Rwanda’s microfinance industry registered a decline in profits during the first 9 months of 2014, a report by Central Bank has indicated.

According to the report, the sector’s profitability decreased by32.8 per cent due to increased none performing loans.

The sector’s profits decreased from Rwf5.09 billion in 2013 to Rwf4.02 billion in the same period last year.

According to John Rwangombwa, the central bank governor, the reduction was mainly linked to non-performing loans.

The sector’s NPL ratio increased from 6.8 per cent at the end of 2013 to 7.7 per cent at the end of September last year affecting the sector’s profits, according to the report.

"Most of these Saccos started giving out loans in the last two years so it is now that we have started feeling the impact of that,” Rwangombwa said.

He said they were coming up with measures to reverse the trend.

However, Dr. Thomas Kigabo, BNR’s chief economist attributed the reduced profitability to increased administration costs among the Saccos which were previously being covered by a government subsidy.

"Most of these Umurenge Saccos since 2013 were getting a subsidy from the government to pay their staff salaries when they were still small and now most have grown and are now paying some of these costs by themselves, which in a way affects their profitability,” he explained.

The microfinance sector in Rwanda is comprised of 493 institutions including 13 limited companies and 480 Saccos of which 416 are Umurenge Saccos serving more than 1.8 million clients.

The sector plays a critical role in fostering economic development by offering financial services, particularly loans and opportunities for savings to people with limited access to commercial banking services.

At the end of September last year, its total assets had grown by 19.5 per cent, from Rwf 126.2 billion in September 2013 to Rwf 153.87 billion at the end of September last year.

Total deposits increased by 21.6 per cent during the period, from Rwf 69.64 billion to Rwf 84.5 billion while gross loans increased by 18.4 per cent from Rwf 72.53 billion to Rwf 87.03 billion.

Ben.gasore@newtimes.co.rw