News analysis: Poor loan management holding back financial inclusion

Failure to manage loans and poor negotiations are hampering efforts to promote financial inclusion for all, especially in rural areas.

Failure to manage loans and poor negotiations are hampering efforts to promote financial inclusion for all, especially in rural areas.

According to the Executive Secretary of the Association of Microfinance Institutions of Rwanda (AMIR), Rita Ngarambe, people increasingly fail to pay back loans due to inability to manage and use them profitably.

“People don’t know how to negotiate for good loan terms with financial institutions and this leads to non-performing loans, especially for MFIs which are meant to serve the rural underserved,” she said

Ngarambe noted that there is need to step up efforts to educate the rural population on financial management and negotiation skills to harness efforts to increase rural financial inclusion.

She noted that with just a few financial institutions currently providing services to the rural folks, rural friendly packages are still a challenge with little or no training of people on loans and financial products.

To address the challenges, experts have called on financial institutions and the central bank to apply transparency while pricing their products and ensure that clients clearly understand the terms of the contract.

“We are encouraging Microfinance institutions and SACCOs to engage into finance education and contribute to the whole financial education programme,” she said. 

To curb down the vice, the association together with Savings Bank Foundation have embarked on training over 300 teachers to spearhead a financial education programme expected to rollout countrywide.

“The savings and financial education are very important for our country that has the vision to become a middle income economy by 2020,” Remmy Iyikirenga, the savings coordinator and promotion specialist at the Ministry of Finance said.

These calls come at a time when the government is moving in to support rural based SMEs and projects especially agro processing with guarantee funds to increase production. Banks are also rolling out products targeting to attract rural Rwandans.

The Governor of the central bank, Claver Gatete said that the Association’s financial education programme is in line with government’s Financial Literacy Campaign aimed at improving the awareness of the population regarding the use of formal financial systems.

According to a Fin Scope Survey conducted in 2008, 21 per cent of adults in the country were served by formal financial sector including MFIs while 26 per cent were informally served while 52 per cent were financially excluded.

Britta Konitzer, a Senior Consultant at Savings Banks Foundation for International Cooperation, principal financier of the campaign noted that 30 teachers from each district have been trained to train more teachers, children and also parents and local authorities on financial management, savings among others.

“From previous feedback of over 1,000 children opening accounts, we believe that teachers will be able to take this message to rural areas to change people’s mindset of financial management,” she said.