Assessment of the Rwandan Microfinance Sector Performance

Transcription

Assessment of the Rwandan Microfinance Sector
Performance
Prepared by
MicroFinanza Rating
Via Rigola, 7
20159 Milan – Italy
October 2015
1
Rwanda Microfinance Sector Study
Oct 2015
Table of Contents
MAIN ABBREVIATIONS ................................................................................................................. 4
INTRODUCTION ........................................................................................................................... 5
I. OBJECTIVE AND SCOPE OF THE STUDY ................................................................................................... 5
II. METHODOLOGY ............................................................................................................................... 5
III. LIMITATIONS OF THE STUDY ................................................................................................................ 6
CHAPTER 1 MAIN CHARACTERISTICS OF THE FINANCIAL SYSTEM IN RWANDA ............................... 7
I.
II.
III.
IV.
BACKGROUND INFORMATION ............................................................................................................. 7
FINANCIAL SYSTEM IN RWANDA: SEGMENTS AND ACTORS ....................................................................... 8
REGULATION AND CONTROL ............................................................................................................... 9
FINANCIAL INCLUSION ..................................................................................................................... 10
CHAPTER 2 ANALYSIS OF THE SUPPLY SIDE IN THE MICROFINANCE SECTOR ................................. 12
I.
II.
III.
IV.
V.
VI.
VII.
DEFINING MICROFINANCE IN RWANDA .............................................................................................. 12
OVERVIEW AND REGULATION OF THE MICROFINANCE SECTOR ............................................................... 15
EVOLUTION AND PERFORMANCE OF THE MICROFINANCE SECTOR ........................................................... 16
PRODUCT OFFER AND INTEREST RATES................................................................................................ 23
OTHER STAKEHOLDERS .................................................................................................................... 27
MAIN CHALLENGES IN THE MICROFINANCE SECTOR ............................................................................. 29
CONCLUSIONS ................................................................................................................................ 31
CHAPTER 3 ANALYSIS OF THE DEMAND SIDE IN THE MICROFINANCE SECTOR .............................. 33
I.
II.
III.
IV.
V.
METHODOLOGY ............................................................................................................................. 33
CHARACTERISTICS OF THE SAMPLE ..................................................................................................... 33
AVAILABILITY AND ACCESS TO FINANCIAL SERVICES .............................................................................. 35
USAGE OF AND ATTITUDE TOWARDS FINANCIAL SERVICES ..................................................................... 47
CONCLUSIONS ................................................................................................................................ 53
CHAPTER 4 ANALYSIS OF MARKET INFRASTRUCTURE .................................................................. 55
I.
II.
III.
IV.
V.
REGULATION AND SUPERVISION OF THE MICROFINANCE SECTOR ............................................................ 55
COLLATERAL REGISTRATION.............................................................................................................. 58
LOAN RECOVERY ............................................................................................................................ 58
CREDIT REFERENCE BUREAU ............................................................................................................. 59
CONCLUSIONS ................................................................................................................................ 59
CHAPTER 5 CONCLUSIONS AND RECOMMENDATIONS ................................................................ 61
I.
II.
III.
IV.
V.
AFR ............................................................................................................................................. 63
AMIR........................................................................................................................................... 63
GOVERNMENT OF RWANDA ............................................................................................................. 64
NATIONAL BANK OF RWANDA .......................................................................................................... 65
MICROFINANCE INSTITUTIONS .......................................................................................................... 68
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VI. CREDIT REFERENCE BUREAU (CRB) ................................................................................................... 69
CONCLUDING REMARKS ........................................................................................................................... 69
REFERENCES: ............................................................................................................................. 71
ANNEX 1: INTERVIEWS – SUPPLY SIDE ........................................................................................ 73
ANNEX 2: LIST OF FGD PARTICIPANTS AND SURVEY TOOLS – DEMAND SIDE ................................ 74
ANNEX 3:DISTINCTIVE FEATURES OF THE BUSINESS OF MICROFINANCE ...................................... 83
ANNEX 4: CLIENT PROTECTION PRINCIPLES IN RWANDA ............................................................. 84
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Main Abbreviations
AFR
AMIR
APR
BDF
BNR
BPR
BRD
CRB
EIU
FMO
GDP
IFC
MFB
MFI
MFR
MINECOFIN
MIS
MIV
MoU
MSME
NBFI
NFES
NPL
RCA
RWF
SACCO
SBFIC
SME
SPM
TA
UOB
VSLAs
Access to Finance Rwanda
Association of Microfinance Institutions in Rwanda
Annual Percentage Rate
Business Development Fund
Banque Nationale du Rwanda (National Bank of Rwanda)
Banque Populaire du Rwanda
Banque Rwandaise de Développement (Development Bank
of Rwanda)
Credit Reference Bureau
Economist Intelligence Unit
Dutch Development Bank
Gross Domestic Product
International Finance Corporation
Microfinance Bank
Microfinance Institution
MicroFinanza Rating
Ministry of Finance and Economic Planning
Management Information System
Microfinance Investment Vehicle
Memorandum of Understanding
Micro, Small and Medium-sized Enterprise
Non-bank Financial Institution
National Financial Education Strategy
Non-Performing Loans
Rwanda Cooperative Agency
Rwandan Franc
Savings and Credit Cooperative
Savings Banks Foundation for International Corporation
Small and Medium-sized Enterprise
Social Performance Management
Technical Assistance
Urwego Opportunity Bank
Village Savings and Loans Associations
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Introduction
I.
OBJECTIVE AND SCOPE OF THE STUDY
Despite the efforts of the Government of Rwanda and other stakeholders in promoting financial
inclusion in Rwanda, issues on ‘demand capability to use formal financial services’ as well as ‘supply
side capacity to meet needs on the demand side’ are yet to be adequately resolved. Despite the
significant expansion of microfinance services over the last decade and an adequate regulatory
framework and infrastructure, financial inclusion in Rwanda remains low. This questions the capacity
of microfinance providers to reach the intended target population through appropriate business
models. Concerns also arise about the sustainability of the growth of the microfinance sector in
Rwanda considering the poor portfolio quality, the high interest rate spreads, and the moderate
influx of external funding.
Access to Finance Rwanda (AFR) works as a catalyst for financial inclusion by supporting the
initiatives of different financial sector stakeholders to provide appropriate and market-driven
financial products and services. AFR aims at promoting access to financial services in Rwanda. AFR’s
overall goal is to develop sustainable improvements in the livelihoods of poor people through
increased access to financial services for poor rural and urban people (especially women) and micro,
small and medium enterprises (MSMEs).
The current assessment of the microfinance sector in Rwanda will assist the institution to:
- critically analyse the underlying causes of this apparent market stress;
- develop appropriate interventions to support the different stakeholders and strengthen the
sector.
More specifically, the assessment includes:
An analysis of the supply side and of the market trends in the microfinance sector in Rwanda.
Through a high level of data disaggregation including portfolio indicators as well as outreach and
client profile information, the analysis aims at understanding what defines microfinance and how
many institutions actually provide microfinance services in its true sense. The analysis focuses on the
product offer and on its appropriateness in terms of methodology, pricing, delivery channels, size
and guarantee requirements to meet the needs of the intended target clientele and promote
financial inclusion.
An analysis of the demand side, covering all the 30 districts in the country, to understand the actual
use of microfinance services. By analysing census and socio-economic data and the current coverage
of microfinance institutions, the assessment estimates the available market for microfinance
services. Feedback from microfinance clients has been collected to gather information about their
preferences in terms of product design as well as about potential obstacles preventing them from
accessing microfinance services. The analysis also focuses on the main reasons for choosing a
specific financial service provider.
An analysis of the market infrastructure to assess its overall effectiveness and address its potential
shortcomings.
A list of recommendations for different market stakeholders are provided.
II.
METHODOLOGY
Secondary information and data have been gathered in collaboration with Access to Finance Rwanda
and analysed in order to determine the main characteristics and the main trends of the supply side
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and market infrastructure. In order to complement the information collected, on-site field research
was conducted to interview the main stakeholders of the sector.
In particular from Monday, 17th to Wednesday, 26thAugust, MicroFinanza Rating carried out
meetings with 24 institutions. Five more were interviewed with the support of AFR (for further
details please refer to Annex 1).
The demand side of the microfinance sector in Rwanda was assessed using a wide range of tools and
techniques, such as interviews, questionnaires, and focus group discussions. A group of experienced
enumerators visited each province and each district of the country to discuss with people about
their experience with and their needs in microfinance services. The team was trained on how to use
qualitative and quantitative tools to collect information on the demand for microfinance services in
the country. More details on the characteristics of the sample will be provided in chapter 3.
III.
LIMITATIONS OF THE STUDY
The amount and quality of primary data collected is limited, considering the length of the onsite visit
(10 days) and the unsuccessful attempt to obtain updated information from most institutions.
Access to Finance Rwanda (AFR) introduced MicroFinanza Rating and clarified the scope of the
survey by sending an email to targeted institutions. MFR followed up to establish contact and asked
institutions to fill in a questionnaire with quantitative and qualitative data to investigate products
and services offered, loan terms and conditions as well as financial performance. Only very few
institutions, corresponding to 25% of interviewed MFIs and banks, provided the data requested.
Consequently, the quantitative analysis had to rely on publicly available information. Due to the
small number of MFIs included in the study, as well as the limited recent information available in the
public domain, the sample cannot be considered fully statistically relevant and an in depth statistical
investigation was not performed. Nevertheless, it was possible to undertake a descriptive qualitative
analysis and identify trends in the sector.
Number of institutions in the peer groups
Rwanda
5
Kenya
8
Uganda
12
Tanzania
4
Source: Mix Market 2014 annual data
The comparative analysis is based on regional
benchmarks specifically Kenya, Uganda and Tanzania.
For the purpose of this benchmark analysis, it is worth
noting that the data derived from the Mix Market (2014)
is viewed as a proxy of the markets but it does not
constitute a representative sample due to the limited
sample size.
With regards to the assessment of the demand side,
focus group discussions were organised with current clients of, and dropouts from microfinance
institutions.
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Chapter 1 Main Characteristics of the Financial System in Rwanda
I.
BACKGROUND INFORMATION
Rwanda ranks at the 135th place (out of 167) in the EIU Democracy Index 2014. Rwanda has
registered outstanding performance in recent years, with fast economic growth, robust reductions in
poverty, and a narrowing of inequality. The poverty rate fell from 59% to 45% in the last decade and
Rwanda is now ranked as the second easiest place to do business in all of Africa.
Rwanda has evolved
through a period of
economic prosperity
and macroeconomic
stability in the past
two decades. Real
GDP grew by an
average
of
8%
annually during the
period 2000 to 2013,
which is among the
highest
average
growth rates in East
Africa. Strong economic growth has resulted in an increase in per capita income from USD 225 in
2000 to USD 712 in 2014. Inflation rates remain in single digits due to the implementation of
robust macroeconomic policies and the easing of global food and fuel prices. Fiscal deficits after
grants have also been contained at less than 5%. High import demand particularly for intermediate
and capital goods continues to outstrip the narrow but expanding export base leading to trade
deficits. Measured interventions in the foreign exchange market by the central bank to smooth out
volatilities have ensured a stable exchange rate against the US dollar. It should be noted that the
country faced more volatility in 2015: if compared to December 2014, the RWF depreciated against
the USD reaching 3.6% by end June 2015 and 4.2% by end July 20151. This robust macroeconomic
framework has kept the economy resilient to external shocks even during the temporary suspension
of budget support disbursements by some donors in 2013.
In its report Doing Business 2015: Going
beyond efficiency, the World Bank noted
how Rwanda has made progress in
improving its business environment over
the last 10 years. The government’s
business regulation reforms resulted in
cost savings for the private sector
estimated at USD 5 million, investment
totalling USD 45 million and about 15,000
jobs2.
Despite
Rwanda’s
strong
improvement in international business
climate rankings, FDI levels are still low.
1
BNR financial stability report Aug 2015
2
World Bank Group, Investment Climate Advisory Services 2013.
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According to current investors, two of the main challenges in attracting foreign capital are the
country’s taxation regime and the disputes arising from violation of contractual obligations in
investment agreements.
II.
FINANCIAL SYSTEM IN RWANDA: SEGMENTS AND ACTORS
The Rwandan financial system comprises Banks, Non-Bank Financial Institutions (NBFIs - mainly
insurance and pension funds) and Microfinance Institutions (MFIs), which are regulated and
supervised by the National Bank of Rwanda (BNR).
Banks regulated by BNR are divided into 4 categories:




Commercial Banks
Development Banks
Cooperative Banks
Microfinance Banks
At the end of August 2015, the Rwandan banking industry included eleven commercial banks and
six specialized institutions (including four microfinance banks, one development bank, and one
cooperative bank):
11 Commercial Banks
ACCESS Bank Rwanda Ltd – formerly BANCOR,
Bank of Kigali Ltd, Banque Populaire du Rwanda
Ltd (BPR), BRD Commercial Bank Ltd,
COGEBANQUE Ltd, Crane Bank Rwanda Ltd,
Ecobank Rwanda Ltd – formerly BCDI, Equity
Bank Rwanda Ltd, Guaranty Trust Bank Rwanda
Ltd – formerly FINA Bank Rwanda (ex BACAR),
I&M Bank Rwanda Ltd - formerly Commercial
Bank of Rwanda (BCR), Kenya Commercial Bank
Rwanda Ltd (KCBR);
1 Development Bank
Development Bank of Rwanda (BRD)
1 Cooperative Bank:
ZIGAMA CSS
4 Microfinance Banks:
AB Bank Rwanda Ltd, Agaseke Bank Ltd, Unguka
Bank Ltd, Urwego Opportunity Bank (UOB)
The National Bank of Rwanda is also mandated to regulate and supervise Microfinance Institutions3
As of August 2015, the Microfinance sector comprises 492 institutions4, of which
12 limited companies
Atlantis, Amasezerano Community Banking,
Caisse des Affaires Financières Isonga, COPEDU
Ltd, Duterimbere IMF, Goshen Finance, Inkingi
Microfinance, Letshego Rwanda, Réseau
3
The activity of supervising Microfinance Institutions (MFIs) is based on the Law n° 55/2007 of 30/11/2007
governing the Central Bank of Rwanda, the Law n° 40/2008 of 26/08/2008 establishing the organization of
microfinance activities and its implementing Regulation n°02/2009 of 27/05/2009.
4
In addition to 416 Umurenge SACCOs and 12 Limited Companies, 64 SACCOs have also been licensed by BNR.
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480 SACCOs
Oct 2015
Interdiocésain de Microfinance; SagerGanza ,
Vision Finance, Umutanguha Finance Ltd
including 416 Umurenge SACCOs5.
Rwanda’s financial sector remains dominated by Commercial Banks, which account for 66.6% of
the total assets of the sector. The banking market is highly concentrated: the three largest banks
(Bank of Kigali, BPR and I&M Bank) account for almost 60% of assets, loans, and deposits. However,
competition is increasing, particularly in the SMEs segment. In fact, 2014 also saw a slight increase in
competition among banks with the share of the biggest three financial institutions reducing from
52%, 55% and 57% in 2010, to 45%, 47% and 46%, respectively6. Total assets increased by 19.3%
(from RWF 1.51 trillion in December 2013 to RWF 1.80 trillions of December 2014), driven by loans
to the private sector accounting for 56.1% and by investment in financial securities(13.5%). As of
2014, deposits accounted for 81.2% of total liabilities. Downscaling from commercial banks has
increased in 2013 with some banks buying off part of MFI portfolio. KCB, Bank of Kigali and BPR have
also started but so far focus on payroll and SME lending. New banking players specialized in MF
includes Equity Bank and AB Rwanda.
