Bad loans now threaten microfinance sector

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The rapid growth of savings and credit co-operative societies without matching capacity to manage loans is partly responsible for the increasing bad loans.

Latest statists from to national bank of Rwanda registered an increase its bad   loans from 6.8 percent recorded in 2013 to 7 percent by end of December 2014.

“The capacity of loan officers to analyze loan applications and also ensure the monitoring after disbursement is still low,” Jessica Massi, a financial consultant said.

Moreover, the lack of knowledge on the side of borrowers also contributes yet another threat to reducing bad loans.

“We are carrying out a scientific research on the causes of bad loans which is becoming a prime threat to the growth of the sector” Peter Rwema, director of Association of Microfinance Institutions in Rwanda said.

Rwema noted that there is need to fully understand using practical approaches, the persistent challenges of bad loans that has been affecting the sectors’ growth through reduction of its profit margins.

Dr. Thomas Kigabo, the central bank’s chief economist said that the sector is still buoyant and is able to withstand shocks.

“The sector remains liquid and resilience to withstand shocks. The capital adequacy ratio stood at 33.2%, well above the minimum regulatory requirement of 15% and the liquidity ratio stood at 86.9%,” he added

Statistics from central bank indicate that the sector’s assets grew from Rwf 159.3 by end of December 2014 up from Rwf 128.7 billion in 2013 representing a 23.8 percent growth which was driven by an increase in loans by 22.4 percent.

While on the other side, the sector’s deposits grew by 23.9 percent from 86.1 by the end of last year up from Rwf 69.5billion in the same period the previous year.

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