Borrowers opt for informal credit due to high interests rates 

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Borrowers are shying away from financial institutions which have prompted them to access credit from informal channels.

According to   recent Finscope survey 2016, 61 percent of adults find it comfortable to get loans from informal means such as savings groups, money lenders and shop credits while 32 percent borrow from friends leaving the bank with 4 percent.

Experts say that the high interest rates by financial institutions tend to make borrowers lose confidence in accessing credit, a challenge that affects the sector’s efforts to ensuring people access credit.

“People tend to fear to go to banks because of the interest rates. When they are given principle sum and they look at how much it is added it scares them off,” said Damien Ndizeye from the Consumer protection association on Friday.

Also, the survey indicated that 13 percent of adults have formal credit facilities from non-bank financial institutions with the largest of adults borrowing for living expenses of up to 34 percent while 28 percent do not borrow at all.

Those  borrowing for  business and investment are  7 percent , medical expenses 11 percent,  farming  purposes 7 percent,  emergency  other than medical 7 percent, schools fees 7percnt ,, buying livestock 6 percent .

“The problem with the bank is on top of their burdening requirements, they put high charges on the money you are borrowing,” said Fred Gatungye, a client of COPEDU microfinance limited.

Although bankers tend to agree with the fact that interest is still high, they say it is accommodative to allow borrowers to access to credit.

“Of course  banks are  in  business, it is also our wish  to  have  interest  rates  up to  even 1 percent but remember the banks also use other people’s  money,”  said Morris Toroitich, chairperson bankers Association.

Experts say that Rwanda’s interest rates are still moderate at 16-17 percent for commercial banks compared ones in the region but also said increasing savings to enable banks get money at lower rate.

A housing estate financed by Rwanda Development board-BRD.

A housing estate financed by Rwanda Development board-BRD.

 

 

 

 

About the author

Olive Ndaka is the Junior Editor for RwandaEye. An investor and young entrepreneur, she is a quick learner and has contributed many articles for RwandaEye in Kinyarwanda.

More posts by | Visit the site of Ndaka

 

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