Microfinance sector seeks ways to address high rate of bad loans

The microfinance sector has started a countrywide study to understand the causes of loan defaulting so as to find a lasting solution. The study is also expected to look at the loan portfolio audits and financial management by sector players, Damascene Hakuzimana, the Association of Microfinance Institutions in Rwanda (AMIR) senior advocacy and communications officer, said. The industry’s asset quality, measured by non-performing loans ratio deteriorated slightly from 6.8 per cent in December 2013 to 7 per cent in 2014, according to the central bank monetary policy and financial stability statement released last week. This was largely attributed to poor loan recovery procedures and lack of a strong legal framework to support loan recovery. The rate of bad loans has been going up across the financial services sector, a development that has raised concern among stakeholders. Froduald Munyankiko, director of operation, Amasezerano Co-operative Bank, said there is need to sensitise borrowers on the benefits of repaying loans in time. “If we don’t change borrowers mindset, bad loans will overwhelm the sector,” he said. He attributted the growing number of loan defaulters to the fact that some borrowers do not follow loan repayment guidelines, among others. “We need to sensitse borrowers so that they understand, not only the importance of servicing loans as planned, but also the risks of defaulting,” he argued. The National Bank of Rwanda (BNR) has also assigned experts to the sector to help improve credit risk assessment skills of microfinance institutions staff as one of the ways to reduce bad loans. Meanwhile, statistics from BNR indicate that the sector’s asset grew by 23.8 per cent to Rwf159.3 last year from Rwf128.7 billion in 2013, largely driven by the loan book, which increased by 22.4 per cent over the reporting period. Peter Rwema, the AMIR acting secretary general, attributed the growth to skills development, product innovation and use of new technologies, which have improved service delivery and governance. Beata Habyalimana, the director general of Agaseke Microfinance Bank, said the sector needs to mobilise more funds from both local and external sources to be able to expand its service and, especially in hard-to-reach areas. The sector’s deposits increased by 23.9 per cent, from Rwf69.5 billion in 2013 to Rwf86.1 billion last year. Its capital adequacy ratio stood at 33.2 per cent compared to the minimum regulatory requirement of 15 per cent. business@newtimes.co.rw

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Microfinance sector seeks ways to address high rate of bad loans