As for the microfinance sector, microfinance institutions account for 5.9% of total assets. The
sector’s asset grew by 23.8% from RWF 128.7 billion in December 2013 to RWF 159.3 in December
2014 largely driven by loans as they rose by 22.4%. On the liabilities side, deposits increased by
23.9%, moving from RWF 69.5 billion in December 2013 to RWF 86.1 December 2014.
Another dimension of concentration encompasses target sectors: in 2014 commerce, restaurant and
hotels were the most financed by banks, taking 41.6% of the total loans, followed by public works
and buildings (21.1%)and manufacturing sector (11.1%).In the microfinance sector, trade and
hospitality account for 36,4% of total microfinance loans, followed by construction and real estate
activities with 31,9%7. With reference to Umurenge SACCOs, the top activities financed relate to
trade and hospitality (49,2%) followed by agriculture/livestock/fishing (22,8%). This confirms the
stronger links with rural communities where agriculture is particularly relevant.
Financial service providers tend to operate along major infrastructural development axes. Financial
services are therefore unevenly distributed. In particular, rural areas are still underserved and
competition remains limited, despite the huge improvements brought about by Umurenge SACCOs.
Given their nature, SACCOs are seen as a positive element to reach full financial inclusion and do not
constitute a threat for other microfinance institutions, as they operate in remote areas not
otherwise covered, offering a very limited range of services at higher interest rates. It should be
noted that there are plans to consolidate all SACCOs into a cooperative bank at national level, in an
effort to ensure effective monitoring and improve efficiency in the microfinance sector.
III.
REGULATION AND CONTROL
The financial sector is supervised by the National Bank of Rwanda. The activity of supervising
Microfinance Institutions (MFIs) is based on the Law n° 55/2007 of 30/11/2007 governing the
Central Bank of Rwanda, the Law n° 40/2008 of 26/08/2008 establishing the organization of
microfinance activities and its implementing Regulation n°02/2009 of 27/05/2009.
5
The full list is available on www.bnr.rw
BNR Monetary Policy and Financial Stability Statement, August 2015.
7
BNR Monetary Policy and Financial Stability Statement, August 2015.
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The National Bank of Rwanda supervises licensed institutions through the risk based supervision
framework for onsite and offsite surveillance where banks report on a monthly basis. The
supervisory tools used in supervising banks and MFIs include: offsite surveillance methodologies
such as CAMELS model that stands for Capital Adequacy, Asset quality, Management quality,
Earnings, Liquidity, and Sensitivity to market risk; onsite inspections: for the purpose of assessing risk
management quality and compliance; and Risk Based Supervision.
The BNR has not established any interest rate ceilings. Financial institutions are free to set interest
rates, although the BNR recommends interest rates should be market-based and allow institutions to
recover their operating expenses, in order to ensure the sustainability of the industry, and
independence from donor and government subsidies. If we compare 2013 and 2014 figures, deposit
rates have decreased (from 8.6% in December 2013 to 7.8% in December 2014) and lending rates
have increased (from 16.9% as of December 2013 to 17.7% in December 2014). According to the
press, BNR officials recently stressed the importance to reduce interest rates, urging borrowers to
put banks under pressure and leverage good credit history to obtain better rates8. This is an
important signal, as it could suggest limited ability of banks to differentiate products and offer better
conditions to repeat clients. This aspect will be further analysed in Chapter 2.
BNR has created a steering committee in charge of development of Basel II/III framework and has
been working together with the International Monetary Fund (IMF) on the development of new
capital adequacy regulations for banks. This project is part of the central bank’s Roadmap for the
Implementation of Basel II and III.
IV.
FINANCIAL INCLUSION
According to the Economist Intelligence Unit 2015 Global
Microscope9 - Enabling Environment for Financial Inclusion,
Rwanda’s overall ranking is 16thout of 55 countries. This is a
significant improvement against the results presented in the
2013 edition, where Rwanda ranked 22nd, significantly behind
Kenya (5th) and Uganda (8th). This is mostly because financial
inclusion strategies have been substantially implemented.
Rwanda’s government aims to achieve financial inclusion by
providing access to formal financial services to 90% of its adult
population by 2020, in line with its medium-term target of
80% to be achieved by 2017.
8
“Pressure on banks to cut interest rates”, The New Times, 18 February 2015
The Global Microscope examines the financial sectors of 55 countries in terms of inclusiveness, by
considering best practices in the national regulatory environment and institutional support for the
microfinance sector. More specifically, it refers to the safe provision of a range of financial products and
services to low income populations.
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Based on the 2008 FinScope survey,
which measures the state of financial
inclusion in the country, only 21.1%
of Rwanda’s adult population (over
15 years of age) was formally
included. The publication of that
report was a wake-up call for the
government and the financial sector.
Since then, Rwanda has made
significant progress in the area of
financial inclusion. Moreover, the government shaped a Financial Sector Development Programme
to promote financial inclusion everywhere in the country. Government policies had a strong impact
especially on savings: adults with a formal account moved from 32.8% in 2011 to 38.1% and savings
increased from 17.8% to 25.5%. However, borrowings from FI decreased slightly. The expansion of
bank branches, as well as the introduction of agent banking, mobile banking, automated teller
machines (ATMs), and mobile money contributed to an increase in financial inclusion.
Rwanda faces low levels of financial literacy. Based on data disclosed in the 2013 National Financial
Education Strategy for Rwanda, less than 50% of Rwandans can give correct answers to all four
numeracy questions, which test addition, subtraction, multiplication, and division. Moreover, there
seems to be a disconnect between Rwandans’ knowledge/awareness of cash management practices
and their behaviour. To illustrate this point, 90% of Rwandans say they “prefer to budget carefully;”
but only 39% confirm they actually budget; and many of those that do budget do not follow that
budget. Furthermore, fewer than half of Rwandans know how much they spent in the previous
week, suggesting that many are not tracking their money.
The Ministry of Finance and Economic Planning (MINECOFIN) is the lead institution driving the
implementation of this National Financial Education Strategy. It should be noted that Umurenge
SACCOs are partners of paramount importance. First of all, they have excellent geographical
coverage, reaching deep into the country, in areas where most financial institutions have limited
operations. There is also significant scope to expand the client base with an estimated 91% of
Rwandans living within 5 km of an Umurenge SACCO. According to the Rwanda Cooperative Agency
(RCA), SACCOs have approximately 2.3 million members, corresponding to an average membership
of 44% of each district’s adult population. Secondly, 80% of Umurenge SACCO clients live in rural
areas, so it is more likely to reach rural adults with low education levels.
Thirdly, as suggested by the 178% increase in clients
Increase of Financial Inclusion (%)
served by financial institutions other than banks, these
clients are likely to have had in the past limited
Banked
61%
exposure to formal financial products and services, so
Served by FI other than banks
178%
they constitute fertile ground where financial education
Informal mechanisms only
13%
can thrive and bear fruit. Moreover, this education
Financially served
51%
initiative can be crucial to better understand client
Financially excluded
-46%
Source: FinScope 2012 data, own calculation needs and develop appropriate products. In fact, poor
product design is one of the sore points of the Rwandan
microfinance industry, as we will see in Chapter 2.
The objective of the project is to develop a core financial education curriculum for SACCO clients in
Rwanda and is aligned with the vision of the NFES to improve the capability of Rwandans to manage
their finances well. At the time of writing, MINECOFIN was working on a first interim report on the
progress made with the pilot project, with the view to outlining an implementation plan for a fullscale national rollout.
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Chapter 2 Analysis of the supply side in the microfinance sector
I.
DEFINING MICROFINANCE IN RWANDA
The notion of microfinance should be clarified in order to identify the institutions that provide
microfinance services in the true sense. This is particularly important in the Rwandan market, as
microfinance services are provided not only by Microfinance Institutions, but also by established
commercial banks that are muscling into what they see as a profitable business with significant
growth potential.
From the interviews conducted with various stakeholders10, it
Microfinance clients can be defined in
emerged that microfinance should serve the needs of specific
terms of:
target groups. The recurring feature in the definition of
Inability to access formal channels
microfinance clients is the inability or impossibility to access
Social exclusion
formal financial channels and lack of guarantees, often
Illiteracy
coupled with social exclusion, illiteracy, poor working and
Poor living conditions
living conditions. From a more practical point of view,
Planning horizon
microfinance clients have also been defined in terms of short
Transaction frequency
time planning horizon, which is typical of people belonging to
Physical presence in branches
underprivileged backgrounds. To them, life is a daily struggle.
Source: Interviews
For those individuals, thinking about their projects in three
years’ time might seem unrealistic, as they are mostly concerned about how to get through the day
or how to deal with immediate needs. In this situation, most people adopt a short-term view as any
unexpected event might compromise a fragile balance. Interestingly enough, according to one
interviewee, microfinance clients are those who need a regular contact with MFI and go to the teller
virtually every day. In this case, microfinance is related to transaction frequency and physical
presence.
The National Bank of Rwanda (Microfinance Law No. 40/2008) defines microfinance as follows:
Microfinance: activities that are characterised by at least one of the following operations:
a. extending loans to a clientele that is not able to have access to loans offered by the banks;
b. accepting saving deposits from a clientele not usually served by banks and ordinary
financial institutions;
c. extending loans or accepting saving deposits from a clientele not usually served by banks
and ordinary financial institutions
The current definition of microfinance highlights the role of banks and ordinary financial institutions.
The first paradox is that, according to this definition, the operations of institutions classified as
banks whose target clients belong to vulnerable groups (i.e. microfinance banks) would not fall
under microfinance activities, as their target clients are technically served by a bank. Moreover,
there is no further indication of what ordinary financial institutions represent. Last, but not least,
microfinance services should go beyond the classic traditional credit and savings activities and
encompass microinsurance, micropensions, remittances etc.11. Relevant to this point, it should be
10
The list of stakeholders interviewed is provided in Annex 1
Article 19 of the microfinance law states the following activities may be performed by MFIs 1. Delivery of remunerated
services providing advice and training to members or clients; 2. Microinsurance operations; 3. Transfer of funds operations
for client accounts made within the same institution or network; 4. External transfer of funds operations, not denominated
in foreign currency, with banks and other registered financial institutions; 5. Purchase and sale of currencies.
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noted that Article 19 of the Microfinance Law states the following activities may be performed by
MFIs:
1. Delivery of remunerated services providing advice and training to members or clients;
2. Microinsurance operations;
3. Transfer of funds operations for client accounts made within the same institution or network;
4. External transfer of funds operations, not denominated in foreign currency, with banks and other
registered financial institutions;
5. Purchase and sale of currencies.
As a logical consequence, the above-mentioned activities should also be included in the definition of
microfinance.
With reference to the internationally recognized definitions of microfinance, according to the
CGAP12 microfinance is:
The provision of formal financial services to poor and low-income people and those
systemically excluded from the formal financial system.
Based on the above, microfinance in the true sense can be defined as a range of services aimed at
serving low-income people. These services often - but not exclusively – target excluded groups.
To have a complete picture of the microfinance sector we can therefore distinguish two types of
microfinance services. The first type encompass those services (including savings, credit,
remittances, insurance) that allow clients to leave social and financial isolation behind and access
formal financial services for the first time – in short, a powerful inclusion tool. The second type are
services offered to better-off clients, some of them having managed to improve their living
conditions and to expand their business thanks to previous use of microfinance services. These
clients usually seek larger loans and could represent the target of commercial competitors.
Therefore, ranking different institutions based on the level of sophistication - excluding informal and
semi-formal instruments such as tontines and Village Savings and Loan Associations (VSLA) - the
main actors that provide microfinance services in Rwanda are:
Mobile money providers: they should be included, as they offer means to save and carry out
financial transactions. They might not see themselves as microfinance providers, but they are if we
take into consideration their inclusion power. The three Rwandan operators (Tigo, MTN and Airtel)
offer solutions to keep savings safe with mobile wallets. Thus, they can be considered as
microfinance providers when they act as “stand-alone entities”, i.e. when clients use basic services
that are not linked to credit or savings products offered by MFIs.
Microfinance Institutions, i.e. SACCOs and Limited Companies: from a legal perspective, a SACCO is
a microfinance institution created under the legal status of cooperative, meaning that it provides
financial services exclusively to members and the contribution of members in the share capital is the
same. A Limited Company is a microfinance institution created by individuals or a company without
necessarily contributing equally in the share capital and its services are not limited to its
shareholders. However, both are very socially oriented and offer small loans to underprivileged
groups. The relative weight of small loans (defined as loans under RWF 5 million/USD 6.6 thousand)
over the total outstanding portfolio varies from institution to institution.
Microfinance Banks: they should be included in the group of institutions providing microfinance
services based on their strong social orientation and their mission and vision reflecting the intention
to reach underprivileged groups. Mission and vision can help identify banks with strong social
orientation and detect a potential risk of mission drift if operations are no longer in line with the
original aim. Interestingly enough, Microfinance banks are de facto excluded from the formal
12
“A Guide to Regulation and Supervision of Microfinance – Consensus Guidelines”, CGAP, 2012.
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Oct 2015
definition of MFIs, since their legal status is neither a limited company nor a SACCOs. They are banks,
and as such, they are excluded from the scope of microfinance law and regulation.
Although the entity listed above can be considered as truly microfinance providers, commercial
banks also come into the equation when mature microfinance clients reach a certain level of
financial stability and can access bigger loans. On the credit side, clients served by commercial
banks tend to be “graduate clients”, so there is only partial overlap with microfinance providers that
aim at reaching clients in remote areas and give them access to formal services. However, on the
savings side this differentiation does not exist: in practice, commercial banks and MFIs compete for
the same clients. In this respect, particular attention should be given to mobile money providers,
which can play a very important role in blurring the line even more between MFIs (including
microfinance banks) and commercial banks.
The role of Mobile Money providers in the Microfinance Sector
We stated that mobile money providers can be considered microfinance providers in their own right, as
they effectively contribute to financial inclusion. However, these providers can also be means to serve
the interest of financial institutions. As alternative distribution channels, they allow financial institutions
to reach out to a wider audience and increase their client base. For example, early this year Urwego
Opportunity Bank launched a mobile-based savings product called TigoSugira, which is executed via Tigo
Cash, a pre-existing mobile money service serving 2.5 million customers. TigoSugira transactions incur no
fee, and balances earn an annual interest rate of 7%, paid quarterly. Similarly, Airtel and Atlantis Limited
launched a new microfinance service called ‘Igurize Amafaranga’: Airtel subscribers can take up a 2-week
loan of up to RWF 50,000 (USD 71) without presenting any collateral, at an interest rate of 10%. In June
2015, Tigo Rwanda announced that it had collaborated with Bank of Kigali to enable customers to send
money seamlessly between any Tigo Cash wallet and any Bank of Kigali bank account. In July 2015, MTN
partnered with KCB and I&M Bank Rwanda to enable MTN Mobile Money subscribers to transfer money
between their Mobile Money and KCB accounts, as well as withdraw money from their Mobile Money
wallets using I&M Bank ATMs. More recently, MTN announced partnerships with Access Bank, Urwego
Opportunity Bank and GT Bank in providing Mobile Money ATM withdrawal services. MTN Mobile Money
subscribers can now withdraw money from their Mobile Money wallets using these bank’s ATMs without
the use of a bank card. The difference between the first two initiatives (TigoSugira and
IgurizeAmafaranga) and the other ones is clear: the former directly affect deposits and loan portfolio, as
mobile clients become microfinance clients. The latter are services that can contribute to raise client
awareness and improve brand recognition, getting prospective clients closer to partnering institutions.
However, there is one common denominator: all these partnership agreements are sealed to offer
microfinance products, which can constitute either the core business of the institution (in the case of
MFIs) or a profitable side business (commercial banks).
