Microfinance sector needs to boost performance – Experts

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.

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