Like other sectors of the economy, the microfinance sector has been affected by the Covid-19 pandemic.

In effort to safeguard employees and clients, the Association of Microfinance Institutions in Rwanda (AMIR) instituted various measures to raise awareness about the virus and control its spread in the industry.

According to Aimable Nkuranga, the Executive Director of AMIR, the move aimed part of the association’s efforts to promote responsible financing while adhering to the principles of consumer protection.

Consumer-protection principles include appropriate product design and delivery, prevention of over-indebtedness, transparency, responsible pricing, fair and respectful treatment of clients, privacy of client data, and mechanisms for complaint resolution.

With over 390 members and over three million clients that need responsible financing services, AMIR puts consumer protection at the forefront of its operation.

Nkuranga says that all MFIs were sensitized and facilitated to embrace the Covid-19 preventive measures. Among these measures include, observing social distancing, measuring the temperature of clients, setting up hand-washing facilities, and wearing masks to protect staff and clients from the virus.

In addition, virtual platforms were established to facilitate communication to disseminate Covid-19 health guidelines and other guidelines related to serve and protect the clients.

All MFIs displayed, in their workplaces, Dos and Don’ts of preventing Covid-19 – which demonstrates transparency and safety for clients – some of the principles of consumer protection.

The association also launched online training for MFIs, which helped them to leverage on platforms such as Skype and Zoom for work-related meetings.

So far three training sessions have been conducted and there remain eight sessions.

The training also involves empowering AMIR members with adequate skills to the use of technology, and consumer protection smart practices which as a mechanism to adhering to the pandemic situation.

The association plans to set up a toll-free number that clients can use to call in case of complaints about their rights.

"The toll-free number is a communication tool to enhance responsible financing by handling members’ and clients’ complaints and receiving clients’ suggestions during Covid-19 when some people tend to avoid unnecessary travels,” the official said.

The association has also established AMIR-SATIS system that helps MFIs to record, process, validate, and provide feedback directly to their clients via direct messages. This is a Customer Care mechanism that provides periodic reports, helps the MFIs management to take strategic decisions, and also helps them to comply with Principle 7 of the Smart Campaign’s Client Protection Principles.

The system, which is currently being used by eight MFIs including one Umurenge SACCO will soon be rolled out to other members.

Helping distressed borrowers

The Covid-19 has caused varying financial challenges for MFIs and their clients.

Some clients of MFIs have struggled to pay back their loans. AMIR encouraged MFIs to offer loan relief to their clients.

"Even though lockdown has partially been lifted, some clients in the informal sector are still unable to pay back loans. In order to restructure loan repayment, each pandemic-affected client has been advised to approach their Microfinance Institution as we recommended,” he said.

However, he urged other clients who continued to work during lockdown especially those in essential services to pay back without any pretense.

"Those whose loan repayment status was good in February this year are likely to benefit from a package to renegotiate the loan payment grace period,” he said.

Bolstering liquidity, digital payments

Due to Covid-19 induced slow economic activities, Nkuranga said some MFI clients stopped saving while others withdrew their savings to cater for their domestic needs.

This triggered liquidity challenges within MFIs.

"Our assessment revealed that liquidity has decreased. We had to do advocacy and sensitization and this is on course to get a solution,” he said.

The other challenge was that many MFIs are not automated yet cashless payments are seen as part of the solutions to the spread of Covid-19.

"To address this issue…we are designing a project to help MFIs embrace automation. There is the other project of automating SACCOs,” he said.

In partnership with Access to Finance Rwanda, Nkuranga said, the association is currently supporting 11 MFIs to embrace automation.

AMIR also carried out advocacy for MFIs that had branches in different districts to be able to move although travels were banned during the total lockdown.

The other issue is that when banks limited withdrawals to clients, advocacy was done to lift withdrawal limits to MFIs that deposit their money in commercial banks so that they are able to serve their clients.

Through advocacy, restrictions compulsory savings accounts were lifted.

For instance, clients who were previously not allowed to withdraw money from their savings accounts can now withdraw 75 percent of the savings, Nkuranga said.

With public gatherings now suspended, group lending by MFIs under what is known as solidarity guarantee – faces daunting challenges.

"We are in discussions so that the government allows savings groups to gather by respecting Covid-19 prevention guidelines and then continue work to save and get loans from MFIs,” he said.

Small and Medium Enterprise response clinics were also introduced in partnership with Access to Finance Rwanda. Under the intuitive, new policies and financial advisory services and access to finance-related information are translated into clear and straightforward communication.

Integrating MFIs into the economic recovery fund

Nkuranga said that the association lobbied the government to integrate MFIs in the Economic Recovery Fund.

Now MFIs and SACCOs can tap from the Fund and lend to their clients and

Eligible businesses will have to demonstrate the negative impact of Covid-19 on their operations, that they were commercially viable prior to the pandemic, and that they can return to viability, preserve jobs and contribute to the recovery of the economy.

However, MFIs have been allocated Rwf3 billion against their funding shortfall of Rwf22 billion.

We have the responsibility to mobilize more funding for MFIs, Nkuranga says, adding that they will use the government Fund to recapitalize some virus-hit small businesses at low-interest rates.

Avoiding over-indebtedness

Meanwhile, AMIR has warned clients of MFIs to avoid over-indebtedness in order to avoid defaults, which can drive up nonperforming loans and lead to losses.

"They have to take loans they will be able to pay back. Otherwise, they will be blacklisted by the Credit Reference Bureau,” he said.

As part of responsible financing, there is an initiative with the Transunion Rwanda the former Credit Reference Bureau to explain to clients about avoiding over-indebtedness.

The official explained that when a client is blacklisted by the Credit Reference Bureau, it takes seven years to regain trust from banks.

John Bosco Kabera, the Business Development Manager at the Bureau explained that over-indebtedness triggers a lack of capacity to pay back loans.

Therefore during these times of the Covid-19 pandemic, we urge the affected clients to approach banks for loan payment restructuring instead of hiding. They have to know that banks accepted a three-month grace period to pay back the loan,” he said.

There are others who were not affected but masqueraded as affected by Covid-19 and refused to pay back loans. They risk to be negatively listed, he noted.

He urged those who still need loans to avoid over-indebtedness.