In October 2015, the Central Bank reported that “Mobile money and money transfer services
experienced accelerated growth in recent past. The number of mobile accounts increased by 77%
between June 2014 and June 2015” Indeed, the number of mobile accounts shifted from 3,826,997 to
6,763, 467 in that period. Mobile banking accounts followed the same trend and increased by 39%, from
552,027 to 769,497 accounts, over the same period (BNR, October 2015)’
Implications for microfinance institutions are two-fold: first, the quick movers, who adopt the mobile
banking technology, have an opportunity to tap into this increasing market niche, to increase their
efficiency and profits. On the other side, the increasing use of mobile money constitute a serious threat
(competition) for MFIs, because innovative products such as cash transfers, payments and savings will be
increasingly done through mobile networks instead of banks. Recently, Airtel and MTN have offered users
a possibility to open saving accounts, with attracting interest rates, with these mobile network operators.
14
II.
Oct 2015
OVERVIEW AND REGULATION OF THE MICROFINANCE SECTOR
Although the formal Rwandan microfinance sector came into life in 1975, with the creation of the
first microfinance institution (Banque Populaire), it is only after the genocide that the sector
experienced fast growth, also stimulated by a large inflows of donor funds directed into relief
orientated microfinance initiatives. In addition, as part of its reconstruction phase, the Rwandan
government provided credit lines and grants to the microfinance sector. The fast and chaotic growth
that followed caused several unexpected problems, including a weak culture of loan repayments.
The need for strengthening of the sector led the government to launch a reform of the financial
sector in 1995. A decade later, in June 2005, Rwanda had around 230 institutions engaged in
microfinance activities (149 of them were Banques Populaires). However, due to some corruption
scandals, the lack of good practices amongst MFIs and the poor management of funds, 9
microfinance institutions were closed in June 2006. The closure created a shock wave as 195,000
depositors lost their savings and the image of the young microfinance sector was consequently badly
affected. This urged the regulator to adopt a National Microfinance Policy in September 2006 and
then a national microfinance implementation strategy.
In June 1999, BNR issued the Banking Law No. 08/99 regulating banks and MFIs, which has been
complemented by two instructions of the BNR in 2002 and 2003 designed for MFIs (Instructions No.
06/2002 and 05/2003). The Banking law defined licensing conditions for MFIs and assigned the BNR
as the Supervisory body of MFIs, including Saving and Credit Cooperatives (SACCOs).
In order to strengthen the microfinance sector and better protect public deposits, a specific
microfinance law (Law No. 40/2008) was adopted by the Parliament in August 2008, followed by
the publication of a new BNR Instruction for MFIs (No. 02/2009).
The law provides four categories of institutions:
Institutional type
Level of Regulation
1
Informal Microfinance Institutions
(such as tontines)
Not subject to licensing by the BNR.
2
Savings and Credit Cooperatives with a value Governed by laws on saving and credit
of deposits below RWF20 million (USD 27,000) cooperatives. Have to comply with simplified
prudential norms defined by the BNR.
3
Savings and Credit Cooperatives with a value Required to operate under the rules and
of deposits higher than RWF20 million (USD prudential norms defined by the BNR.
27,000) and Limited Corporations providing
saving and credit services
4
Credit only Institutions
Have to comply with simplified prudential
norms defined by the BNR.
Instruction No. 02/2009 defines the following rules for MFIs in the category 2, 3 and 4:





Any MFI shall maintain a liquidity ratio of at least 30%;
All MFIs shall maintain a solvency ratio (equity / total assets) of at least 15%;
If the rate of bad debts reaches 10%, the institution is obliged to stop granting new loans;
Category 3 implies a minimum capital requirement of RWF 300 million (USD 495,000) for
Limited Liability Company and RWF 5 million (USD 8,000) for SACCOs;
The provisioning policy is clearly defined;
15

Oct 2015
The total amount of commitments made by a microfinance institution, union or federation
cannot exceed the minimum of 80% of the volume of its resources.
As mentioned in the previous chapter, Microfinance Banks (MFBs) are subject to the banking
regulation, with the only distinctive feature of a lower minimum capital requirement (RWF 1.5
billion, instead of RWF 3 billion for development banks and RWF 5 for commercial banks). MFBs are
supervised by the Director of Bank Supervision and subject to various regulations pertaining to all
institutions that carry the word “bank.” CAMELS rating is applied to all without any consideration or
adjustment for microfinance banks.
The primary institutions with specific mandates for financial regulation in Rwanda include the
National Bank of Rwanda (NBR), the Ministry of Finance and Economic Planning (MINECOFIN), and
the Rwandan Cooperative Agency (RCA). The NBR is the main regulatory body overseeing the
microfinance sector in Rwanda, The NBR conducts supervision of the microfinance industry, which is
subdivided into four categories with different regulatory requirements, by licensing of MFIs, and
through off-site surveillance and on-site inspection of licensed MFIs. The NBR houses a dedicated
department housed within the Financial Stability Directorate, parallel to the Department of Banking
Supervision and the Department of Non-Bank Financial Institutions Supervision. The RCA,
established by law in 2008, operates separately in both a supervisory and capacity building role
supporting and overseeing the Umurenge SACCOs. In particular, the RCA is tasked with supervising
compliance with the cooperative law as well as registering, inspecting, and auditing SACCOs.
An analysis of the effectiveness of the regulation and supervision framework for microfinance in
Rwanda will be carried out in chapter 4 “ Analysis of Market Infrastructure”.
III.
EVOLUTION AND PERFORMANCE OF THE MICROFINANCE SECTOR
GROWTH
According to the data released by BNR in October 2015, the microfinance sector’s assets (excluding
Microfinance Banks) grew by 27.2% in the period June 2014 – June 2015, passing from RWF 147.3
billion (USD 213.6 m) to RWF 187.5 (USD 271.8m). This growth has been largely driven by and liquid
assets, which rose by 42% and loans, which increased by 19.7%. The microfinance sector has
registered steady growth over the past three years, with an average assets’ growth of 25.5% but its
market share over the total financial system has been only slowly increasing over the years (from
5.5% as of June 2012 up to 6.4% in June 2015). It is to be noted that there figures are
underestimated, as they do not include the microfinance banks (which are included in the banking
sector in the BNR reports). The Umurenge SACCO have positively contributed to the growth of the
sector, as their total assets have increased by 32% over the last period (average annual growth in the
last 3 years has been around 30%), confirming their important role in improving the financial
inclusion in the country.
Microfinance Sector Growth Rates
June 12-June 13
Total Assets
28.7%
Liquid Assets
23.6%
Gross Loan Portfolio
24.3%
Deposits
21.9%
Borrowings
13.1%
Total Equity
57.1%
Source: BNR annual reports 2013, 2014, 2015
June 13- June 14
June 14- June 15
20.7%
12.3%
27.1%
19.2%
34.3%
22%
27.2%
42%
19.7%
27.7%
20.7%
25.3%
16
Oct 2015
Similarly, the deposit base recorded a positive trend, increasing from RWF 82.1 billion (USD 119 m)
in June 2014 to RWF 104.9 (USD 140.7 m) as of June 2015, with an increase of 27.7%, registering an
average growth of 23% over the last 3 years. Again, the contribution of Umurenge SACCO is quite
relevant, with a 31% increase in the deposit base over the last period of analysis (24.5% average of
the last 3 years). As share of total deposits, demand deposits continued to be main source of funds
for Microfinance sector at 76% while the saving and time deposits account for 24% of total deposits.
The number of accounts has also recorded a constant growth over the last years, while the number
of loans outstanding has grown at a slower pace and registered a slight decrease (-1.5%) in the last
period.
CAPITALISATION
It is interesting to note that the sound growth of the sector has been accompanied by a solid
increase of the capital base of the Institutions. Total equity recorded important growth rates (34.8%
average growth of the last 3 years) and the sector shows good capitalization levels, with a total
CAR (Capital Adequacy Ratio) standing at 31.4% as of June 2015, well above the minimum
regulatory requirement of 15%, leaving a good margin to absorb potential losses and leaving room
to further increase the leverage to sustain the growth of the sector. With regards to the composition
of capital, Microfinance capital is largely composed of paid-up capital and retained earnings.
LIQUIDITY
The sector remains liquid. The quick liquidity ratio13 stands at very high levels, well beyond the
minimum threshold set by the Central Bank (30%). The ratio fluctuates between 80% (December
2013) and 95.4% (June 2015). Although this situation strongly mitigates the liquidity risk (i.e., the risk
that an organization will not be able to meet its maturating obligations when due, to access
adequate liquidity to meet growth projections and to fund ongoing operations in the case of a
liquidity disruption14) which can be particularly relevant for MFIs mobilizing sight deposits, from
another point of view the MFIs miss an opportunity to generate additional income by investing this
idle liquidity in income earning assets.
Liquidity indicators
June 13
Loans to deposits
90.9%
Quick liquidity ratio
89.3%
Source: BNR annual Financial Stability reports 2013, 2014, 2015
13
14
June 14
June 15
98.8%
86.2%
92.6%
95.4%
Calculated as: cash and cash equivalents/ sight deposits and contingent liabilities.
“Asset and Liability Management for Deposit-Taking Microfinance Institutions”, Karla Brom, June 2009
17
Oct 2015
The plausible cause of such a situation is a risk-aversion from the MFIs management that takes too
much precaution to avoid credit risk, particularly at this period of soaring non-performing loans. In
other cases, the lack of adequate financial management competences and ALM tools and policies in
place push the MFIs to adopt a more prudent approach to avoid the risk of not being able to meets
its financial obligations.
PORTFOLIO QUALITY
The microfinance sector’s assets quality, measured in terms of non-performing loans (30 days), after
an important improvement recorded during the second semester 2013, when the NPL ratio passed
from 8.9% to 6.8%, has been deteriorating since December 2013 reaching 7.4% as of June 2015,
higher than the BNR accepted threshold (5%). The data show a seasonal trend, with the NPL ratio
decreasing at the end of the year, probably due to more recovery efforts put in place before the
closure of the financial year.
The deterioration of the loan portfolio affects the profitability of Rwandan MFIs, as a good portion of
their revenues is allocated to provisioning for bad debts.
Source: BNR annual Financial Stability reports 2013, 2014, 2015
The quality of loan portfolio in the Rwandan microfinance sector, as measured by the PAR 30 days;
was worst in East African Community region in 2013; at 10.57% among the Institutions that had
submitted data to the MixMarket (N=28). In the same period, the Central Bank of Rwanda reports an
overall NPL 30 days of 6.8%, and 7.3% among Umurenge SACCOs. It is important to note that, in
2014, the situation improved tremendously, from a double digit PAR30, down to 7.17%; while other
countries, except Uganda, registered a negative trend in the quality of loan portfolio.
18
Oct 2015
However, there is a very large discrepancy among individual institutions: some institutions recorded
a very high PAR 30 (e.g. COOPEC Zamuka: 32.66%; COOPEC ITI: 26.48%) while others have very good
portfolio quality (e.g. Isonga SACCO: 0.95%; Rwaza SACCO: 1.76%; Ejo Heza-Kamonyi: 2.24% and AB
Bank: 4.88%). In addition, some institutions have improved their portfolio quality through a massive
write-off process, some reporting a double digit write-off ratio (e.g. COOPEC Twizigamire: 16. 3%;
COOPEC ITI: 14.45%).
The problem of poor portfolio quality partially stems from a historical legacy. After the 1994
genocide, the microfinance sector experienced unprecedented growth rates thanks to the support of
international cooperation entities. However, poor coordination and insufficient knowledge of the
local market, in combination with ineffective communication, generated confusion about different
types of loans, which were often perceived as grants or donations. A culture of non-repayment
quickly developed within the population, causing non-performing loans exceeding 45% of total
outstanding credit in the 90’s. It should be also noted that refinancing practices are widespread.
Therefore, it is likely that the official figures do not entirely reflect reality, as refinanced loans are
not included in the NPL calculation. To illustrate the relevance of this point, in 2014 one MFI put an
end to the bad practice of refinancing. Consequently, PAR30 jumped from 3.6% in 2013 to 20% in
2014. Based on the interviews conducted on the field, there is little transparency on refinancing and
most institutions do not report this information to their Board of Directors.
The causes of poor loan portfolio quality in Rwanda vary from one institution to the other, but the
following are the most important:





Inadequate collateralization: many MFIs perceive the collateral registration fees as
expensive, especially for the smaller loans and for the majority of the disbursed loans they
prefer not to register the collaterals. The risk associated is that, if borrower defaults, the MFI
finds it difficult to recover such loans through the legal procedures.
Inappropriate repayment capacity assessment and weak internal capacities: MFIs often
show weaknesses in the appraisal of loan applications and of risk assessment which is not
scored accordingly. This can lead to funding risky businesses or clients. Challenge of the
information asymmetry on client and business profiles leading to granting loans that are far
beyond the business can afford, thus resulting into lack of capacity to repay and therefore
defaulting. This feature is sometimes related to poor staff capacity and poor training. Due to
lack of qualified and experienced financial services professionals, most MFIs lack strong
internal capacity for staff, especially loan officers for loan analysis. Weak internal control
system at different levels and poor competencies of credit committees to analyze the
applications contribute to non-performing Loans.
Limited client financial literacy: the clients segments typically served by the Microfinance
Institutions are characterized by low literacy levels. At the same time, most MFIs have not
enough funds to provide financial education programs to their clients. Thus low client
knowledge level on loan usage results into huge misuse of loans.
Poor follow-up and portfolio monitoring mechanisms: most MFIs have weak loan
monitoring and recovery policies and even when policies are in place, the effective
application is poor. Most MFIs do not follow up the clients after the loans have been
granted. This means that there is reduced attention to borrowers as clients usually want the
institution to pay attention to them as peer pressure to pay the loan on time. This weakness
is often related to staffing problems, lack of logistics (vehicles/motorbikes) and poor
infrastructure (ex. road network).
Inappropriate products and delivery channels.
The Central Bank of Rwanda has put in place a plan to support 435 microfinance institutions, mostly
SACCOs, to improve the quality of their loan portfolio, through inspection and coaching (BNR, 2015).
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Oct 2015
RISK OF OVER- INDEBTEDNESS
The risk of over-indebtedness, though mitigated through a regulatory requirement making it
mandatory for all microfinance institutions to submit and use data to the credit reference bureau,
remains latent and cannot be ignored:



first of all, as previously mentioned, many microfinance institutions (e.g. Umurenge SACCO)
lack robust analysis of repayment capacity , as well as internal monitoring systems to make
sure that the analysis is done properly (e.g. Umurenge SACCOs don’t have internal auditors,
so far; and the compliance committee, in lieu of, is composed of people from the
community, with limited knowledge and skills related to repayment capacity analysis and
monitoring)
Secondly, the credit reference bureau collects and stores data related to credit risks above
RWF 200,000 (approximately $276). Even if the database is increasingly being used (for
example, by June 2014, CRB registered nearly 8,000 searches by non-SACCO MFIs and 3,000
by SACCOs), it was reported that all searches were not successful due to missing clients
information. Therefore, there are still loopholes, and CRB is not yet an effective tool to
prevent over-indebtedness.
Lastly, incentive systems to prevent over-indebtedness are either absent or not clear.
Incentive systems are an important tool for motivating field staff to conduct good analyses
and avoid over-lending. They should not rely exclusively on quantitative data such as the
portfolio at risk and the portfolio volume, but also contain elements related to client
protection and the capacity to build a solid relationship with clients15. Checks and balances
should also be in place to avoid having too stringent PAR requirements that might lead to
aggressive sales techniques or collection practices.
PROFITABILITY AND SUSTAINABILITY
As for the sustainability of the sector, the return on equity (ROE) and return on assets (ROA) were
the main indicators to assess the quality of earnings and profitability in Rwandan microfinance
sector.
Source: AMIR (2015): Rwanda Microfinance Sector Status Report
15
For more details, refer to SEEP Network (2015). State of Practice: Client Protection in Rwanda’s Microfinance
Sector. Arlington, VA: The SEEP Network.
