Despite Burundi’s extreme poverty and recent political instability, its banking and microfinance institution (MFI) sectors are surprisingly robust. There are eight commercial banks, two government-owned financing institutions, and more than 25 MFIs. Although a number of banks have gone bankrupt in Burundi – the most recent just two years ago – the surviving commercial banks all appear to be stable and liquid. Loans and deposits are both growing rapidly, and the banking sector appears to be quite profitable. And it is attracting foreign investors: outside banks have purchased two Burundian banks outright and have taken a large minority share in a third.
The sector, however, has problems. The bad loan rate is very high: between 10% and 20% for individual banks, with an average of 15% to 16% for the banking sector as a whole. Interest rates, unsurprisingly, are high as well: 16% to 20% for bank loans to large commercial clients. Corruption is a serious concern, with political loans and related loans very common.
More important, the banking sector is largely disconnected from the rest of the economy. Almost all loans are extended to a fairly small group of commercial borrowers. Import and export businesses are disproportionately favored; agriculture, manufacturing, and services are neglected and starved for credit.
[1]The majority of bank loans are short term; over 60% are for one year or less, and only about 5% are for more than five years. Loans for capital investment are almost unheard of.
Lending is concentrated geographically in Bujumbura. The great majority of Burundi’s population has no contact with banks or MFIs whatsoever, either as borrowers or as depositors.
A fluctuating but large portion of the banks’ loan portfolio is in treasury bonds. These pay a good rate of interest (8% to 9%, tax free, on short-term bonds) and are quite safe – Burundi has never defaulted on its loans. This is well enough for the banks, but it is a serious problem for the rest of the country, which is desperately starved for credit.
