MICROCAPITAL BRIEF: Financial Illiteracy Blamed as Default Rates in Rwanda

According to figures attributed to the National Bank of Rwanda, the country’s central bank, non-performing loans owed to microfinance institutions (MFIs) rose from RWF 3.6 billion (USD 5.8 million) in 2010 to RWF 4.2 billion (USD 6.8 million) in December 2011. 

MFI clients’ reported lack of understanding of the costs of borrowing and interest is due to the of many MFI clients to understand their loan agreement has been cited as contributing to the problem. According to Jessica Massie, a consultant to MFIs, banks often fail to explain the cost of borrowing and other terms of the loans to their clients: “Terms and conditions are not clearly explained to [clients], so people do not really know what they are getting in loans.”

Despite the increase in nonperforming loans, MFIs’ consolidated assets in the past year reportedly grew from RWF 43 billion (USD 70.1 million) to RWF 48.2 billion (USD 78.6 million). Gross loans grew from RWF 32.2 billion (USD 53.6 million) to RWF 37.8 billion (USD 63 million), and deposits rose from RWF 23 billion (USD 37 million) to RWF 24 billion (USD 39.1 million).

By John Crawford, Research Associate

About The National Bank of Rwanda (BNR)

Founded in 1964, the National Bank of Rwanda (BNR, in French) operates as the central bank for the country. Its purpose is to define and implement monetary policy, mint currency and supervise and regulate the foreign exchange market and financial institutions. It also operates the Securities Exchange of Rwanda. In March 2011, BNR reported total assets of RWF 985 billion (USD 1.65 billion).

Sources and Additional Resources

[1] Dias Nyesiga, The New Times  

“Financial Illiteracy Triggers High Default Rates in MFIs,” http://allafrica.com/stories/201205210360.html

MicroCapital.org Article, July 28, 2011, “National Bank of Rwanda (NBR) Incorporates Microfinance Programs as National Strategy to Achieve 80 Percent Access to Finance Target by 2017”https://www.microcapital.org/microcapital-brief-national-bank-of-rwanda-nbr-incorporates-microfinance-programs-as-national-strategy-to-achieve-80-percent-access-to-finance-target-by-2017/

MicroCapital.org Article, June 12, 2011, “Association of Microfinance Institutions in Rwanda (AMIR) Cautions Microfinance Institutions (MFIs) Against ‘One Size Fits All’ Approach, Particularly in Rural Areas”, https://www.microcapital.org/microcapital-brief-association-of-microfinance-institutions-in-rwanda-amir-cautions-microfinance-institutions-mfis-against-%E2%80%9Cone-size-fits-all%E2%80%9D-approach-particularly-in-rural-area/

MicroCapital.org Article, May 31, 2011, “Rwanda’s Bank of Kigali Announces Three Microfinance Products Targeting Rural Financial Inclusion”, https://www.microcapital.org/microcapital-brief-rwanda%E2%80%99s-bank-of-kigali-announces-three-microfinance-products-targeting-rural-financial-inclusion/

MicroCapital Universe Profile: National Bank of Rwanda (NBR),https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=The+National+Bank+of+Rwanda

Browse the MicroCapital Universe and add your entry to the wiki at:https://www.microcapital.org/microfinanceuniverse/

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