Farmers taking farm produce to the local market. Despite the prolonged
drought, smallscale farmers are expected to repay loans from the sale of
their harvest. PHOTO FILE | NMG
The asset quality and profitability of the microfinance sector in Rwanda has deteriorated due to a surge in loan defaults.
The
overall ratio of non-performing loans in microfinance to total loans
was 12.3 per cent as of June 2017, almost double the 7.5 per cent
recorded for the same period last year, according to the National Bank
of Rwanda (BNR).
The central bank attributed this to
haphazard procedures in credit approval processes, which led to a
drastic loss of Rwf3.6 billion ($4.3 million) made by microfinance
institutions as at June 2017.
Significant provisions
One microfinance institution bore the brunt of the defaults due to “inadequate loan management.”
BNR and the association of microfinance institutions in Rwanda declined to provide details about the company.
“One
MFI had a loan that went bad and because of that, it had to make
significant provisions to service that loan, which affected not only its
performance but the entire sector on a consolidated basis,” Peace
Masozera Uwase, the director general of financial stability directorate
at BNR, said.
The MFI is said to have lent Rwf2 billion ($2.4 million) to a local construction co-operative which did not pay up.
This
mismanaged loan also affected the general growth of microfinance
deposits, which had slumped to 5.9 per cent by June 2017, from 20.1 per
cent registered in the same period last year.
The
executive director of the Association of Microfinance Institutions of
Rwanda, Mr Peter Rwema, said the entire microfinance sector is dealing
with bad loans due to prolonged drought, which affected farmers, who
make up majority of clients.
Harvest proceeds
“Many
microfinance institutions had to write off many loans because their
clients simply could not pay. Farmers rarely provide collateral. They
experienced prolonged drought and yet they were expected to repay loans
from the sale of their harvest,” Mr Rwema said.
“Microfinance
institutions have to restructure credit provision and make it more
flexible for clients to repay, otherwise the situation (default) will
remain the same.
“We also urge government to invest more in climate change management so that we can use such tools to analyse credit provision,” he added.
“We also urge government to invest more in climate change management so that we can use such tools to analyse credit provision,” he added.
The central bank also reported a
slowdown in lending to farmers due to increasing non-performing loans in
the agriculture sector.
Rwanda has 154 microfinance
institutions operating across the country, accounting for 6.3 per cent
of the total assets in the financial assets portfolio.
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