20
Oct 2015
There has been a decrease in both indicators during the period 2012-2014, which may be
explained by the increasing competition from new entrants (new microfinance institutions and
Umurenge SACCO). Possible other causes may include:
•
Deteriorating loan portfolio, which has a double effect on profitability, leading to increasing
loan loss provision expenses and decreasing portfolio yield.
•
Institutional inefficiency (high operating costs; high administrative and personnel expenses)
•
Low productivity (low number of borrowers per loan officer)
•
Increasing competition, and thus, limited outreach
•
Limited assets (small loan portfolios) which does not allow the Institutions to leverage on the
economies of scale
The reasons may include increasing competition, increasing NPLs, increasing operations costs driven
by expansion of branch networks that was observed in many institutions and inadequate
assets/liabilities management, among others.
Nevertheless, it should be noted that the microfinance sector in Rwanda compares favourably in
terms of sustainability and profitability relative to its regional peers and is almost comparable to
Uganda’s performance.
Source: MiXMarket Data
In terms of efficiency, Rwanda compares favourably despite the relatively high cost per borrower.
The margin between portfolio yield and operating expenses for Rwanda is almost in line with the
average margin for the region. Tanzania posts the highest portfolio yield and likewise operating
expenses.
Source: MiXMarket Data
21
Oct 2015
GEOGRAPHICAL OUTREACH
The level of access to financial services is in most cases correlated to the supply of such services in
specific area: Kigali City tops all provinces in terms of access points (branches, sub-branches and
banking agents), with 726 points, and has the highest number of clients accounts (857,000). The
least covered province is South Province with only 398 outlets, and only 251,000 clients’ accounts.
Source: BNR 2014 Annual Report
The MixMarket map of financial inclusion confirms this status, particularly on the supply side.
Indeed, there is high level of concentration of the supply in Kigali, Rwamagana, Muhanga, Musanze,
Gisenyi and Rusizi urban areas. However, when individual districts are considered, there is a stark
discrepancy between urban areas and rural areas such as Nyabihu, Ngororero, Nyaruguru, and
Kirehe.16
Source : http://maps.mixmarket.org/rwanda/
Taking into account the relative access to financial services, Kigali City and West Province fare better
than any other province, with more than 80% supply/demand ratio per 10,000 people. The least
served province with relative access is East Province17. There is a gap between the supply and the
demand in all provinces, except Kigali City (Mix Market, 2014).Umurenge SACCO remains the main
provider of financial services in terms of outreach in all provinces, except Kigali (Mix Market, 2014).
There is historical discrepancy in the supply of financial services across the regions, which date back
to early initiatives in the aftermath on 1994 genocide. Many NGOs focused on the regions where the
16
17
AMIR, 2015
: http://finclusionlab.org/country/Rwanda/analytics
22
Oct 2015
poverty incidence was most marked: for example, BAIR and FOR focused on North and West
provinces, creating microfinance networks such as CLECAM Wisigara (North and North West), Ingabo
created CLECAM Ejo Heza in the South, and FOR created CMF Umurimo in South West, and AJEMAC
established COOPEC Inkunga in West. In the East, which was better-off in terms of poverty level,
such initiatives were scarce. In addition, MFIs tend to orient their interventions towards the most
densely populated areas, such as townships and densely populated districts, which explains higher
levels of supply in North and North-West, and lower supply in the Eastern part (former Umutara for
example), which was sparsely populated.
IV.
PRODUCT OFFER AND INTEREST RATES
In the Rwandan microfinance sector, both group and individual lending methodologies are offered,
although the majority of borrowings is represented by individual loans.
The range of products offered comprises a variety of products: from business to housing loan, from
funeral solidarity funds to education loans. However, the vast majority of microloan products
offered are designed for business purposes. Loans with multiple purposes are also common,
whereas a limited number of microfinance institutions offers consumer loans, agro-loans or
emergency loans. Very few financial institutions target farmers, given the higher risk related to
agricultural activities, but those few ones assist them with finance and training on how to increase
their production through better agricultural practices and access better agricultural inputs.
Group loans are specifically targeting the most vulnerable clients, particularly women, generally
without formal collateral. In this case, clients use peer guarantee instead of fixed assets to have
access to loans. Experienced active poor group clients are then promoted to smaller groups and are
able to receive higher loan sizes. As already mentioned, the share of groups loans have in the
Rwandan sector has constantly decreased overtime. In fact, several institutions have left the group
methodology behind in consideration of the high risk associated with it. The group methodology has
shown to be less effective especially in urban areas, where groups are very difficult to monitor as
members move very quickly across the country for business reasons, whereas groups formed in rural
background are more stable and the peer pressure mechanism has proven to work better. As an
example, an Institution that currently offers 15 different products, including four credit products for
its staff, over the course of the last 7 years, dramatically reduced group lending, which represented
approximately 4.5% of loan portfolio (in terms of loan amount) as of August 2015.
More in general, the traditional group lending approach (Accion Solidarity Group Lending) is
practiced by well-established institutions such as Urwego Opportunity Bank, Equity Bank, Vision
Finance Company, Amasezerano Community Banking, Sager Ganza and Duterimbere. The ceiling of
loans accessed through this methodology vary between FRW 100,000 (USD 131) and FRW 300,000
(USD 394) per group member. The clients who need larger loans use individual lending approach. For
some institutions, the solidarity guarantee is sufficient, while others (e.g. Urwego Opportunity Bank)
encourage group members to produce other forms of collateral, mostly land titles. Other institutions
(e.g. Umurenge SACCO, COOPEC Inkunga) use the variant of this approach, by lending to organized,
formal groups such as cooperatives and associations, registered with local authority or Rwanda
Cooperative Agency. Interestingly, those institutions that have a large proportion of group loans in
their loan portfolios have a better performance in terms of portfolio quality: for example, Urwego
Opportunity Bank has registered a PAR30 fluctuating between 0.86% and 4.66%, for the last 10 years
(except in 2013, when a structural problem affected their loan portfolio quality). Equity Bank has
registered between 0% and 2.53% between 2011 and 2013 (MixMarket).
Other group lending methodologies (Grameen group of groups, self-help group lending, and Village
banking model) are very rare in Rwanda, partly because microfinance professionals are not familiar
with them.
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Oct 2015
The client attitude towards group lending is mixed (see chapter on demand).
The most popular lending approach to micro entrepreneurs is individual loan. In this case, a series
of approaches to reduce credit risks are used. For example, COOPEC Icyeza requires that:
 “All loans must be covered by a collateral two times the value of the loan applied for”
 A compulsory savings of 10%, not accessible until the loan is repaid for, is required for all
loans
 In addition, the applicant must save up to 25%, 20% and 15% for the first, second third
subsequent loan cycles respectively, as own contribution to the project. This requirement
does not apply to salary loans
 Each loan must be covered by insurance (about 2%)
 Married applicant must be guaranteed by spouses, and, on the first cycle, a third party
guarantor
 Exception to the guarantee requirements can be considered only by the general assembly.
Banque Populaire du Rwanda, for its micro loans, combines also different mechanisms to reduce
credit risks. for example, to obtain agriculture loan, a client must:
 Raise 20% own contribution
 Provide collateral at least 125% the value of the financed project. It can be soft (cash,
movable assets-cars, machines.-), hard (real estate), or joint guarantee for associations and
cooperatives. The insurance cover of the collateral presented is required. The guarantee can
also be access to a special guarantee fund (e.g. government funds, through BDF, for
agriculture projects, women, genocide widows in AVEGA, or guarantee fund for retrenched
civil servants) or a special credit fund (PPPMER II for rural, artisans projects; RIF II for rural
agribusiness projects, Care International credit fund, Girinka for those intending to acquire a
milking cow, and health insurance credit fund).
For any other microloan BPR requires Joint guarantee in groups of 3-10 people; or associations of up to 30 members
 A joint moral guarantee for each member to pay back the loan
 Assets belonging to the association, if any
 Assets to be acquired, or any other assets, if it is equipment finance
 Hard collateral (assets), for micro entrepreneurs who need working capital
 Reference letter from current employer; and a testimony current salary; the security is the
monthly salary or other stable income paid through BPR account; assets or any other hard
collateral; for education loans.
Microfinance institutions in Rwanda tend to mix several forms of loan security, but physical
collateral (land titles) are the most commonly used. For example, SACCO Icyeza requests, for the
salary loan, that the applicant must have a permanent employment contract, and should be
guaranteed by his/her employer (produce a letter of guarantee, showing employer’s commitment to
pay the salary through the SACCO while the loan is not yet fully paid). This is a common practice for
salary-backed loans in Rwanda. The same institution offers group loans, loans to cooperatives and
associations. In this case, the group must provide evidence that all members are aware of the loan
applied for, and agree to guarantee each other. Assets belonging to the cooperative/association are
pledged on top of the solidarity mutual guarantee.
Commercial banks tend to have a major focus on SME and consumer lending. SMEs are also served
by smaller institutions, since small and medium entrepreneurs with collateral or guarantors are very
much sought after. Therefore, SMEs are overserved, although the extent of the phenomenon is
hard to quantify, as SMEs are not defined in the same way by institutions. MFIs are more likely to
target specific groups such as women, youngsters or farmers, but this is also true for microfinance
24
Oct 2015
banks. For example, one of them offers community banking, new solidarity group loans (a hybrid
between group and individual loans), micro business loans, micro consumer loans (salary and
motorcycle loans) microleasing and agricultural loans.
From the observations carried out on the field, we should highlight that the range of products is
quite homogeneous across microfinance institutions – many interviewees mentioned a “copy and
paste approach”, and many institutions rely on products based on senior management experience or
intuition, rolled out without any pilot testing or structured process. Some institutions are
increasingly becoming more innovative and distancing themselves from this “copy-paste” culture.
However, such initiatives are still very few in the Rwandan microfinance industry. Indeed, in most of
cases, the product segmentation is usually based on the main characteristics of the economic sectors
served (e.g. Agriculture, Construction, Transport, Trade/Business and other), but with little
differentiation in the terms and conditions. For example, construction loans are likely to have longer
terms, whereas institutions might decide to apply the same term to all others.
At the same time, new products are slowly being introduced: savings and deposit products, mobile
money transfers, mobile and internet banking, agent banking, micro insurance and micro leasing.
However, the innovators are mostly non-traditional players: mobile phone operators, or new
entrants to the Rwandan banking market rolling out agency banking models.
As far as pricing is concerned, Microfinance Institutions are generally reluctant to disclose product
information and fees, so much that we can only present a partial picture of the characteristics of
the products offered. Interest rates vary greatly and it is extremely difficult to map them due to lack
of transparency. Microfinance providers with an international background have also tried to produce
comparative pricing reports before or shortly after entering the Rwandan market, but as of today
the picture remains blurred.
The market lending interest rate stood at 17.3% as of June 2015 (BNR, October 2015). Some
microfinance institutions (e.g. Umwalimu SACCO and COOPEC Inkunga) offer below market interest
rates (from 10% to 14%), for most of loan products. However, those are exceptions: in general the
lending (nominal) interest rates fluctuate between 18% and 30%. Some products (e.g. overdrafts
and lines of credit) are even charged higher: for example, SACCO Icyeza (Kanama sector, Rubavu
district) charges 5% per month (annualized interest rate of about 60%) on its “Credit d’ Urgence”
loan product. The most prevailing interest rate among surveyed SACCOs is 2.5% per month (AIR of
about 30%) for most of the loan products on offer. Some institutions have registered a yield on gross
loan portfolio by far larger than the market lending rate. For example, in 2014, the yield on gross
portfolio was 52,95% for CAF Isonga, 37.02% for Urwego Opportunity Bank, and 33.78% for COOPEC
ITI (MixMarket).
With regards to saving products, the market rate was 8.8% as at June 2015 (BNR, October 2015).
However, some products such as current account are not remunerated at all, and MFIs tend to
remunerate only fixed accounts, mostly with a term beyond six months, and for amount higher than
FRW 50,000. That was the case for the institutions surveyed.
Interest rates are set arbitrary: among 38 Umurenge SACCOs surveyed, there was no systematic
approach to define interest rates, or price existing products. Using blueprint to price financial
products results in a situation whereby the burden is shifted onto the client. The causes of such a
situation are the limited capacity of MFIs staff to develop appropriate products, with reasonable and
responsible prices. MFIs generally lack the competences and tools to perform cost-revenue analysis
by product (taking into consideration the specific risk and the level of costs associated to a specific
product), that could help defining a more balanced and responsible price structure for the products
offered. In addition, current inefficiencies observed in the sector contribute to their reluctance to
reduce lending interest rates close to the market level. Indeed, as noted earlier, some institutions
have very high provisioning rates, high operating expenses ratios (e.g. AB Bank Rwanda and CAF
25
Oct 2015
Isonga registered an OER higher than 100% in 2014), high write-off ratios (e.g. COOPEC ITI and
COOPEC Twizigamire registered 14% and 16% of write off ratios, respectively, in 2014); and very high
personnel expenses (e.g. 49% and 69% in 2014, for AB Bank and CAF Isonga, respectively)
(MixMarket). As a result, a number of potential microfinance clients clients shy away from using
financial services offered by MFIs, and tend to look for alternatives that offer better value, such as
ibimina (tontines/ROSCAs), for both savings and credit services.
Besides the nominal interest rate, MFI’s loans products are very often characterized by additional
fees and commissions, which make the cost structure more complex and the effective cost of
lending higher than the simple nominal rate. This is the reason why, to have a more insightful picture
of the pricing level, it is better to consider the effective interest rate (APR18). According to the data
collected by Microfinance Transparency in 2013, the average APR for Rwanda ranges between 53%
- 59% based on the loan size. The APR is relatively lower than those of regional peers across the loan
ranges.
Country
Rwanda
Uganda
Tanzania
59%
Transparency
Index
53%
Loan amount
(USD)
< $ 781
Loan amount
(local currency)
< RWF 500K
53%
56%
$782 to $2,344
RWF 500K - 1.5M
83%
45%
<$400
< UGX 1M
APR
63%
54%
$401 to $2,000
UGX 1 - 5 M
124%
39%
< $ 220
< TZS 350K
89%
44%
$ 221 - $ 786
TZS 350K - 1.3M
Source: MF Transparency: Microfinance Pricing Analysis Country Reports (September 2013)
Kenya Pricing Analysis Report is not available
The average transparency index likewise is relatively higher than those registered in Uganda and
Tanzania; however, the transparency index19 remains lower than international best practice. This is
due to the fact that most MFIs apply
flat interest rates, require compulsory
Products
Clients
Transparent Pricing Practices
savings as a cash collateral and charge
additional commissions to the loan. Due
Number % Number %
to lack of APR data for Kenya, using Declining Balance Interest
28
52% 68,690 49%
portfolio yield to compare as a proxy 1 fee or no fee
30
56% 75906 54%
16
30% 62418 45%
(Mix Market 2014), Rwanda registers No compulsory insurance required
21
39% 15870 11%
low portfolio yield levels compared to No compulsory deposit required
Kenya and Uganda, while Tanzania is on Source:MFTransparency (data from 14 institutions, with 54 credit products
and 139,664 active clients. Calculation based on 236 loan samples)
the higher side.
Most microloans in Rwanda have a loan term of between 8 and 12 months. The minimum loan
term can be a couple of days (for overdrafts and salary advances), whereas the maximum loan term
can be as long as 15 years (mortgage loans).
18
19
Annual Percentage Rate
The transparency Index measures the difference between the nominal rate and the effective interest rate.
26
V.
Oct 2015
OTHER STAKEHOLDERS
The table below summarises the main other stakeholders who plays a role in the Rwandan
microfinance sector, highlighting for each entity the main activities and strengths as well as the main
limits and areas for improvements. Recommendations for each Institution are included in chapter 5.
