Microfinance sector needs to boost performance – Experts
Financial experts say detailed information on loan products will ease the hiked percentages, following the central bank announcement that the microfinance sector’s non-performing loans rose to 7.7 percent in the third quarter of the 2014 from 6.8 percent.
The increase in Non-Performing Loans-NPLs which h ate in profit margins of the sector, according to Central Bank is likelyto affect the positive performance of the sector looked on to boost financial inclusion for all mainly rural folks.
Accordingly, the sector clients which most of them have little or no background in education take loans without first understanding their conditions, thus end up failing to pay back, something that would be increasing NPLs.
“because most people are always interested in getting money, they don’t mind tasking their microfinance to educate them on terms and conditions for the loan,” said Fred Gatungye, a client of microfinance institution
Most of the information about loan products are always technical for lay clients to understand them which the loan officers for MFIs are supposed to explain more to their clients of what such terms mean.
“Financial institutions are responsible for making sure that they communicate a product’s true total cost, along with its applicable terms and conditions,” said Rita Ngarambe, Executive Secretary of Association of Microfinance Institutions in Rwanda-AMIR
She adds that this should be in a way that clients can understand, given educational and language considerations.
Most microfinanceinstitutions tendto hide their actual pricing onloans due to fear that they may scare away borrowers which in long run increase the interest they are to pay on a loan acquired.
“MFIsshould emphasize transparency in pricing through availing to their clients’ loan term and conditions, the meaning of interest rates and the application of late fees and penalties,” she added
As of end of September 2014, microfinance Institutions saw its total assets grow to Rwf 153.87 billion up from Rwf 126.2 billion in the same period 2013 indicating an increase of19.5 per cent, while total deposits grew to Rwf 84.5 billion from Rwf 69.64 billion while gross loans increased by 18.4 per cent.