To find out the impact of «banques populaires» transformation from a cooperative to a commercial bank.

In June 2008 the Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. (Rabobank Group) acquired a minority stake of 35% in the newly formed Banque Populaire du Rwanda S.A. (BPR). The transformation from the cooperative past towards becoming a fully fledged retail & commercial bank -with strong cooperative roots- was completed.

The reasons or the rationale for the transformation according to the respondents were:

- Acquiring license to offer a full range of financial services in urban and rural areas;

- To upgrade its core business from being a cooperative that offers basic savings and credit services to

Although it is difficult to evaluate the impact of this transformation after only approximately one year and a half of operations in a new system, according to the findings from this research it should be stressed that a positive impact is visible:

The impact of this transformation can be appraised in terms of the following areas:

A number of new products introduced after the transformation and some of which the banks were not allowed to carry on as cooperative banks.

The impact can also be evaluated through the contribution of the process of transformation and change of the banques populaires transformation from a cooperative to a commercial bank in the promotion of financial sector in Rwanda.

By going commercial, BPR upgraded its core business from being a cooperative that offers basic savings and credit services to becoming a fully fledged retail bank.

The new status acquired by the bank after transformation conferred upon it the license to offer additional services that it was not allowed offering. After the transformation the bank set up new departments and launched new products in line with the new status acquired.

BPR SA has set up a commercial department having under its portfolio product development, business development and marketing.

In product development, new products have been launched as part of the fulfillment of BPR's mission of offering a wide range of financial services in both urban and rural reas.

5 2 Conclusions.

This research carried out in BPR SA, its purpose was to find out the rationale and the impact of «banques populaires» transformation from a cooperative to a commercial bank and therefore, to find out if there is any improvement to the national economic growth.

The methodological approach used in this study was triangulation methodology, which combined qualitative and quantitative data trough the use of questionnaires, libraries, observation and interviews.

A sample of respondents was selected from BPR SA stakeholders and it was composed of members of board of directors, employees and customers or depositors.

In this research, stratified sampling has been used to select the groups of respondents and simple random sampling to select respondents from respective groups.

During data collection process, the researcher used self administered questionnaires, interview and libraries as means of getting information from respondents. The researcher also used documentary analysis as means of collecting data, published and unpublished documents, reports, journals and policy papers related to the study.

The research aimed at investigating the rationale and impact of banques populaires transformation from a cooperative to a commercial bank. The study findings shown that the respondents largely agree on the positive impact of banques populaires transformation from a cooperative to a commercial bank and identified the rationale for the transformation.

This study found out that the banques populaires transformations from a cooperative to a commercial bank have had a considerable impact on the capacity of the Rwandan banking sector to mobilize financial savings. The restructuring of its former structure and the injection of external funds from Rabo bank resulted in the dynamic growth and the growth of its equity.

The efficiency gained resulted in the provision of intermediation services, reduction in waiting time to transact banking services and reduction in the transaction costs of banks and customers.

Other benefits include profit enhancement, the net profit of 1 530 968 000frs is registered compared to a net loss of 441 109 000 frs incurred in 2007, improvement in the quality of assets, and the reduction of non-performing loans. There has also been a significant improvement in the banks' capital adequacy positions.

5 3 Recommendations

The scope of this study would not be complete without mentioning some of the recommendations derived from respondent's views and from the researcher's analysis of the issue.

After the researcher thought consistently about the issue ( Problem of the study ), collected relevant data, analyzed the data objectively; Based on these findings from the study on the rationale and impact of banques populaires transformation from a cooperative to a commercial bank; the following recommendations of this study are suggested:

The findings seem to suggest the BPR SA' management to speed up the computerization process so that the non-computerized branches and sub branches are computerized so that withdrawals, deposits and transfers between branches and sub branches become more effective.

The findings seem to suggest the BPR SA' management to review and improve credit granting process in order to reduce the time for waiting the loan after all the required documents are provided.

The BPR SA should improve employee working conditions such as salary increase, medical insurance etc; to avoid poor industrial relations and get employees motivated.

The BPR SA should improve and speed up salaries and transfers of funds to maintain customers and become more competitive in Rwandan banking system.

There is a need to adopt policies to lower interest rates on loans and increase interest rates on savings and term deposits as the bank maintain cooperative roots in order to promote a borrowing culture and provide a conducive environment for savings mobilization.

BIBLIOGRAPHY

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3) Bailey,(1978);Foundations of Behavioral Research.New York: Holt,Rinehart and Winston Inc.

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11) MUKAMUHOZA Marie Gaudula, (2007);»Role of Credits Offered by Banque Populaire de Kibali in Development of Rural Areas».

14) Philips.(2004) " Savings Mobilization Role of Nigerian Commercial Banks - Analytical Policy Study "

15) Royal Government of Cambodia. (2006) FINANCIAL SECTOR DEVELOPMENT STRATEGY 2006-2015

16) Steven Amway and Anthony Docu. (2000) The Impact of Financial Sector Reform on Bank Efficiency and Financial Deepening for Savings Mobilization in Ghana

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WEBOGRAPHY.

APPANDICES

RATIONALE FOR BANQUES POPULAIRES TRANSFORMATION FROM A COOPERATIVE TO A COMMERCIAL

6. What are the reasons for transforming banques populaires from a cooperative to a commercial bank?

a) b) THE IMPACT OF BANQUES POPULAIRES TRANSFORMATION FROM A COOPERATIVE TO A COMMERCIAL BANK

i ) Has the number of customers increased since UBPR`S transformation from a cooperative to a commercial bank? Yes No

i ) Has the amount of loans granted increased since UBPR`S transformation from a cooperative to a commercial bank? Yes No

i ) Has the total amount of deposits increased since UBPR`S transformation from a cooperative to a commercial bank? Yes No

i )Has the net income increased since UBPR`S transformation from a cooperative to a commercial bank? Yes No

11. INNOVATIONS INHERENT TO BANQUES POPULAIRES TRANSFORMATION FROM A COOPERATIVE TO A COMMERCIAL BANK.

I. i ) Are there new products introduced since UBPR`S transformation from a cooperative to a commercial bank? Yes No

4. III. i ) Does the transformation of UBPR from a cooperative impacted national economic development ? Yes No

III. i ) Does the transformation of UBPR from a cooperative affected its perfomance? Yes No

12. i ) does the quality of services offered improved since UBPR`S transformation from a cooperative to a commercial bank? Yes No

i ) does the UBPR`S transformation from a cooperative to a commercial bank affected working conditions? Yes No

23. Hari ubwo ushishikariza abandi kuza kubitsa cyangwa kuba umukiliya w'iyi Banki? Yego Oya

Imitangire ya service (Ibibazo bigenewe abari abanyamuryango mbere y' uko banki iba iy' ubucuruzi

25. Ni gute ubona ibisabwa kugirango ufungurirwe konti ugereranyije na mbere y`uko iyi banki iba banki y`ubucuruzi?

26. Ni gute ubona igihe umara utegereje service muri rusange ugereranyije na mbere y`uko iyi banki iba banki y`ubucuruzi?

27. Ni iki wasaba iki kigo kugirango kirusheho kugufasha kwiteza imbere no kuguha service nziza ugereranyije n`izo wahabwaga mbere y`uko banki iba iy`ubucuruzi ?

The rationale and impact of Banques Populaires transformation from a cooperative to a commercial bank

DECLARATION