Entity
Main activities & Strengths
Government of
Rwanda
• The Ministry of Finance and Economic
Planning (MINECOFIN) is committed to
financial inclusion and has a major role
in ensuring the success of Financial
Education
AMIR
AFR
Limits
• Very slow progress on consumer
protection
• The government established the
National Standards Inspectorate,
Competition and Consumer Protection
• The government of Rwanda is known
Authority (NICA) in 2013. Unfortunately,
for being very proactive and supportive
the Authority is yet to be operational
of microfinance
• Several institutions felt AMIR could and
should do more to represent the interest
of its members. In particular, the general
impression was that AMIR could not
differentiate needs and expectations
• 281 active members, including
based on the features of its members
microfinance banks, microfinance
• Institutions other than SACCOs claim
limited companies, NGOs that are
they are no longer a priority, given the
promoting microfinance and Umurenge apparently more pressing issues of
SACCOs
SACCOs (managerial skills, governance,
• With the support of the Savings Bank poor product design, MIS and
Foundation for International
connectivity, financial sustainability).
Corporation (SBFIC), AMIR recently
• Low awareness level of institutions
established a financial Education
regarding the Code of Conduct, as it was
Program in Rwanda
rarely mentioned by interviewees when
• The Code of Conduct for AMIR
asked about AMIR’s main achievements
members entered into force in July
in recent times
2013
• The difference between AMIR and
• Creation of a separate legal entity
AMIR Consult in terms of the services
called AMIR Consult Ltd to be
provided remains unclear to the
financially sustainable
intended beneficiaries
• The Rwanda Bankers Association (RBA)
seems to engage the regulator more
often and with better arguments than
AMIR, thus giving a bigger contribution
to the financial sector
• AFR is an investment company that
channels funds coming from the
Department for International
Development (DFID) of the UK, the
World Bank and the
KreditanstaltfürWiederaufbau (KfW)
• AFR supports several initiatives that
lead to the strengthening of the
banking and microfinance sector in
• Based on interviews, AFR seems to
have good financial backing but
supported initiatives are not innovative
enough
• Coordination with other relevant
stakeholders could be improved
27
Oct 2015
Rwanda
• The presence of AFR is perceived as a
positive element and is associated with
the willingness of international
development agencies to invest in
Rwanda
Business
Development Fund
(BDF)
• BRD has supported over 3,300 loans
with credit guarantees of
approximately RWF 43 billion,
triggering loans of over RWF 110 billion
• Not considered yet one of the main
• It now offers a wider range of
catalysts for the development of the
products: credit guarantees, grant
microfinance sector
management on behalf of government,
a venture fund for start-ups,
refinancing facility for SACCOs and
business advisory services
• The Rwanda Development Board was
created to bring under the same
umbrella all the investment-related
government agencies, such as agencies
Rwanda
responsible for business registration,
Development Board investment promotion, environmental
(RDB)
clearances, privatization and specialist
agencies that support the priority
sectors of ICT and tourism as well as
SMEs and human capacity
development in the private sector
• Interaction with other stakeholders not
entirely clear
• Missed opportunities to develop joint
programs with other stakeholders
• Plan for the reduction of collateral
registration costs far from being
developed
• RCA is not always able to effectively
address the many challenges coming
• RCA works closely with BNR to
from SACCOs. The most pressing concern
monitor SACCOs; there has been good is governance, followed by limited
progress and the institutions are now
technology and automation (most
sharing more information between
SACCOs have a paper-based system),
them to avoid duplication of efforts.
limited product innovation and
Rwanda Cooperative
They also conduct joint monitoring
underdeveloped agricultural products
Agency (RCA)
visits when appropriate (approximately due to lack of staff with basic notions of
20% of the total number of RCA visits). agronomy
• RCA is in charge of supervising the
• The creation of Umurenge SACCOs
implementation of laws and
initially put RCA under strain, especially
instructions governing cooperatives
with regards to monitoring activities
loosely coordinated with those of the
BNR
28
VI.
Oct 2015
MAIN CHALLENGES IN THE MICROFINANCE SECTOR
Rwanda’s microfinance sector has registered steady growth rates over the last years, with a positive
effect on financial inclusion in the country, especially with the introduction of Umurenge SACCOs in
every province, but, as shown previously in this chapter, the aggregate performance of the sector in
terms of portfolio quality and profitability has been weak.
Portfolio quality remains one of the main challenges, which has been exacerbated over the years by
inadequate credit risk assessment and monitoring, insufficient financial education and mistrust
towards financial institutions. Although Rwanda has come a long way and now records single-digit
NPLs, the level of bad loans is still well above the 5% threshold set by BNR.
There are several reasons that can explain why Rwandan MFIs’ performance is improvable:
Lack of appropriate skills: microfinance has very distinctive features20 that should be taken into
account when selecting personnel, especially for senior management and front-office positions.
Firstly, MFIs typically have a labour-intensive approach to bring financial services closer to people
who need them the most. Secondly, credit risk can vary significantly from one microfinance
institution to the other, depending on the range and nature of microcredit products offered, target
clients and loan underwriting methodology. Therefore, a successful credit risk strategy should not
only hedge the particular risks of microlending, but also carefully consider the context of
microfinance operations. For example, the importance of microfinance products and services will be
negligible in a commercial bank where microcredit is considered one of many business lines. It will
however be vital in a microfinance institution where microloans account for most of its assets.
Further, specialised knowledge of characteristically labour-intensive microcredit methodologies and
an appropriate degree of field knowledge are imperative for assessing asset quality and risks.
Thirdly, loan documentation standards should not constitute an excessive burden for clients.
According to interviewees, graduates in business administration and management often see the
microfinance space as a “second-best” option in case they do not manage to join commercial banks.
The specific skills required to work in microfinance are often unknown and not sufficiently
highlighted during the selection process. This invariably produces a mismatch between personnel
hired and key skills required.
Lack of appropriate risk management systems: most MFIs are characterized by inappropriate risk
management frameworks and tools and therefore their capacity to identify, monitor, measure and
manage risks is weak. This weakness is often related to poor MIS and poor internal capacities on risk
management. As MFIs continue to grow and expand rapidly, serving more customers and attracting
more investment and funds, they need to strengthen their internal capacity to identify and
anticipate potential risks to avoid unexpected losses. Most MFIs have some risk management
policies in place, but usually lack a comprehensive framework that would give them a complete
picture of the risks they are exposed to. As an example, the majority of MFIs regularly monitor their
credit risk through a review of basic portfolio quality indicators or take into consideration the
liquidity risk by regularly checking the level of liquidity in their accounts. However, a comprehensive
system with clear policies, thresholds, alert levels and clear attribution of responsibilities within the
Institution can be rarely found. Poor performing MIS often prevent the MFIs to produce timely and
reliable information that should constitute the basis for a sound risk management framework.
Low transparency levels: Effective Interest Rate (EIR) or Annual Percentage Rate (APR) are
important elements of a transparent loan agreement. Ideally, the loan contract should include the
total cost of the loan expressed as APR and MFIs should duly inform clients of lending terms and
20
A more detailed overview of distinctive features is presented in Annex 2.
29
Oct 2015
conditions. Even more relevant to the point of transparency, terms and conditions of products and
services offered should not only be indicated in official documents, but also communicated to clients
by using expressions they can easily understand. This means that Loan Officers have the duty to
ensure their clients have a good understanding of what the loan entails, making sure they are
effectively overcoming linguistic and educational barriers. Evidence from the field suggests this is not
done systematically. Low transparency levels lead to partial understanding of rights and duties on
the clients ‘side. This shortcoming, apart from violating the basic principles of client protection, is
extremely detrimental in combination with poor repayment capacity practices, as loans are given to
clients who cannot respect repayment schedules, especially in presence of hidden costs that were
not sufficiently outlined before loan disbursement. If institutions fail to do so, the quality of their
loan portfolio is bound to be affected dramatically. Interestingly enough, a World Bank diagnostic
review of financial literacy found that 58% of adults fear that banks will seize their property if they
borrow from them, and around 60% expressed the need for more information on how to keep
money safe, how credit works, and how to spend money wisely21. The logic behind the pursuit of
more transparency is undeniable. Pending financial-consumer protection law and financialeducation initiatives are expected to play an instrumental role in increasing the awareness and
protection of low-income populations in accessing financial services, but institutions should also pull
their weight.
Poor product design: in general, microfinance products should be convenient (e.g. in terms of
geographical proximity, user-friendly opening hours), accessible (e.g. limited paperwork and
bureaucratic procedures, good distribution channels including ATM and mobile money, branches
accessible to everybody including disabled customers) and affordable (e.g. any direct, indirect and
hidden cost is relevant: fees to local authorities, transport costs, insurance, registration fees,
compulsory savings etc.). The need to develop increasingly flexible and responsive financial products
is one of the most compelling challenges for institutions operating in the microfinance space: limited
companies, SACCOs and banks alike. There is a need to adapt the right products and services to fit
different segments of the population, especially in a country with a high youth population.
Interviewees acknowledge the importance of tailoring terms and conditions of existing products to
the needs of clients (e.g. by giving repeated clients the possibility to lower interest rates, choose
repayment dates, and use the option of grace periods if needed). Most institutions offer an
acceptable level of flexibility in terms and conditions within their product range. However, the
problem is twofold.
On the one hand, the existing features of any given product (which per se are relatively flexible)
might not be carefully designed around the real needs of clients. For example, a farmer in need of
financing might be given the option to choose the repayment date and have grace periods, to avoid
a mismatch between inflows – depending on when the harvest can be sold – and outflows. However,
instalment dates and grace periods might follow a similar pattern for all farmers, irrespective of their
crop cycle, either because the credit manual doesn’t differentiate among crop types and doesn’t
specify different requirements, or because LOs aren’t sufficiently prepared and trained to assess
agribusinesses. Clients could therefore be bound by terms and conditions they can modify to a
certain extent, but that do not meet their real needs.
On the other hand, we see little product variety and very limited innovation. This lack of innovation
can stifle the market in the medium-term, as institutions do not have a significant competitive
advantage over the others because of distinctive or innovative products. If all MFIs offer similar
products, only the most cost-effective ones will survive. This is the reason why it is paramount for
smaller institutions, which typically have higher operational costs as opposed to banks with largescale operations, to invest in both customer service and innovation. As they have little leeway to
decrease operational costs, Limited Companies and SACCOs can create a competitive edge by
developing new products and offering excellent customer service.
21
EIU, 2014 Global Microscope
30
Oct 2015
Limited customer centricity: One of the key features of a successful microfinance institution is the
ability to provide solutions based on a deep understanding of customer needs, preferences, and
behaviours. Customer-centricity is usually mentioned as key, yet reality often shows a different
picture. To effectively
Key features of a customer-centric approach - checklist
put the needs and 1 Does your institution’s mission statement refer to creating value for customers; is this a
key strategic outcome?
aspirations
of
2
Do senior management and board members regularly spend time listening to customers?
customers at the
3 Is there a robust market research function, informed by best practice?
centre of business
4 Are there mechanisms for gathering customer insights from front line staff?
strategies
and
Does the institution mine its data about customers and use it to design and deliver
5
decision-making,
services?
financial
service 6 Do operational areas work together to design products and interfaces based on customer
insights?
providers may have
7 Does the product and service respond to customer needs?
to
rethink
their
Is the customer experience positive (easy, intuitive, understandable, quick, and
operations and invest 8 dignified)?
significant effort and 9 Does the institution value and apply good customer protection practices?
resources to change 10 Does staff training inculcate customer-first values?
not only business 11 Do evaluation systems reward achievement of good customer outcomes?
operations but also 12 Is profitability and performance monitored at the customer or customer segment level?
organizational mind- Source: CGAP
sets22. In Rwandan institutions, the commitment towards clients varies dramatically. It ranges from
institutions that even have what they call “CEO roadshows”, where the CEO speaks directly with
clients in branches to find out more about unmet needs, to entities that consider microfinance
clients merely a way to diversify their portfolio. Paradoxically, bigger institutions offering
microfinance products might not consider themselves as microfinance players simply because the
weight of small loans is negligible compared to their total portfolio.
VII.
CONCLUSIONS
The chapter has analysed the main characteristics of the supply side of the microfinance sector in
Rwanda, focusing on the performance of the sector in the last years and highlighting the main
challenges the MFIs are facing.
The available data show that the sector has been constantly developing over the last year, with
positive growth rates both in terms of total assets, total loans and deposits. The capitalisation level
remains good and leaves the MFIs an adequate margin to sustain the future growth and absorb
possible losses. The market is very liquid, leaving room for improvement in the effective allocation of
resources into earning assets, which may have a positive impact on profitability that has shown
decreasing trends over the last 3 years. However, the sector remains exposed to some risks, the
most relevant being the credit risk, as shown by an increasing level of non-performing loans, above
the threshold set by the Central Bank. The
The future performance of the whole sector and of each single MFI will depend on their capacity to
keep pace with the rapid development of the sector and their ability to cope with the arising risks.
Particular attention should be given to:
1. Strengthen internal risk management systems, by adopting comprehensive risk management
framework based on the specific characteristics of each MFI and attributing clear
responsibilities within the Institution.
2. Improve credit processes, in particular loan appraisal and monitoring processes.
22
CGAP, Brief: Customer Centricity for Financial Inclusion, June 2014
31
Oct 2015
3. Enhance their product offer and customer service by taking into consideration clients
feedback, in order to be able to offer better products specifically tailored on clients’ needs
4. Integrate within their internal policies and systems, the 7 clients protection principles, in
particular strengthening the transparency of their products conditions, establish
mechanisms to get feedback from the clients and ensure that the procedures allow for a fair
treatment of clients.
5. Strengthen the staff skills though capacity building initiatives and trainings.
Besides the MFIs, the other stakeholders will have a crucial role in the future development of the
microfinance sector and should collaborate in order to support the Institutions and tackle the
shortcomings of the infrastructure, to ensure sound growth of the sector. Specific recommendations
for each stakeholders are proposed in Chapter 5.
32
Oct 2015
Chapter 3 Analysis of the Demand Side in the Microfinance Sector
I.
METHODOLOGY
The analysis of the demand for microfinance services was carried out using qualitative and
quantitative tools. Indeed, a short questionnaire (see annex 2) was addressed to 15 people per
district on average, randomly selected from frequented places such as markets, bus parks, and trade
centres. The places were selected according to their convenience (accessibility and availability of
both female and male respondents). Data collected were inputted and analysed using an Excel
spreadsheet. With regards to qualitative data, focus group discussions and semi-structured
interviews were used. The sample was selected at two levels: the first level involved the
identification of microfinance institutions in each province, willing to share data on clients with the
research team. The selection of microfinance institutions to be involved was guided by the
willingness to include small, medium and large institutions (Umurenge SACCO, a limited company
and a microfinance bank, respectively). At this level, Rugalika SACCO, Duterimbere and Urwego
Microfinance Bank were selected. Rugalika SACCO was the only institution selected in South
Province. Duterimbere and UOMB agreed on which branches to select, based, again, on convenience
(accessibility, and availability of staff to invite participants and facilitate scheduling of focus group
discussions). In UOMB, two branches were selected: Rwamagana and Rubavu. In Duterimbere,
Kanogo (Kigali) and Musanze branches were selected. The second level of sampling was at the
individual participants to the focus group discussions. Participants were selected from a client list
provided by each selected institution, for each branch to be involved. The research team proposed,
randomly, a maximum of 14 clients to be involved, according to the area of focus: saving products
(South); microenterprise loans (East), SME financing (Kigali); group lending (West), and agriculture
lending (North). Semi-structured interviews were held on dropouts identified by Rugalika SACCO,
based on their availability and distance from the office.
II.
