Micro Finance Institutions to boost savings, increase liquidity

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m_Micro Finance Institutions to boost savings, increase liquidity

With its vital position in accelerating access to finance, microfinance institutions (MFIs) in Rwanda have been urged to increase savings in order to boost the required liquidity.

Rita Ngarambe, Executive Secretary of Association of Microfinance Institutions in Rwanda-AMIR notes that encouraging people to save will help the MFIs have enough liquidity to give out as loans which boosts their profits.

For example, loans to the private sector from the financial Sector (which MFIs are inclusive) amounted to  Rwf147.65 billion in the last quarter 2013, higher than loans authorized in the same periods of the last four years, and this trend is expected to continue.

Central  bank notes that,  increasing   savings within the entire financial sector will help  boost the much needed credit  to  finance private sector seen  as an engine for  the country’s economy that  is expected to leapfrog to middle  income  by 2020.

“What we are trying to do is help these MFIs   sensitize people especially in rural areas to learn   to save because it  is from these savings that  they get credit to  lend   to  borrowers and in return  make  profits,” she said

Microfinance Institutions play a major role in increasing access to finance mainly in rural areas as well as lending to small businesses and individuals that may not be financed by commercial   banks; something the government believes would increase financial inclusion for all.

“The challenge is that most Microfinance institutions do not have enough money to lend to rural businesses and when you go to the bank they tell you go to MFIs,” Emmanuel Byamukama from Remera in Kigali explained

According to  Fin scope survey 2012, the country’s gauge for financial Inclusion, the savings culture  increased to 68 percent, up from 54 percent in 2008, while the government targets  to  increase  proportion of  adults  formally served by financial  institutions  to  80 percent.

“It is important to this continue developing percentage of trust in formal financial products and save with financial Institutions,” Rita added.

Experts say that the microfinance sector and SACCOs particularly contribute significantly to promoting financial access, something that would positively increase the country’s financial outlook.

Currently, Microfinance institutions are embroiled in skills gap, exposure to higher operational risks as a result of poor management information system, loan recovery challenges which cripple their capacity   to flourish and make returns.

“So things like loan recovery, management  issues and the capacity of MFIs to develop  products suitable for their clientele  are key  to the development of a vibrant microfinance sector,” Jessica Massi, a Microfinance expert  said.

Nevertheless, Ngarambe says that the Association together with development partners has embarked on helping MFIs build the capacity of their staff in risk and loan management, product designing which has in turn minimized the Non- performing loans.

Accordingly, Central Bank Statistics, show that the Micro finance sector recorded a reduction in their Non-Performing Loans ratio from 12 percent to 8.5 percent last year, an indication that the sector may grow profitably.

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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.

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