Why microfinance sector registered a decline in non-performing loans

Measures introduced by the micro-finance body to reduce the growing non-performing loans in the sector seem to be, finally, paying off. According to National Bank of Rwanda (BNR), bad loans in the sector dropped by 4.3 percentage points in the third quarter of 2017 to 8 per cent.
A customer withdraws money at CIC Microfinance. The sector's performance has improved. / File.
A customer withdraws money at CIC Microfinance. The sector's performance has improved. / File.

Measures introduced by the micro-finance body to reduce the growing non-performing loans in the sector seem to be, finally, paying off. According to National Bank of Rwanda (BNR), bad loans in the sector dropped by 4.3 percentage points in the third quarter of 2017 to 8 per cent. This was a decrease from 12.3 per cent registered during the second quarter of the year and 11.7 per cent registered for the period January to March.

The MFI sector assets also improved marginally over the reporting period, the central bank financial stability and monetary policy statement for the third quarter indicates. Commenting on the development on Friday, Pierre Uwizeye, the acting executive director the Association of Microfinance Institutions in Rwanda (AMIR), attributed the good performance of MFIs to new measures employed by the association to help cut down on bad loans, including putting in place an independent loan recovery team.

“We worked with district officials and conducted awareness campaigns targeting defaulters to encourage them to fulfill the obligations, a move that has now started paying off with non-performing loans going down during quarter three of 2017,” he explained.

While presenting the financial stability and monetary policy statement for the third quarter last week, BNR chief John Rwangombwa said the decline in bad loans was “good news” for sector players.

He added that the central bank would want the level of bad loans to reduce further to below 5 per cent.

More efforts to cut bad loans

Uwizeye added that the association is currently working with stakeholders to support MFIs to acquire new software that will enable them to automate their systems and improve efficiency and transparency. The co-banking software is designed to integrate MFIs, enabling them to share information among themselves and hence be able to track defaulters and stop them from acquiring more credit from different institutions.

The system is expected to be ready by February 2018.

“We have already trained MFI staff on how to use the system and we are confident it will boost our competitiveness as a sector,” Uwizeye told The New Times.

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.

Meanwhile, the micro-finance sector’s assets increased by 9.5 per during the third quarter of 2017 to Rwf242.4 billion, according to central bank figures.

Equally, the sector’s capital adequacy ratio was recorded at 36 per cent, well above the National Bank of Rwanda (BNR) regulatory minimum requirement of 15 per cent.

Embrace technology

In a related development, financial institutions, including MFIs, have been urged to embrace technology to improve operations and ease access to services as well as reduce costs.

Peace Uwase, the director in charge of financial stability at BNR, said by embracing financial technology facilities like automation of the sector will, not only enhance efficiency, but also boost its capacity to address the challenge of non-performing loans.

This will also make the sector more competitive and, eventually, boost access to finance, she added, saying that the regulator fully supports automation of MFIs and SACCOs. The central bank official was speaking during presentation of the financial stability and monetary policy statement for the third quarter of 2017 in Kigali last week.

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