CHARACTERISTICS OF THE SAMPLE
A total of 452 people, randomly selected, responded to the questionnaire (15 people per district, on
average). 52% of participants are women, and 48% are men. The average age of those who
participated is 34 years (minimum: 24; maximum: 65; standard deviation: 9.76). Only 24% among the
respondents stated that they employ other people, and the average number of permanent jobs they
offer is 2.83 (maximum people employed: 50). The respondents are distributed across economic
sectors as per the following table 1:
Table 1: Distribution of respondents per economic activity (N=452)
#
Economic sector/activity
1 Agriculture
2 Salaried employment (farm and non-farm)
3 Services (e.g. restaurants, transports,
mechanics, technicians…)
4 Commerce
5 Handicrafts
6 Other
7 No activity (e.g. students)
% in the
sample
10.7
10.3
9.5
60.8
0.9
6.6
1.2
The average monthly business turnover in
the sample is RWF 157,278 (maximum: RWF
5 million, median: RWF 40,000; standard
deviation: 436,870.13). The relatively high
standard deviation demonstrates how very
disperse was the sample in terms of monthly
turnover.
33
Oct 2015
The focus group discussions were held in each province. The following table summarizes the
characteristics of the focus group discussions conducted (table 2):
Table 2: Distribution of participants to clients’ focus group discussions per province
Number of
Province
Area of Focus
Total Male Female
0
11 SME loans
Kigali City 11
East
15
5
10 Savings and micro-enterprise loans
South
13
7
6
Savings
10
2
8
West
Micro-loans
North
12
0
12 Agriculture lending
Total
61
14
47
Source: FGD reports, September 2015
Participants to focus group discussions represented both sexes, and the majority were women
(77%)23. Agriculture sector represented 29% of the sample, commerce 56%, and services (e.g.
tailoring, welding, and mechanic) 15%. All the participants to focus group discussions have
experienced credit services at least once, and all of them had a savings account. Loans accessed to by
participants range between RWF 50,000 and RWF 10,000,000: 41% had accessed to a loan of less
than RWF 500,000. Only 5% have accessed a loan equivalent or greater than RWF 5 million (figure 1).
Figure 1: Distribution of participants in FGDs per loan size (N=61)
The majority of participants had joined their
5M+
microfinance institution for one year or
5%
more (74%). Only a small number (26%) was
1M-4.999
Less than
M
relatively new to their respective institution
500 k
29%
41%
(less than one year: figure 2).
In addition, five former microfinance loan
clients (drop-outs) participated in a semistructured interview to get their views on
microfinance services in Rwanda.
500k999,999
25%
Source: FGD reports, September 2015
This report summarizes the findings from information collected during the field visits.
Figure 2: Distribution of participants in FGDs per years of experience with institution (N=61)
More than 3
years
41%
Less than 1
year
26%
1-3 years
33%
Source: FGD reports, September 2015.
23
One institution, which was sampled in Kigali and Musanze, targets women exclusively, and this has affected
sex representation in the sample.
34
III.
Oct 2015
AVAILABILITY AND ACCESS TO FINANCIAL SERVICES
Chapter 2 describes the supply of microfinance services in Rwanda. Section 3 and section 4 of
Chapter 3 cover the analysis of demand. Before the analysis of the findings from field survey,
interviews and focus group discussions, it is important to quantify how big is the (potential) demand
for (micro) financial services in Rwanda, and to what extent the demand is met.
Microfinance services targets mostly (but not only) poor people, who lack access to existing
(traditional) financial services providers (www.themix.org). According to the most recent Rwandan
Integrated Household Living Conditions Survey (EICV – 2013/14), 39.1% of the population in Rwanda
live in poverty, and 16.3% in extreme poverty (NISR, 2015). The total population is estimated at 11.4
million (NISR, 2015). The population under the economically active age brackets (16 years and plus) is
approximately 6,400,000; and 86.9% of them are currently employed (11.4% in wage-farm; 19.6% in
non-wage farm, 58% are independent farmers, and 9.9% are independently employed in on-farm
activities) (NISR, 2015).
In terms of access, 50.8% of households stated that they had an outstanding loan during the survey,
16.1% of households had borrowed in the last 12 months (1,669,000 households) (NISR, 2015).
The population aged 18 and more who have a savings account is 30%, or 5,907,000 people. In
addition, 2,493,000 declared that they use regularly transfer services, 49.8% dealing with cash
transfers (NISR, 2015).
Therefore, it can be deducted that the overall demand for microfinance services (assuming those still
in poverty are targeted), can be estimated at 2,502,400 people (or 39.1% of those aged 16 years and
more), the potential demand for financial services. Assuming that only economically active
population is targeted with credit services, the demand for such services is estimated 2,174,586
people (or 86.9%).
The following section analyses the extent to which people are aware of existing financial services
providers and the products they offer.
Awareness about providers, products and services
To the question “Do you know other local financial institutions?” only 4.96% of respondents in the
survey answered “no”. The overwhelming majority (95.04%) of respondents know and can name at
least one institution.
Commercial banks are most popular: 7 out of ten top institutions are (microfinance) banks.
Concerning microfinance, 92% of respondents are aware of at least one microfinance institution
(figure 3).
Figure 3: Do you know any Microfinance Institution? (N=452)
Yes
No
6%
No answer
2%
92%
Source: Field survey, September 2015
35
Oct 2015
Figure 4: The most frequently listed savings institutions (N=380; multiple answers possible)
Umurenge
SACCO
31%
BPR
20%
BK
17%
Equity
10%
Unguka
7%
UOMB
4%
Cogebank
3%
Duterimbere
3%
Agaseke
3%
UNICLECAM
3%
Inkunga
Inkingi
GT Bank
Ecobank
Umwalimu…
VFC
COPEDU
UNICLECAM
Agaseke
Duterimbere
Cogebank
UOMB
Unguka
Equity
BK
BPR
Umurenge…
0,0%
10,0%
20,0%
30,0%
40,0%
Interestingly, Umurenge SACCO was most frequently listed as a savings institution. This is possibly
due its presence in all sectors of the country (416), including rural areas, contrary to other
institutions which tend to focus on urban and peri-urban areas. Indeed, the first three savings
institutions most frequently listed are characterized by a large and expanding network of branches
that could be accessed from almost everywhere in the country.
Perception towards financial services providers
Considering how financial services are perceived by clients, the following table (table 3) summarizes
the feedback from both the participants to focus group discussions and to the survey.
Table 3: Clients’ feedback of providers they are aware of
Institution
Institution A
Institution B
Strengths
They open until late (9 PM)
Open 7 days a week
Institution C
Good service
ATM Cards
24
Weaknesses
No ATM Card
No ATM Card
High Interest Rate
No group loans
High Interest Rates
Flat Interest method
24
For the sake of confidentiality, the author prefers not to mention the names of institutions referred to in the
study. However, other information from the participants to focus group discussion or interviewees were kept
as it is.
36
Oct 2015
Institution D
Eligibility to loan product after a short
period
Quick loan process, once all paperwork in
place
Treat clients with dignity and respect
Listening to clients
No ATM Card
Does not partner with Rural Investment Fund
(RIF)
Collateral registration process is required for
everybody, and it takes more than 3 months to
complete
Institution E
Open 7 days a week
Institution F
Accessible everywhere
No ATM Card
High Interest Rates
Institution G
No account handling fees
Cash constrained
Closes too early and opens too late
Not networked (cannot access your account
from a separate branch)
High Interest Rates
Mistreat clients during collections
Institution H
Accessible to low income earner
Institution I
Banks
Accessible from all provinces
Large spectrum of products, client-driven
Cheaper service
access to account 24 hours/7days
The group size is too difficult to manage
In case of default they sit back and leave full
responsibility to group members
Weekly repayments are too tight
High Interest Rates
Difficult loan requirements
They don't trust small entrepreneurs not yet
well established
monthly deductions deplete our savings
too high compulsory savings (20%)
Too high account closure fees
Not accessible to low income clients
Source: Compiled from field survey and FGDs; September 2015
Therefore, the appreciation of a microfinance institution by its clients is mostly influenced by three
most important factors:
1) Accessibility (geographical coverage/presence, category of people targeted, opening days
and hours, and use of ATMs)
2) Quality of products and services (good service, fair collection practices, tailored repayment
frequencies, adequate requirements, quick services, and variety of products available,
including facilities such as linkages to guarantee schemes, and effective group lending
mechanisms)
3) Usage cost (account handling fees, monthly deductions, interest rates and calculation
methods, account closure fee, and compulsory savings)
The survey provided almost similar results, with regards to reasons why customers prefer an
institution to others.
37
Oct 2015
Figure 5: What are the main reasons why you chose/would choose that specific institution and not others to get
credit from? (N=280, multiple answers possible)
20%
It is quick
19%
It's the nearest
16%
It was recommended to me
12%
Other
10%
It's cheaper
7%
It has easy procedures
5%
It has good customer care
It does not require collateral
0%
The findings from the survey demonstrate that people appreciate most the speed of services
accessed to (20%), and the proximity of the services (19%). However, word-of-mouth plays also an
important role in influencing the choices people make on selecting a particular credit services
provider (16%). Collateral is hardly a factor that influences the choice of a credit provider, as well as
customer care. Other factors include the pricing strategy of a particular institution (10% would look
for cheaper options), and the ease of processes to get the service (7%). However, there are a good
proportion of respondents (12%) who made their choice because of other factors such as: limited
options to choose from (it is the only institution available in the area, or the institution is specific for
a particular market segment, e.g. Umwalimu SACCO for teachers). Other choices are emotionally
motivated: some respondents said that they chose an institution because they feel they belong to it
(a sense of ownership “it is ours, in the village”), or just because they were disappointed by fierce
competitor of the selected institution (fig.5).
It is important to highlight that the interest rate and other costs involved are not a primary concern
for the users of credit services. Therefore, stakeholders (including microfinance providers and policy
makers) should put much more emphasis on promoting the quality of services (e.g. quick services)
and the proximity of such services, before considering reducing interest rates to increase outreach.
Figure 6: Why did you choose this particular institution for savings services? (N=379, multiple answers
25
possibile )
44%
It's the nearest
24%
Other
13%
It is easy to open an account
11%
Customer care
10%
It is the safest (security)
6%
It was recommended to me
It is the only institution I know
0%
25
Reasons listed under “other” are explained under the table. They include opening hours, awareness, charges,
possibility to access loans, lack of other options, quick of transactions, and the fact that the respondent just
likes the institution.
38
Oct 2015
Contrary to the credit services where the most frequent factor influencing the choice was the speed
of processes, in savings services clients most frequently listed proximity as the most important factor
(44%). Apparently, customer care is also more appreciated in savings than in credit, as is the ease of
access (11% and 13% respectively). Friends and relatives also may influence the choice (6%), and the
perception of security (a safe place to keep money) matters (10%). 24% of the respondents indicated
other factors that may influence the choice of an institution to save with include:
 Opening hours (5.5%): clients expressed preference for an institution which opens earlier in
the day, and closes later in the day, and opens everyday
 Marketing (3%): some respondents expressed that their choice was influenced by the fact
that their institution is the one they were aware of first.
 Charges (8.4%): respondents expressed that they prefer an institution that charges less
account handling fees
 Access to loans (1%): some respondents explained that they chose an institution to save with
based on the assurance that they will have easy and quick access to credit services in the
same institution
 Limited options (0.8%): there was no other institution available in the area, or respondents
were obliged to use a specific institution (e.g. teachers)
 Speed (4.5%): some respondents expressed preferences for an institution from which they
would quickly access their savings account
 Emotional attachment (0.5%): “I like that institution” (fig.6).
Therefore, we can conclude that the following factors influence how an institution is appreciated (or
not) by clients and potential clients, and thus, their choice on which institution to use (or not to use):
a) Proximity: geographical location matters, and influences the choice people make about
preferred institutions.
“This institution is the closest. I used to be in [institution Z], and I had to travel all the way to Kabarondo to
make transactions” (FGD 2).
“I was client to [institution Y]. They deduct too many charges from our savings accounts, and they are
located too far away. That is why I came here” (FGD 1)
b) Accessibility: it comes out from the survey and the focus group discussions that people
prefer to access their accounts easily and at any time. This factor is translated by the number
of branches available, the agent banking system, or the use of ATMs. Currently, some banks
are experimenting accessibility through mobiles banking.
“ATM is needed. We sometimes need to access our accounts in late hours. Alternatively, they should open
branches in underserved places such as Nyamirambo and Gikondo” (Participant, FGD 3).
Accessibility is not translated with customers’ ability to access their account alone. Indeed, a number
of other barriers have been identified by participants, including paperwork, such as written loan
applications and submission of written business plans that support loan applications.
“I used to be in [institution Y]. I needed a loan badly: I had identified a juicy opportunity. They asked me to
develop a proposal. I did it twice and twice it was rejected. In the process, someone told me about this
particular institution, and I joined. Since then, I am their customer” (FGD 2)
In one institution, clients are eligible to loan services according to the number and the volume of
transactions carried out. Such practices exclude low-income earners, who have irregular and small
transactions. Some other institutions don’t consider the number or the volume of transactions, but
rather the clients’ repayment capacity, which is not determined by the cash flow alone (other factors
39
Oct 2015
include willingness to repay, the conditions of the business, the collateral pledged, and the clients
ability to generate income from the business in question, and other sources of income).
“It is the institution I knew before others. On top of that, they are very flexible: if you need a small amount
you get it, but those who need large amounts also get them. It depends on the applicant’s capacity. Most
importantly, they don’t request a written business plan” (FGD 2)
“Look: the bank [X ]only checks the number of transactions you carry out regularly. We cannot afford that”
(FGD 3)
c) Quick service: it came out from focus group discussions, interviews and the survey that
clients appreciate a quick service, for both savings and credit products. In addition, one
feature that was highlighted as important to choose mobile money over other financial
products was that it was quicker.
“I was dealing with buying crops such as sorghum. I applied for a loan to make stocks of sorghum. The
decision on my loan application took too much time, and when I received it, it was too late: the price of
sorghum had increased, and there was hardly a demand. I could not sell the stock as initially planned, and
in the meantime, because of overstaying in the warehouse, the sorghum decayed. I had to sell a plot of land
to be able to repay money that had not been useful to me, plus a lot of interests and penalty fees. If at all I
decide to borrow again, I will join [institution, name held], because they don’t take too long to made a
decision on loan applications” (Interview drop outs)
“I like the speed with which they assess and make decisions on our loan applications. It took me only two
weeks to get a loan” (participant, FGD 1)
d) Convenience: the study shows that customers take into consideration the convenience in
using the services from a specific institution in making the decision on which one to bank
with. Indeed, the number of opening hours, proximity, but also the possibility to get access
to more than one product in one place were cited many times during focus group
discussions. Some facilities clients pointed to include ATM, check books, payment, and
money transfer.
“Last time I won a tender to supply desks to one of these universities here, and they requested me to have
an account where they could easily transfer payments once my invoices are approved. I had also to pay my
suppliers using cheques. All those facilities cannot be found here [in the institution she is a client to] and I
had to open another account somewhere else” (FGD 5).
e) The cost: interest rates and other charges and fees related to credit, cash transfer, mobile
money or savings influence how people perceive an institution and how they choose one to
bank with.
“I was a client to [institution’s name withheld]. They deduct too many charges from our savings, and they
are too far away. That is why I came here” (FGD 1)
“I have a savings account. I make deposits and withdrawals. However, interest rates on loans are very high.
