Rwanda’s credit and savings institutions will this month commission a study on the causes of none performing loans (NPL) across the country.
The study comes at a time when the sector is struggling with bad loans which increased from 6.8% to 7.7% between December 2013 and September 2014.
The objective is to conduct a scientific research on the causes of bad loans which is becoming a prime threat to the growth of the sector, Peter Rwema, director of programmes at the Association of Microfinance Institutions Rwanda (AMIR) said.
According to Rwema, the study will help credit institutions to come up with concrete mechanisms based on scientific evidence on factors behind bad loans and solutions to address them.
“We need to act basing on facts and experiences, to be able to deal with the matter more sustainably. We expect to have our findings ready very soon from where we shall draw recommendations,” Rwema told The New Times yesterday.
More specifically we want to look at the causes in detail both from the supply and demand side, Rwema noted.
He said they will also conduct different scientific assessments on the estimated level of damage these NPLs are inflicting on the sector.
Recently, experts advised financial institutions to embrace regular loan portfolio audits and strong legal instruments so as address the challenge.
Microfinance sector in Rwanda is comprised of 493 institutions including 13 limited companies and 480 Saccos of which 416 are Umurenge Saccos serving more than 1.8 million clients.
Government is banking on the sector in fostering financial inclusion and access to finance.
And despite the bad loan challenges, the sector is poised to play a critical role in poverty reduction.
The sector’s total assets grew by 19.5 per cent, from Rwf 126.2 billion in September 2013 to Rwf 153.87 billion at the end of September last year.
Total deposits increased by 21.6 per cent during the period, from Rwf 69.64 billion to Rwf 84.5 billion while gross loans increased by 18.4 per cent from Rwf 72.53 billion to Rwf 87.03 billion