Members of the Parliament’s Public Accounts Committee (PAC) as well as the Auditor General have requested the Local Administrative Entities Development Agency (LODA) to devise measures that help the government recover loans disbursed under Vision 2020 Umurenge Program (VUP) financial services.
In 2008, the government initiated Vision 2020 Umurenge Programme (VUP) programme to lift people from extreme poverty and change their livelihoods through different initiatives. One of the programme’s key products is a microcredit scheme – the VUP financial service – where small loans, at low interest, are extended to individuals or groups of low-income earners.
Loans provided under VUP financial services are normally paid within a period of two years.
Since the restructuring of the programme, in September 2019, the interest rate was reduced to two percent resulting in an increased number of beneficiaries countrywide. However, the Auditor General’s report of the financial year ending June 2021 shows that some loans reached maturity but have not been recovered.
The audit report also noted gaps in processes of fund allocation, loan disbursement, service delivery to potential beneficiaries and reporting on program achievements, which need to be addressed to guarantee the sustainability of the program.
According to the Auditor General’s report, Rwf21 billion in loans were disbursed to vulnerable people under the first loan scheme which ran up to 2015. However, Rwf16 billion only was recovered meaning that Rwf5 billion is yet to be recovered.
Under the second loan scheme, which ran up to 2019, out of Rw14.8 billion, about 10 percent has not been recovered. Under the third loan scheme, only Rwf10 billion was recovered out of Rwf17 billion.
Mismanaging loans
Alex Kamuhire, the Auditor General, said some VUP loans were given to 1,123 people who were not supposed to benefit from it, according to the lending criteria. He said some beneficiaries were also given Rwf34 million loans in one area but they shared and consumed the money without implementing projects.
Claudine Marie-Solange Nyinawagaga, the Director-General of LODA, said that challenges in the first loan scheme which led to low recovery of loans include the issue of staff who mismanaged VUP loans.
Nyinawagaga said the government decided to write off Rwf4.7 billion loans for those who totally failed to repay.
"We discussed the issue with the Ministry Of Finance and Economic Planning as well as Local Government and identified those who were not able to repay and decided to write off the loans,” she explained, indicating that they include loans whose beneficiaries fall into extreme poverty, beneficiaries who died with no next of kin to pay, and others whose defaulters were punished.
So far, as noted, Rwf4 billion was written off and only six districts – Nyagatare, Burera, Rubavu and Kigali city – are yet to write off loans.
According to Nyinawagaga, the decision to write off the loans was based on challenges which include projects that were not well designed, leading to poor performance and losses; poor management of small businesses due to lack of experience; death of some beneficiaries, leaving no one behind to reimburse the loans; and natural disasters that resulted into extreme poverty for some beneficiaries, leading to incapacity to reimburse.
"We are devising a strategic plan to boost loan recovery in VUP financial services and also to ensure the loans are reducing poverty. We have also to set up measures to ensure beneficiaries spend the money well,” she said.
She said that under the second loan scheme, Rwf550 million is yet to be recovered out of Rwf970 million that had not been recovered at the time of audit. Loan recovery in the third loan scheme is at 75 per cent, she said.
Lawmakers and the Auditor General urged LODA to thoroughly review projects presented by vulnerable people before disbursing money, follow up in their implementation as well as set up effective loan recovery mechanisms.
"LODA should look at the criteria in selecting the beneficiaries, help them design viable projects and monitor them in implementation because some deviate and use the finance in other activities different from those supposed to be financed,” said MP Berthilde Uwamahoro.
Samuel Dusengiyumva, Permanent Secretary in the Ministry of Local Government, admitted that the VUP financial services (loans), especially under the first loan scheme, faced weaknesses in design and implementation which triggered failure in loan recovery. He said that officials who mismanaged the loans are under investigation.
Dusengiyumva said: "There is a list of the suspects. Meanwhile, committees from the community were established to educate beneficiaries about using the finance because previously it was only being done by government staff.
"Local leaders have also to sign performance contracts to recover the loans and have to report every month.”