I will not take a loan from this institution anymore. I have also joined [another institution] but it is a bit far
away, and it makes savings in it a bit difficult. That is why I work with two institutions” (Interview with
dropouts)
40
Oct 2015
Products and Services
Those who are aware of microfinance services know, and are interested in the following products:
Figure 7: What microfinance services/facility might be interesting for you? (N=452, multiple answers possible)
26
58%
Business loans
29%
Sight deposit
12%
Consumption loans
8%
Group loans
Other
3%
Term deposit
3%
The most popular microfinance products are business loans (58% of the respondents would be
interested in it) and sight deposit (29%). Respondents are least interested in term deposit (only 3%)
and group loans (only 8%) (Figure 7)
Focus group discussions identified the following products that are offered on the microfinance
market in Rwanda:
 Current savings account
 Microenterprise loans
 Agriculture loans
 SME loans
 Micro insurance (only one institution)
 Credit “minerval” (school fees loan)
 Training “During training session, we learn the procedures related to loan application,
and they teach us how we can improve on what we do and develop our households. We
also learn how to save and the benefits of savings” (FGD 2)
 Mobile money: “Please extent M-hose to each client, irrespective of the loan status” (FGD
3)
 Individual microloans “Why can’t we, small income earners, have also access to individual
loans?” (FGD 2)
However, participants expressed interest in products that are not currently offered by the financial
services providers they are clients to:
a) Business development services (Business advice):
“We need closer support in our business. Sometimes we fail to repay because we don’t know how to
manage our business” (participant, FGD 3)
26
We have included “group loans” to assess people willingness to use group lending approaches, even if it is not
a product as such.
41
Oct 2015
b) Payment and cash transfers:
“We need payment services very often. Unfortunately, we don’t know how to do it, and we resort to
Tigo Cash or MTN Mobile money; and sometimes you request the payee to come to your business
premises to pick money herself” (Participant, FGD 3)
c) ATM:
“ATM is needed. We sometimes need to access our accounts in late hours. Alternatively, they should
open branches in underserved places such as Nyamirambo and Gikondo” (Participant, FGD 3).
d) Cheques:
“We cannot send someone at the bank when we are too busy. We do not have cheque books. We only
have passbooks, which are personal and not transferable” (participant, FGD 3)
e) Micro-housing loans:
“We need housing loans, and it would be easier, because the house can be used as collateral. I am
confident I can even handle a loan up to RWF 20 million. But I don’t have security for it. A house would
be a good starting point. Now I am constrained to access larger loans. I was granted a loan of RWF 5
million three times so far. I cannot move up, because I have no collateral. I am stuck” (FGD 5)
f)
Micro-insurance: a number of participants in focus group discussions, particularly farmers,
highlighted that sometimes they are faced with repayment difficulties due to crop failures.
Micro insurance would help mitigate some risks associated with the business clients invest in,
to cope with any risk that might affect those businesses.
The demand: Customer needs and preferences
The demand for Credit Services
A large majority of respondents (84%) said that they currently have a need of funding for their
business, or at least had such as need in the last 24 months (fig.8).
Figure 8: Do you currently have any funding needs for your business? /
Did you have funding needs for your business in the last 2 years? (N=452)
No
16%
Yes
84%
Respondents expressed that they needed money for working capital (59%) and/or for acquiring fixed
assets (21%). An additional 9% of the sample had other needs such as renovating or building business
premises (fig.9)
42
Oct 2015
Figure 9: If you have/had funding needs for your business, what do/did you need money for? (N=380, multiple
answers possible).
59%
Working capital
21%
Fixed assets
11%
Not specified
Other
9%
With respect to households financial needs, 77% of respondents said that they need/needed funding
now or in the last 24 months; while 20% did not express such a need (fig. 10)
Figure 10: Do you currently have any funding needs for your household? (N=452)
No
20%
No
answer
3%
Yes
77%
Sources of credit
In order to meet the needs of funds for business expressed in the previous paragraph, respondents
expressed that they resorted to (or intend to resort to) microfinance institutions (42%), or to a bank
(32%). Almost one in four respondents listed savings as their source of funding for business (24%);
nearly the same proportion as those who count on informal sources such as family and friends (18%),
other (informal) sources (5%) or money lenders (2%) (fig. 11). The thin line between banks and
microfinance institutions as sources of funds for business demonstrates that there is a large
overlap of on the credit market. This is possibly due to an increasing downscaling of banks into the
microenterprise segment, and an increasing shift for microfinance from the traditional
microenterprise market segment to include also SMEs. It is envisaged that this overlap, if it continues
to increase, will improve access to quality services (assuming the resulting competition will push
providers to improve the quality of services and reduce the cost to deliver products, in order to stay
relevant to the market).
43
Oct 2015
Figure 11: If you have/had a need of funding for your business, how do you intend to/did you satisfy it? (N=380,
multiple answers possible)
42%
Borrow from an MFI
32%
Borrow from a bank
23%
Use savings
18%
Borrow from family and/or friends
5%
Other
Borrow from money lenders
2%
In a recent national survey, it was established that the various sources of credit that borrowing
households had used in the last 12 months are: informal lenders (39%), including the rotating
schemes “ibimina”, particularly in rural areas. Only 6.2% of households borrowed from commercial
banks, 5.2% from Umurenge SACCO, and 4.2% from other MFIs (NISR, 2015).
Those who intend to use (or used) formal sources included microfinance institutions (Umurenge
SACCO, the most popular source of funding, with 33% of respondents listing it); Duterimbere,
COPEDU, UOMB, Agaseke, VFC, Unguka Bank, etc.). Only four banks are listed among the top 10
sources of funding for business, including microfinance banks, such as UOMB, and Unguka Bank.
Commercial banks listed in the top 10 are BPR, BK, Equity Bank, and Cogebank (table 4). Again, the
popularity of Umurenge SACCO as a source of funding may be explained by many factors, including
its proximity (established in all sectors, being ipso facto the most decentralized institution). It was
indeed demonstrated earlier that client’s preferences are influenced first by the speed of services,
then by the proximity of the provider (less distance), which is the competitive advantage of
Umurenge SACCO over other institutions.
Table 4: Top 10 financial institutions respondents will use for business (N=280, those who mentioned a bank or
an MFI as a possible source of funding for business. Multiple answer possible)
Other institutions listed, in descending order of
preference are: Umwalimu SACCO,UNICLECAM,
Inkingi, Ecobank, Umutanguha, and BRD.
RIM, GT Bank, KCB,I&M Bank, Goshen, Inkunga,
Care, BNR, CMF, Access Bank, CEA, Letshego
were on the list of institutions respondents are
aware of, but were not listed as a (potential)
source of funding for business.
While formal sources of finance top the list for
business, respondents mostly resort to
informal sources of funding for household
needs. Indeed, borrowing from friends and
relatives tops the list, with 51% of respondents expressing it as their source of funding to meet
household needs. Both borrowing from a bank or a microfinance institution to meet household
funding needs are among the least preferred options (5% and 7% respectively); only more preferred
to money lenders, which is an option for only 2%. A good proportion of respondents use other
44
Oct 2015
sources, also informal, such as “ibimina” (rotating savings and credit schemes, based in the
community), or employers (fig.12).
Figure 12: If you need/you needed funds for household expenses, how do you intend to/did you address it?
(N=347)
51%
Borrow from family and/or friends
37%
Use savings
16%
Other sources
7%
Borrow from an MFI
5%
Borrow from a bank
Borrow from money lenders
2%
The demand for and access to saving services
Figure 13: Do you have any savings deposited with a financial institution? (N=452)
A large majority (84%) of respondents in
the survey have a savings account in a
formal financial institution. Only 15%
said that they do not have a savings
account in a formal institution (fig. 13).
Yes
84%
The high proportion of people already
saving with a formal institution might be
explained by an expanding outreach of
formal institution since the establishment
of Umurenge SACCO27.
The most frequently used institution for
savings is Umurenge SACCO (31% of respondents who own a savings account in a formal institution),
followed by BPR (20%), BK (17%), Equity Bank (10%) and Unguka Bank (7%) among the top 5.
No
15%
No answer
1%
Those who do not have a savings account in a formal financial institution are excluded due to
different factors including lack of money (43%), difficult processes (5%), or limited awareness about
savings options available (3%). However, some respondents deliberately keep their money in the
house either because they lack trust in the financial institutions (they fear for the safety of their
money: 8%), or just prefer to keep cash at hand in the house (19%). However, the majority have
other reasons not to save in a formal financial institution, because they prefer other alternatives such
as mobile money, informal saving groups, or just prefer to reinvest and keep cash surplus into their
business (table 5).
27
It might also be possible that there has been a selection bias: people who are met in public places tend to
those who are actively searching for /taking advantage of (business) opportunities available in such places, and
therefore, better placed to be using formal saving institutions.
45
Oct 2015
Table 5: Why don’t you have a savings account in a formal financial institution? (N=69, multiple answers
possible)
The demand for and access to mobile money
Figure 14: Do you use mobile money? (N=452)
No
11%
Yes
89%
The use of mobile money services is
widespread across the country, as 89%
of people in the sample used for the
survey said that they use it. Only 11% of
respondents do not use mobile money
(fig. 14).
The most frequently used mobile money provider is MTN (54% of respondents), followed by Tigo
(38%). The least used provider according to the results of the survey is Airtel, which is newest on the
market (8%) (fig.15)
Figure 15: Which provider of mobile money do you use? (N=402, multiple answers possible)
Airtel Money
8%
Tigo Cash
38%
MTN Mobile
Money
54%
46
IV.
Oct 2015
USAGE OF AND ATTITUDE TOWARDS FINANCIAL SERVICES
Usage of financial services
Figure 16: In the past, did you have any experience with any formal financial service provider? (N=452)
No
answer
8%
Yes
38%
No
54%
The level of usage of financial services is still relatively low: only 38% of the respondents in the survey
have had any experience with any financial services provider in the past28. The majority (54%) have
no experience using formal financial services (figure 16)
According to the National Bank of Rwanda, the number of accounts was 2,278,867 at end June 2015,
in commercial banks (BNR, 2015). It means that less than 20% of the population has an account in a
commercial bank29.
In the microfinance institutions, the number of accounts was 2.7 million as of June 2015, mostly held
in Umurenge SACCO (75%) (BNR, 2015), therefore, less than 24% the population has an account in a
microfinance institution30. The number of outstanding loans was 167,100 in microfinance
institutions, as of June 2015 (Umurenge SACCO representing 41%).
The most recent national livelihoods survey (EICV 2013/2014) has established that more than
5,907,000 people aged 18 and more had a savings account (30% of the population). However, the
largest proportion is in urban areas (43%) (NISR, 2015).
Concerning ease of access to financial services, only 50% of respondents said it is either easy (3%) or
very easy (47%). The other half of the sample deems access to financial services (very) difficult (fig.
17).
28
This seems to contradict the findings in the previous paragraph, where a higher proportion said that they
have a savings account in a formal institution (84%). This is due to the fact that the question could have been
interpreted as “having experience with credit services from a formal financial services provider”
29
The number of accounts includes those held by corporate entities, and an individual may hold more than one
account.
30
Idem
47
Oct 2015
Figure 17: How easy is it for you and other entrepreneurs to have access to financial services (credit, savings,
insurance, etc.)?(N=452)
Not easy
9%
Easy
3% Very easy
47%
Very
difficult
41%
Attitude towards mobile money
Figure 18: How would you characterize the mobile money services you have access to? (N= 402)
Mobile money services are highly
appreciated by the users in
general: only 2% characterized
them as very poor, and 4% as
average; but the rest feel they are
either good (19%) or very good
(75%) (fig.18).
very poor
2%
average/fair
4%
good
19%
very good
75%
Table 6: Mobile money features appreciated by clients (N=452, multiple answers possible)
The benefits most appreciated by
customers of mobile money are
accessibility (25% of respondents), quality
of service (19%), speed of service (12%),
Good service (reliable, secure, clients support)
86
Quick services
53
and affordability of charges (5%).
Low charges
24
The respondents explained that they
Can access other products (buy electricity,
appreciate the fact that mobile money is
payment, cash transfer)
9
available everywhere, and any time of the
Easy to use
6
day. Whatever amount the customer has
Free to deposit money
3
can be deposited. With regards to the
quality of services, respondents have
highlighted they appreciate support from agents, the security of money and transactions, as well the
reliability of the services (table 6).
Benefits (What clients appreciate)
Frequency
Accessibility (proximity: many agents; available
any time)
112
48
Oct 2015
Table 7: Dislikes about mobile money (N=452, multiple answers possible)
Cause of dissatisfaction
High charges
Unreliable due fluctuations in network connectivity
Limited liquidity for most of agents
Not consistent (always changing terms and conditions)
No clients support when needed
No access to credit
Frequency (%)
13
12
5
3
1
1
However, some respondents
pointed to high charges (13%)
and the dependence to mobile
networks connectivity (which is
perceived as unreliable by 12%
of respondents) as major
weaknesses of mobile money
services (table 7).
“When you use Tigo Cash to send up to RWF 75,000; they charge RWF 500 for sending, and they charge
also the payee RWF 2,500. It is better therefore to take money to the payee by yourself.” (FGD 4)
Attitude towards credit services
This section highlights key credit related concerns brought forward by participants to focus group
discussions and interviews.
a) Interest rates and other costs:
In all FGDs, except one, participants said that interest rates were too high; and needed to be revised.
It came out from the discussions that currently, interest rates range between 2% and 5% per month,
in most cases flat. In addition, it came out from discussions that customers are not aware of
annualized interest rates applied, and that too many other charges related to loan applications are
not factored in calculating the interest rates mentioned in the contract the client signs. They include
a fee to visit collateral and assess client business premises, collateral valuation, collateral
registration, recommendation letters from local authorities, notary services fee, commission on loan,
loan processing fees, and insurance fees, among others. Proposed interest rates were between 1%
and 1.5% per month.
In addition, participants highlighted the fact that, for some institutions, in case of early loan
repayments, the interest remains unchanged. Many participants considered the compulsory upfront
savings as cost. The most important cost is related collateral valuation. The cost is estimated to be
higher than RWF 40,000 in general. Participants explained that they also incur expenses on transport
in the process of getting the loan application ready, and visiting their institution to follow up on the
application.
“2% per month is too much. If we are told to create jobs and become entrepreneurs, then the interest rate
should be reduced” (FGD 1)
“Interest rates in group schemes are very high. For a loan of RWF 300,000, we repay RWF 360,000 in a
period of six months. And remember, there is RWF 75,000 which is kept idle in your account” (FGD 4)
“Other costs involved include notary services: even if you are applying for only RWF 20,000; you have to
have the documents certified by the notary: RWF 15,000. Publication in newspapers: RWF 3,600 if the loan
is large than 1 million. Collateral valuation: RWF 40,000, or RWF 30, 000 if the loan is less than RWF 1
million. Registration with RDB: RWF 20,000. We also pay insurance and commission on top of that, and a
loan-processing fee of RWF 5,000. It takes in total well over RWF 100,000 in costs. That is ok. The problem
is that, when you finish repaying, they ask you to go through the same process on the subsequent loans”.
(FGD 5)
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Oct 2015
b) Collateral requirement, valuation and registration:
Physical (fixed) assets such as a commercial building, a plot of land, a processing plant among others,
are privileged by financial services as collateral. Interestingly, it came out from the discussions that
even small amount, in group schemes, must also have fixed assets as security, on top of guarantee by
peers.
Such predilection for fixed assets makes it difficult for some segments of the markets (e.g. women,
youth, and poor people) to access loans from most of financial services providers.
On the other side, the process to visit, evaluate and register collateral is time consuming. Some
groups mentioned that it may take up to three months to complete.
In addition, the cost involved in the process is discriminatory, particularly for those seeking very small
loans (less than RWF 300,000 for example). Indeed, the minimum it can cost, according to group
discussions, is RWF 40,000.
Lastly, the value of collateral does not match the value of loans sought: sometimes providers require
collateral two to five times the value of the loan applied for.
It was suggested that alternatives to fixed assets, such as household items and inventory, be
accepted as collateral. Participants pointed to the practice requiring the same process of collateral
registration on the first loan and the subsequent ones, even when the institution still has originals of
the paperwork done on the first loan application.
