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Ejo Heza: Rwanda’s Long Term Saving Scheme

INTRODUCTION

Rwanda is a young country. Nearly half of its current population of around 13.2 million are less than 18 years old, while 67 percent of the population is 30 years and below (Census Report, 2023). However, Rwanda’s elderly population is growing much faster than the general population. It has increased from 510,000 in 2012 (Census report 2012, projections thematic report) to 863,000 in 2022, or 6.5 percent of the population (Census report 2023) and is expected to reach some 1,100,000 individuals (or around 7 percent of the population) by 2032 due to improvements in life expectancy.

Over the years, the Government of Rwanda has established the necessary legal, regulatory, and institutional framework and ecosystem for increasing financial inclusion. Today, most Rwandan citizens in both urban and rural locations can more easily access financial savings, credit, insurance, and remittance payments through a range of regulated institutions such as banks, SACCOs and mobile money service providers. According to FinScope 2020 survey, 93 percent of Rwandan adults are financially included in terms of both formal and informal financial products compared to 48 percent, 72 percent, and 89 percent in 2008, 2012, and 2016 respectively.

Rwanda has also established a robust and well-functioning digital national ID infrastructure through the National Identification Authority (NIDA) that has enabled direct, targeted delivery of government benefits and services to citizens without the traditional attendant risk of leakages. In parallel, the National Bank of Rwanda (BNR) in its capacity of financial sector institutions’ regulator, has been actively encouraging commercial banks to integrate their mobile banking operations with mobile money service providers to further enhance digital financial inclusion for the unbanked. As a result of joint efforts by the Government and BNR, the various critical pieces of the ecosystem infrastructure needed to achieve comprehensive digital financial and pension inclusion now already exist in Rwanda.

One of the objectives of the Government of Rwanda is to achieve universal social security coverage as expressed by the 2009 National Social Security Policy. The role of social security is increasingly being recognized by governments and international financial organizations for its role in poverty alleviation, promotion of social justice, and economic growth. Social security programs can foster social cohesion, help to prevent, and alleviate the effects of poverty and if well-managed, instill trust and faith in governmental intervention. Additionally, social security programs often have significant economic benefits. For example, old-age pension provision, if sufficiently funded, often entails the formation of institutional capital that may be invested in the economy, and by reducing the uncertainty and fear of calamity amongst individuals and households, the provision of social security can result in a more productive workforce.

As is the case in most other nations across Africa and Asia, the traditional reliance of the elderly in Rwanda on children and extended families for income support in old age is being eroded by labor mobility and economic hardship.

As a result, and due to a huge pension and social security coverage gap, most Rwandans are increasingly constrained to rely on their own lifetime savings to sustain themselves in their old age. However, with rapid improvements in life expectancy, most citizens will need to accumulate enough savings while they are young to last them for nearly 20 years after they are too old to work. This may be a significant challenge given that most excluded informal sector workers face modest, irregular incomes and may be able to afford only modest pension savings. By establishing a secure, convenient, and affordable long-term savings program based on individual contributions, and by encouraging mass-scale voluntary thrift and self-help, the Government could effectively mitigate the longevity risk of its citizens.

The Government of Rwanda (GoR) through the Ministry of Finance and Economic Planning (MINECOFIN) with support from Access to Finance Rwanda (AFR) – a not-for-profit market catalyst organization supporting efforts to improve financial inclusion and financial sector development in Rwanda – commissioned a study to assess the feasibility of an informal sector pension scheme in August 2014 and drafted an implementation paper that was adopted by the Rwandan cabinet in February. In 2017, AFR engaged pinBox Solutions, a global social enterprise committed to digital micro-pension inclusion in Asia, Africa and Latin America, and other pension inclusion experts to support designing and piloting of a long-term savings scheme (LTSS) for Rwanda. This effort culminated in the launch launched LTSS.

In December 2018, the Government formally announced the introduction of Ejo Heza under the new Long-Term Saving Scheme (LTSS) Law. The LTSS (since named “Ejo Heza” which means “a bright tomorrow”) is a fully funded, long-term savings scheme for all Rwandan citizens and is administered by the Rwandan Social Security Board (RSSB).

Today, Ejo Heza provides each Rwandan citizen an equal right and opportunity to accumulate micro-savings for their future in a secure and well-regulated environment. By design, the Ejo Heza leveraged Rwanda’s existing digital financial inclusion infrastructure and ecosystem to provide convenient access to high-quality investment governance, even to citizens with low and irregular incomes, limited experience with formal finance and low financial literacy. Ejo Heza has also build on lessons from two decades’ experience of successful expansion health insurance cover for the informal sector in Rwanda.

The Government expects broad-based coverage of Ejo Heza to reduce potential future budgetary pressures by increasing self-provision, contribute to Rwanda’s economic growth and infrastructure development by increasing aggregate long-term household savings, provide greater depth and liquidity to financial markets, and facilitate labor mobility through fully vested portable pension accounts.

This chapter begins with an overview of Rwanda’s labour markets and the status of financial inclusion in the country. Section two outlines the Ejo Heza scheme rules, features, and benefits, including the structure of the unique, means-tested fiscal incentives package provided by the Government, and a summary view of voluntary coverage growth over time. The last section summaries the factors that have contributed to the success of Ejo Heza, some stories from the ground, and a summary of key identified challenges, to share learnings with other countries looking to implement similarly inclusive digital micro-pension arrangements for their informal sector workers.