An examination of the law on deposit guarantee and resolution fund in the Burundian banking sector

Abstract

Deposit Insurance schemes are currently recognised by the general consensus as being vital to financial system’s stability by protecting depositors from incurring large losses due to deposit taking institutions’ failures and preventing them from engaging simultaneous withdraws when these institutions’ solvency is questioned; provided that the scheme is well established by a clear legal framework. Burundi also took a significant step toward Deposit Insurance,when in August 2017 the Financial Institutions Act introduced a Deposit Guarantee and Resolution Fund through two provisions. However, in order to be credible for the stakeholder, a Deposit Guarantee or Deposit Insurance, as it is most commonly referred to, has to be well provided legally. There are even basic aspects of the Deposit Insurance that must be clearly set by law and that are recognised by international standards. Unfortunately, the provisions on the Burundian Deposit Guarantee and Resolution Fund in Burundi do not seem to meet these criteria. This research therefore highlights the deficiencies that should be adjusted in the banking sector toward depositors’ protection and the deficiencies of the law on Deposit Guarantee and Resolution Fund in Burundian proposes enhancements based on Deposit Insurances Funds’ key provisions in selected countries which the Burundian law-makers and law enforcers can use as references in improving the law governing the Deposit Guarantee and Resolution Fund