Rwanda’s micro-finance sector achieved tremendous growth during 2015, with the number of players increasing to more than 100.

The sector, according to the National Bank of Rwanda (BNR), remained well capitalised throughout the year, registering a capital adequacy ratio of 31.2 per cent during the third quarter of the year, way above central bank’s prudent benchmark of 15 per cent.

The growth was, however, threatened by the rising rate of non-performing loans (NPLs), 7.8 per cent during the third quarter, according to BNR’s latest statistics.

Both central bank’s financial stability committee and monetary policy committee observed that the sector’s NPLs ratio for most microfinance institutions (MFIs) deteriorated to 7.8 per cent during the third quarter of 2015, from 7.7 per cent during the same period in 2014.

The increase, according to the committees, is way above when compared to the 6.3 per cent registered by commercial banks and the 5 per cent the central bank is struggling to achieve.

John Rwangombwa, the governor of the central bank, said BNR is working with sector players and association to have the situation fixed and bring down the rate of bad loans for the entire financial sector to at least below 5 per cent.

"This is an area we are working to fix,” Governor Rwangombwa told The New Times.

A recent study by AMIR consult, a subsidy arm of the Association of Microfinance Institutions in Rwanda (AMIR), revealed gaps and weaknesses within the legal procedures and loan recovery systems as the main causes of bad loans.

It also cited limited financial skills, high interest rates and weak monitoring and supervisory mechanisms as some of the major reasons why clients are defaulting on loans.

Efforts to address challenge

Meanwhile, both BNR and the association are working round the clock to have the situation brought under control

According to Peter Rwema, AMIR’s secretary general, the association is now focusing on professionalising the sector, as well as investing in skills development, product innovation and encourage use of new technologies to eventually improve service delivery and ultimately reduce on the rate of NPLs.

Rwanda is targeting 80 per cent of financial inclusion by 2017 and largely counts on the microfinance sector to realise this objective.

editorial@newtimes.co.rw