Govt steps in to tame ailing MFIs



Governor of the National Bank of Rwanda (NBR), Francois Kanimba, recently referred to this month as the defining movement for the activities of Microfinance institutions (MFIs).  The year is the deadline for operation of unauthorised MFIs in the country.


January 1, next year, MFIs in the country are expected to have raised there minimum equity to Frw300 million, up from Frw100 million.  “This is supposed to be for payment,” Kanimba said.


He was addressing stakeholders called to map out strategies of improving MFI’s in the country. They were also supposed to come up with measure of clearing members of the public whose deposits were locked within the closed MFI’s.


The governor called for the support of local authorities and other stakeholders in the country to have all MFI’s challenges addressed once and for all. The meeting was attended by Kigali City mayor, Aisa Kirabo Kacyira, MFI’s representatives, Ministry of Commerce (Minicom) staff, and other mayors among others.


Governor Kanimba admitted that the MFI issue has for long been a big load on his neck as the financial institutions regulator. He expressed the willingness to share the weight.


“I found out that the MFI challenge is big, which I could not solely handle,” he said adding that “the local authorities should play a big role in recovering debts taken from closed MFIs.”


Nyarugenge district hall was brimming with ideas from representatives of MFI, revealing their equity value and promising a better future.

Many MFI’s had been represented. To attend to a common course, and perhaps find a common solution to their challenges.  Zamuka Cooperative Society, Micro save Intego, Isete, Agaseke MFI, and Vision Finance were among the represented.


MFI challenges, streams from a cocktail of mismanagement, and significant loss which characterised the sub-sector at the beginning of last year. 

A draft report on Rwanda Financial Sector Development Programme (RFSDP), dated March 5 this year, says in 2006, the central bank was forced to close eight MFIs because of very poor financial condition.


 “It is believed that a number of other MFIs which are still operating are also in serious financial condition,” says the report.  Last year Igisubizo MFI owner matched away with peoples’ deposits. This was followed by the closure of eight MFI’s.


They included  Intambwe SA, Ongera Microfinance SA, Gwiza Microfinance SA, CMF Urugero SA, Urumuri Microfinance SA, Coopec Intera, Coopec Iwacu and Coopec Ubumwe Iwacu.


The closure mounted the air of distrust and financial insecurity, over the client’s world of surviving MFIs.

Some closed their accounts. “We are not sure about the safety of out deposits,” one client was quoted saying.


The RFSDP report added that in 2005, MFI’s had a combination of 236 branch locations, serving about 379,000 and 194,000 borrowers.

Zigama Cooperative is mentioned as the largest of MFI, with a total of 12 branches, about 39,000 depositors and Frw12 billion in deposits.


According to the report, the MFI structure also wanting. While Zigama takes about 52 per cent market share in MFI total deposits, a combination of 40 smallest MFIs provides for 11 per cent.

The accuracy of reports from MFI sub-sector is also highly doubted. The report says that MFI’s overall Non Performing Loans (NPL) is 13 per cent.


“It is not known whether classification of loans and provisions for bad debt are adequately reported,” says the report.

Perhaps true. Though NPL of the 40 smallest MFIs is reported at 18 per cent on average, the report shows that five small MFIs reported NPLs in excess of 30 per cent of portfolio.


Meeting depositors claims

After the closure of MFIs, all fingers were now pointing at the central banks. It was in the quest for a remedy because many businesses were affected, some students dropping out of school.  


To calm the situation, the government dug into its coffers and provided 50 per cent of depositor’s total claims.

This was done through nerve centre of Bank Populaire—the bank with most branches in the country.


Data from the Commerce ministry shows that the total depositors’ claims from closed MFI’s amounted to about Frw3 billion.  So far over a billion francs has been paid by the government.


Kanimba said more 50 per cent would be provided after the debts recovery from members who took loans from closed MFIs.

It is time to pay. During the meeting a team of liquidators was presented. It is mandated to make sure that all bad debtors of closed MFI’s pay.


This team is expected to work with a five members commit on district, headed by the district mayor.

This committee is also expected to help in the recovery of the debt.


Some cash for the service. Governor Kanimba said the services of the district committee will be rewarded.

The committee would be provided with 10 per cent upon recovery small debts (bellow Frw300 million). 

For the big debts (above Frw300 million), 5 per cent will be gained.


The big debts constitute 33 per cent of the total debts for recovering whereas small loans make up 87 per cent.


Local authorities on board

Kanimba said payments problems are minimal in places where local authorities are involved in loan recovery.

Musoni, one of the liquidators said local authority should call upon people to clear their debts.


Liquidators are already armed with a list of bad debtors which they would provide to local authorities.


This would help in hunting down bad debtors of the closed MFI’s and stop those considering selling off their mortgages.


MFIs were advised to register with the local authorities. “Those that are not registered should be closed,” said the Governor.

City Mayor Kirabo also called for active participation of local authorities MFI debt recovery. 


“MFI should be seen as the institutions that keep our people’s deposits,” she said, adding that the abilities and qualifications of MFI heads should also be noted before authorising the operations.

“Every district should have a forum uniting all MFI’s for internal regulation proper monitoring,” said Kirabo.

The functioning of MFI will no longer be a mater of financial institutions but also local authorities.


The better promise

The meeting ended with a promise to meet all stakeholders next month. It will be time to decide the role of every stakeholder in providing better and sustainable remedy for the already ailing MFI sub-sector.


Before the grand meeting, the governor is expected to meet all MFIs in the country, in the quest of their views on sector development.


Zamuka Cooperative Society is one of the institutions Kanimba promised to visit. It was forced to close last year.

With 1085 of its members, its representative said over Frw19 million of debts has been recovered. 


Kanimba said that the past setbacks encountered by MFI sub-sector were mainly due to limited coordination of his office with Minicom.

He said Commerce Ministry can no longer issue an authorisation to the MFI without contacting the central bank.“We find it very difficult to monitor the operations of the activities of micro finance institutions,” said Kanimba.




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