Non-Performing Loans in Microfinance Institutions increase by 7.6 percent

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m_Non-Performing Loans in Microfinance Institutions increase by 7

Microfinance Institutions’ Non-performing Loans-NPLs   augmented to 7.6 percent by end of June this year up from 6.8 percent   registered at the end of December 2013, Central Bank has announced.

The deterioration means that Microfinance Institutions’ loan portfolio did not perform well which is related to their inability to recover loans, something that has been haunting the   institutions for quite some time.

“There is still  a challenge with  most of the MFIs in loan recovery and management  issues and these affect the performance but we are looking at ways to solve them hopefully, we will see it go down  by end of this year,” said Rita Ngarambe, Executive Secretary of Association of Micro finance Institutions in Rwanda-AMIR

Experts believe that this, if not addressed will affect the performance of the institutions as well as eat into their profit margins.

“Of course MFIs should take the initiative  in loan recoveries, for example following up  the borrower’s activities on at least weekly basis to know the loan performance,” John Gabo, a microfinance expert said

Indeed due to lack of knowledge about loans and illiteracy of most clients of MFIs, the institutions find it difficult to recover the loans as borrowers always divert or use loans to cater for household needs and later find it hard to repay.

Despite this, microfinance sector’s loan book continued to grow in the first half of 2014 with outstanding loans amounting to Rwf81.2 billion as most of the loans going to commerce, restaurant and hostels indicating a 35.8 percent while 31.2 percent went to public works, 12.6 percent went to agriculture.

“The Microfinance Sector continues to grow while remaining sufficiently liquid and well capitalized,” said John Rwangombwa, Governor of the National bank of Rwanda.

He added that the sector’s liquidity ratio stood at 86.2 percent well above the required minimum of 30 percent while the Capital Adequacy Ratio (CAR) stood at31.9 percent the set benchmark of 15 percent.

On the other hand, gross loans increased to Rwf81.2 billion from Rwf73.5 billion in the first half of 2014 while liquid assets rose from Rwf42.1 billion to Rwf53.4 billion which lead to an increase in the sector’s asset size of 14.5 percent jumping from Rwf128.7 billion to Rwf147.4 billion.

The country’s microfinance sector which is comprised of 493 institutions, 480 Savings and Credit Cooperatives-SACCOs and 13 limited companies, are vital in fostering economic development through provision of financial services such as loans and savings.

 

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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