Rwanda’s microfinance industry has stepped up efforts to reduce the increasing number of non-performing loans (NPL).

The renewed drive comes in wake of an increasing rate of bad loans which are threatening the growth of the sector, and slowing down efforts to increase financial inclusion in the country.

Among the initiatives to address the problem is embracing automation, professionalization and centralization of loan recovery systems. Others are improving the quality of audit reports among sector players.

According to the Central Bank statistics, the sector’s asset quality deteriorated with a non-performing loan ratio of 7.9 per cent in 2015 up from 7 per cent in 2014.

Peter Rwema, the secretary general of the Association of Microfinance Institutions in Rwanda, said they are moving to professionalise and automate the sector.

"We are focusing on strengthening the internal control systems to enhance efficiency and ensure that our loan recovery and monitoring procedures are professional to help the sector recover from the situation,” Rwema told The New Times.

According to Rwema, employing professional loan recovery teams will help change the poor re-payment behavior among clients and consequently reduce on the rate of bad loans in the industry.

For example, sharing and centralising audit services will enhance the quality of the audit reports. Weak legal framework

Meanwhile, sector players have blamed the situation on weak legal framework that makes the process of recovering loans so tedious.

Callixte Kalisa, the Director General of CAF-Isonga Ltd, called for a stronger legal framework to address the problem.

"The current legal procedure on loan recovery is complex and not efficient which encourages customers to default; there is need to come up with a more efficient and strong law that will prohibit people from defaulting,” Kalisa said.

According to John Rwangombwa, the Governor, National Bank of Rwanda (BNR), special attention is being focused on improving quality management skills of sector players on loan portfolio handling. This, according to governor will help reduce credit risk among microfinance institutions.

Good performance

The sector assets grew by 31.1 per cent from Rwf159.3 billion in December 2014 to Rwf208.9 billion in December 2015. This was attributed to the sharp increase in loans of almost 28.6 per cent.

The sector’s Capital Adequacy Ratio (CAR) stood at 31.1 percent in 2015, well above the minimum regulatory requirement of 15 per cent. Liquidity ratio was recorded at 89.6 per cent during the same period.

Performance in Umurenge SACCOs reached break-even point in terms of profitability during 2015.

For example, Umurenge SACCO assets grew by 39.5 per cent from Rwf72.3 billion in 2014 to Rwf100.9 billion in 2015.

The growth is attributed to high increase in loans which increased by 20.8 per cent during the period under review.

However, the asset quality of U-SACCOs deteriorated with NPLs ratio increasing from 7.1 per cent in December 2014 to 10.7 per cent in December 2015.

The increase in bad loans in this particular case is as result of weakness in loan portfolio management, the Central Bank said.

editorial@newtimes.co.rw