The National Bank of Rwanda (BNR) has called on microfinance institutions (MFIs) across the country to embrace automation and reduce the rate of bad loans before the end of the year.

This will, according to Monique Nsanzabaganwa, the deputy vice governor central bank, help deepen financial inclusion and boost access to finance.

According to central bank latest statistics, non performing loans (NPLs) ratio for MFIs dropped from 9 per cent in December 2016 to 8.2 per cent the same period in 2017.

Equally, the level of bad loans among Umurenge SACCOs declined from 13.1 per cent in 2016 to 12.9 per cent in 2017.

However, according to Nsanzabaganwa, the sector could have performed much better only if these credit institutions had automated their systems and enhanced their loan recovery procedures.

"We are, therefore, working with all stakeholders to ensure all MFIs go digital by the end of this year so as to help reduce the level of NPLs and boost access to finance, especially in rural areas,” she noted.

She was speaking during the bank’s Financial Stability Committee and Monetary Policy Committee breakfast meeting in Kigali yesterday.

According to the central bank, MFIs continue to offer financial inclusion opportunities to the rural population registering more account than was earlier anticipated.

For-example, the total number of accounts in MFIs increased to more than 3.4 million by December 2017 growing the sector’s total assets by 9.7 per cent (Rwf244 billion).

This is higher than the 6.6 per cent growth registered in 2016.

Equally, the national bank estimates that total loans by MFIs increased by 2.9 per cent year-on-year compared to the 14.9 per cent growth registered in December 2016

This was largely due to the slowdown of economic activity, especially in the first half of 2017 as well as the increased level of credit risk in the previous periods.

In 2014, the microfinance sector adopted a new application to help MFIs in performance monitoring.

The performance monitoring software application (PMT) was tipped to enhance transparency and efficiency among microfinance institutions.

The technology also sought to ease access to credit by the rural poor and help create a one-stop centre for data collection of all credit institutions at AMIR headquarters in Kigali.

Last year, sector players, through their association AMIR, embarked on a campaign to acquire new software core banking) which, according to Pierre Uwizeye, the acting executive director AMIR, was to help automate the sector’s systems, improve efficiency and transparency among other things.

However, efforts to fast-track this innovation appears to have backfired leaving the sector vulnerable in terms of non performing loans.

"This project delayed because MFIs had to first clean up their data in addition to the technical challenges the sector faced; measures have been taken to bring back on track the project with hopes of ensuring that all MFIs are automated by the end of this year,” said Nsanzabaganwa,

Meanwhile, sector experts like Daniel Muhimuzi, the managing director MayFair Insurance, said MFIs going digital will not only make the industry competitive but also profitable in the long-run.

According to central bank, Profits of the microfinance sector dropped from Rwf9.8 billion in December 2016 to 2.4 billion in 2017 on account of increased provisions.

Consequently, the Return on Assets and Return on Equity of total MFIs decreased, respectively, to 1.0 per cent and 2.9 per cent from 4.4 per cent and 13.7 per cent registered as at December 2016.

Overall, the sector’s loan-loss coverage ratio (the coverage of NPLs by provisions) increased from 53.2 per cent to 55.0 per cent.

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