Microfinance Institutions’ (MFIs) amount of loans in default as a percentage of the total loan portfolio increased by four percent to 12 percent in the first six months of 2009, according to the central bank.
The National Bank of Rwanda (NBR), said that increase in the delinquency rate is due to the failure of loan holders to honour their debt obligations, hence a significant loss to MFIs.
However the bank said in its latest monetary policy statement released late last month that in terms of outreach, the number of beneficiaries of financial services provided by MFIs increased from 685,651 as at December 31, last year to 722,474 on June 30, 2009.
In the period under review, the total consolidated assets of MFIs increased by 10.4 percent from Rwf27.22 billion to Rwf30.04 billion while the liquidity ratio when cash and its equivalent remained stable registered an increase of 0.3 percent.
“The increase in liquidity was attributed to the increase in both the deposits and loans which increased to 12.7 percent and 13.5 percent respectively,” the statement says.
This comes at a time government has put in place the capacity building fund and the refinancing fund to train MFI managers and refinance MFIs’ activities that have a significant impact on poverty reduction.
According to statistics, in the first half of 2009, 100 managers received trained in management and governance whilst eight MFIs have been refinanced to the tune of Rwf1.3 billion.
Moreover the demand for cash support is said to be higher than the supply, highlighting the need to assist MFIs access this facility.
In 2006 eight MFIs were shut-down by the Central Bank due to huge losses suffered as a result of poor credit management practices. Since then, government has been tasked to pay depositors of the MFIs that were closed.
The monetary policy statement says that the liquidation of these institutions is on going and by the end of June this year, more than Rwf1billion was used to compensate depositors for 50 percent of their deposits.
The central bank objective for end 2009, in terms of compliance with prudential norms, was to have all MFIs meeting the minimum solvency ratio of 15 percent.
But performance assessment by end June 2009 shows that the compliance with the required prudential norms has been deteriorating in each category of MFIs but with more impact on Sacco’s performance.
NBR says that the deterioration of non performing loan rate is due to a sharp increase in non-performing loans while the deterioration in solvency ratio would be due to the change in the minimum prudential norms, moving from 10 percent to 15 percent.
In order to mobilise domestic savings and build an inclusive financial system, government has decided to compliment MFIs by establishing at least one SACCO per UMURENGE (Sector).
This initiative is set to benefit unbanked but bankable people access financial services at low transaction cost.