“It is very challenging for us ladies to find fixed assets to pledge as collateral. We can have access to
movable assets. If they could also be accepted as collateral, it would be great!” (FGD 3)
“Even for an overdraft, we are requested to register our collateral at the notary services. The minimum
number of days it takes to go through this process is three. In three days, the business opportunity is
already gone. My question is: how going to the notary services increase one’s creditworthiness?” (FGD 5)
c) Upfront compulsory savings
This is a common practice identified across all provinces: financial services providers use
concomitantly compulsory savings and other types of collateral to guarantee loans. The practice is
that, once the client gets a loan approved, the institution deducts the proportion of the compulsory
savings from the loan amount, and hands the balance to the client. Some institutions wait until the
client has made required compulsory savings before making loan disbursement.
In both cases, clients perceive it as an unfair practice, because retained amount does not produce
interests. Moreover, in many cases, participants questioned the transparency about the whole
issues, because some institutions inform the client about the practice not before or at the
application, rather at the time of signing the loan contract.
“Compulsory savings: they deduct it, and keep it. They do not pay interest on it, and one cannot access it to use
it, yet they charge interest on it. If you request a loan of, say, RWF 1 million, they keep RWF 200,000. Therefore,
it remains only RWF 800,000 to use in the business and the client pays interest over the total amount of RWF 1
million. Since they keep it and lend it to others, they should at least pay a small interest on it. Even 1% would be
enough.” (FGD 4)
d) Group lending
It was unanimously concluded in all FGDs that group lending is not effective, because of people who
simply build upon one of its principles (if a member defaults, other group members repay on his/her
behalf) to deliberately default. In addition, it does not help the poor it is intended for, since many
50
Oct 2015
institutions use it in tandem with other guarantee mechanisms, such fixed assets, which the majority
don’t have access to.
“A group loan brings with it too much stress. As an individual, when one has some challenges that hamper
timely repayment, he can negotiate for a rescheduling or a refinancing with the institution. But in groups, once
you miss one installment, your colleagues seize and auction your assets, no mercy.” (participant, FGD 1)
“We learn a lot from our peers, but we lose a lot of money in collections and sometimes we take our peers to
court, and have to pay the lawyer” (FGD 4).
e) Loan term
It was very often suggested in group discussions that loans should be extended for longer periods,
ranging between 3 to 5 years, even more.
“The repayment period is too short: not exceeding 3 years. This constrains us, and we limit ourselves, to avoid
any stress, we apply for smaller loans. If it was possible to get longer loan terms, let’s say 5 years, we could
apply for larger loans” (FGD 3)
“For group loans, the loan term cannot exceed 12 months. There is no tangible project you can realize in 12
months” (FGD 3)
The prevalence of short term loans, among most MFIs, is possibly related to the nature of the target
group and activities financed. Indeed, MFIs tend to focus on micro entrepreneurs, who mostly
expressed the need for working capital, tailored to the business cycle. The microentreprise business
being mostly short in nature (1-12 months), a microfinance institutions prefer to use that as a
reference for loan term. Loan products for long term needs (e.g. assets acquisition, microhousing)
are still scarce, due to the need for quick loan portfolio turnover, and also the fact that most MFIs
use short term liabilities (current savings) to issue loans. As long as fixed deposits and contractual
savings are still low, most MFIs cannot afford issuing longer term loans.
f)
Loan amount
Participants complained that they often get less than the amount they have applied for. They feel it is
unfair, but institutions could improve this by informing the clients about objective criteria and
assessment indicators they used to come up with the decision on loan amount to grant.
“I requested RWF 4 million to buy a machine. I got only RWF 2 million. I had already a purchase order worth
RWF 3 million, which was enough proof of my repayment capacity. I had presented it in my application file.
With the amount they gave me, I could not afford the machine; I lost the opportunity to supply furniture I had
obtained the purchase order for, because I did not have enough production capacity to deliver in time, without
the machine I wanted to acquire. How can we develop in such conditions?” (FGD 5)
g) Repayment frequency
Weekly and bimonthly repayments were deemed too squeezed, and participants suggested that
monthly repayment be extended to all loan products. This is possibly because financial services
providers fix the repayment frequency not taking into consideration the flux of revenues from the
business the client invest in.
“Weekly repayments are difficult to make. Sometimes we borrow from other sources to make it. Even biweekly
repayments: I would suggest they allow us to repay monthly” (FGD 4)
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Oct 2015
h) Timely disbursement
Participants pointed to the fact that some institutions take too long to make loan decisions,
irrespective of the seasonality of the business the client wants to invest in.
“For the farmers, we need to get a timely loan. We request loans long time before the agriculture season starts,
at least one month before. We grow onions. When the loan is disbursed two months after the planting period, it
is useless and the whole season is gone. Yet you have to repay the total loan with interest on top of it, for
money you did not use. Youmake a double loss.” (FGD 5)
The consequence for delayed loan disbursement may result in business failure, and thus, difficulties
for timely repayment. It is not clear the extent of the problem, but if it affects a large number of
clients and it may result in soaring NPLs.
Attitude towards savings services
The study highlighted that the most commonly used saving product is the current account (sight
deposit). The discussion groups concluded that it is because most of the financial services target
micro entrepreneurs who need liquid cash as working capital, and therefore continuously reinvest
money into their business; and because terms and conditions (e.g. interest rates) are not interesting
for longer-term, fixed deposits. However, some participants explained that even the current account
is not an option for them, particularly because of long distance they have to cover to make a financial
transaction (withdrawal or deposit) or the cost involved to maintain a savings account.
“We don’t get interest on our deposits.” (FGD 4)
“Saving is very difficult for us: we live very far from here, in Nyagahinga, Cyanika. We cannot make deposits
regularly or access our savings when needed” (FGD 5).
“There are too many charges on savings. For example, in [Bank X] they charge RWF 170 for each withdrawal at
ATMs, and RWF 200 at the counter. If you carry out five transactions in a day, it makes RWF 1,000. Is that fair?”
(FGD 3)
Challenges and future perspectives
Challenges that affect micro-entrepreneurs include lack or poor quality of infrastructures31 (37%),
high operating costs (21%), and low demand (or less sales than years before: 20%).
Figure 19: Challenges affecting participants to the surveys (N=452)
37%
Poor infrastructures
23%
Other specify
21%
High operating costs
20%
Low demand/decrease of sales
Difficult access to funding
7%
31
Roads, mostly (accessibility to business opportunities)
52
Oct 2015
Low demand may be linked to the seasonality of businesses in Rwanda. Business tend to boom
around festive seasons such as November-January; and April-July. The survey was carried out in
September, which correspond with low sales for most of the businesses. “Other” (23%) includes
taxes, limited capacity and skills (e.g. to develop business plans) and level of education.
Only a small number of respondents (7%) listed difficult access to financial services as a challenge
(figure 19).
Focus group discussions pointed to the fact that micro entrepreneurs and SMEs face high taxation
pressures that inhibit their smooth growth, but they remain positive about the future.
“I am only limited by collateral. Otherwise, I would even apply for even a larger loan. The business is going well,
and the demand is there, but I am short of the capacity to satisfy it”. (FGD 3).
V.
CONCLUSIONS
The purpose of this chapter was to establish whether there is demand for financial services in
Rwanda, and what type of needs are still unmet.
The findings lead to the conclusion that there is still an unmet demand, which varies in intensity
according to the regions. In some parts of the country, there is high concentration of financial
services providers clients are aware of and use (e.g. North Province). In some other parts of the
country, the supply is still low (e.g. East Province). Overall, the fact that almost half of the survey
participants (48%) expect to meet their needs for funds for their business by using sources other
than banks and microfinance institutions, and mostly informal sources, is strong evidence that
there is still room for those institutions to increase their market share.
However, those institutions need to invest in marketing themselves and the products they offer, and
listen to clients’ needs. Indeed, the study pointed to a number of features and characteristics
(potential) clients expect from the suppliers of financial services in Rwanda. Some of the
characteristics require just some changes into policies and procedures (e. Opening hours, speed of
transactions, transparency, collateral requirements, group lending methodology, and timely loan
disbursement). Some others require tangible investment in infrastructures, staff capacity, and
technology. For example, to address the need for proximity services expressed in the study,
institutions may choose to open additional branches, resort to agent banking, or collaborate with
mobile companies to provide access to products such as savings, credit and cash transfer.
However, some changes require strategic considerations by financial services providers. For example,
the issue of costs is twofold: firstly, financial services providers need to make a deliberate effort to
understand dynamics behind pricing, and develop strategies to improve current prices. This may
involve working on efficiency parameters, portfolio management and quality, as well as delivery
channels. Secondly, financial services providers should be transparent about their pricing strategy:
indeed, the costs related to products and clients may be more inclined to accept services if they
knew about those beforehand, and factor them in during the purchase of a specific financial product.
It is important to note that there is apparently a high level of trust among the population vis-à-vis
financial services providers, which is good news, after the 2008-2009 microfinance crisis. Indeed,
only 8% of respondents in the survey said that they do not save with financial institutions for fear of
the safety of their money. This is a good basis for savings mobilisation.
53
Oct 2015
With regards to mobile money, it is generally well appreciated, and offers a timely alternative for
financial inclusion. It is hoped that competition may bring down the costs involved, which users
currently perceive as very high32.
The study has also demonstrated that customers need products and services that are not currently
available to them in their respective institutions. Such products include micro housing loans, microleasing (particularly for women and youth), business development services, payment and cash
transfers, and micro-insurance. The ball is in the supply side, to identify how best to tap into the
needs and preferences expressed to improve products and services.
32
Competition may play in favour of users, if the providers, which are currently only three, do not enter into a
cartel agreement to fix prices independently of market realities.
54
Oct 2015
Chapter 4 Analysis of Market Infrastructure
I.
REGULATION AND SUPERVISION OF THE MICROFINANCE SECTOR
Overall, we can consider Rwanda’s regulatory framework for microfinance overall well established,
although some elements still leave room for improvement.
According to the EIU “Global Microscope 2015: The enabling environment for financial inclusion”
Rwanda ranks 16th out of 55 countries in the overall ranking, behind its neighbors Tanzania (6th) and
Kenya (11th) but well ahead of Uganda (23th). This overall ranking is comprised of 12 sub-rankings,
with adjustments for political stability and policies, as shown in the table below.
Score /100
Rank /55
MICROSCOPE 2015 OVERALL SCORE
54
16
1. Government support for financial inclusion
2. Regulatory and supervisory capacity for financial inclusion
3. Prudential regulation
4. Regulation and supervision of credit portfolios
5. Regulation and supervision of deposit-taking activities
6. Regulation of insurance targeting low-income populations
7. Regulation and supervision of branches and agents
8. Requirements for non-regulated lenders
9. Electronic payments
10. Credit-reporting systems
11. Market-conduct rules
12. Grievance redress and operation of dispute-resolution
mechanisms
A) Adjustment Factor (Stability and Policies)
83
42
88
67
50
36
100
33
50
75
28
=4
=23
=9
=18
=41
=21
=1
=30
=23
=15
=38
25
=36
80
=9
Source: The Economist Intelligence Unit, The Global Microscope 2015: The enabling environment for
financial inclusion
According to the EIU, the prudential regulation33 received a high score (88/100), thanks to an
effective set of minimum capital requirements, which adequately differentiate among different MFIs
categories . According to the Alliance for Financial Inclusion, the relatively low capital requirement
for SACCOs facilitates more affordable capital for low income population and the rapid growth of the
cooperatives segment (especially related to the Umurenge SACCOs spread) indicates that these
minimum requirement do not constitute an obstacle for the entry of new market players. Similarly,
CAR ratios are adequately set in accordance with the Basel framework (15%). The BNR also estimates
that the impact of the current efforts to implement the Basel III regimen for Rwandan banks will have
a minimal impact, given their strong capital position. Despite fears that the implementation of Basel
II and III will have a negative impact on financial inclusion initiatives , Umurenge SACCOs have kept
33
This sub-indicator considers how conducive the financial regulation is to allowing the entrance and operation
of institutions that offer savings and credit products, including: minimum capital requirements, impediments
imposed on foreign funding or ownership restrictions, capital adequacy standards, reporting requirements.
55
Oct 2015
high CAR levels (32.9% in 2014) and the number of Umurenge SACCOs that no longer receive
government subsidies grew from 356 to 382 (out of 416) in 2014.
However, we can still see some room for improvement in the regulatory framework for
Microfinance Banks which, except for the minimum capital requirements, are subject to the same
regulatory framework as commercial banks. This might not be fully adapted, considering that
microfinance activities are substantially different from commercial banking activities, with tangible
implications on MFBs business models and cost structures. As an example, we can mention the
higher operating costs related to the smaller loan size disbursed by MFBs, which entails the
application of higher pricing to clients to achieve sustainability. The characteristics of the
microfinance loan products are also different, with MFBs’ credit portfolios mainly composed of shortterm loans with strong geographic concentrations and backed by little if any conventional collateral,
in contrast to a standard retail banking loan portfolio profile. More in general, the peculiarities of the
microfinance activities and microfinance providers’ structures and business models should be taken
into consideration by the legislation and this should be done together with a clearer definition of
microfinance activities. Specifically for MFBs, the CAMELS ratings to which they are subject to should
be somehow adjusted to better adapted to the microfinance distinctive features.
The relatively low score attributed to the “Regulation and supervision of deposit-taking activities”
(50/100), is due to the lack of a deposit insurance system for banks and MFIs. However, according
to the Central Bank’s Monetary Policy and Financial Stability Statement from February 2015, passing
the deposit insurance law is a key priority in 2015. This legislation will mandate commercial banks
and other deposit-taking financial institutions to make regular contributions to the fund. This
includes MFIs and SACCOs, which carry small deposit accounts.
Reporting requirements for MFIs can be considered overall reasonable and are differentiated by
category (2008 banking Law and 2009 Microfinance Activity regulation). However, it is worth noting
that many SACCOs still considered the reporting requirements too burdensome, due to their poor
management information systems and infrastructure. Although initiatives are in place to promote
the digitization of SACCOs operations, internet access and computer infrastructure is still poor in
most of the cases and it is estimated that more than half of Umurenge SACCOs are not connected.
Nevertheless, the regulatory and supervisory capacity was scored only 42/100. Despite the
existence of specialized regulatory bodies (BNR, MINECOFIN, RCA), the institutional oversight of the
microfinance sector remains fragmented because the roles of different agencies have been poorly
defined and these institutions may not possess the appropriate enforcement capacity. It is worth
noting that MFIs constituted in the form of SACCOs are subject to the laws and regulations governing
credit cooperatives, irrespective of size and scale of operations. SACCOs are therefore supervised by
both the BNR and the RCA. They both perform independent on-site visits, but they have a different
focus: compliance with BNR regulations and with the Cooperative Law, respectively.
Furthermore, a push to establish financial institutions throughout the country (Umurenge SACCOs)
has stretched supervisory resources thin and the NBR agency has experienced high staff turnover
since 2010. Regulators are adding staff at the sub-national level to keep pace with the expansion of
the SACCO network and the NBR has since then received significant training and capacity building
assistance from the World Bank and other international partners. The Central Bank has deployed
teams of inspectors in 5 regional branches, tasked with the responsibility to supervise and also coach
MFIs and SACCOs in compliance with prudential norms. In 2014, the NBR’s Microfinance Supervision
Department employed 77 inspectors, 60 of which were newly recruited and stationed in districts
near SACCOs but may not yet have sufficient knowledge and experience to carry out their
supervisory role. In the medium to long term, the NBR plans to devise a supervisory model that relies
on a smaller number of inspectors. This model also relies on a government plan to consolidate
SACCOs into a single cooperative bank, but this plan has yet to be implemented.
It must be noted that the number of inspected MFIs has increased tremendously (from 70 in 2013, to
174 in 2015). This has contributed to improved reporting and compliance with regulatory
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Oct 2015
requirements for coached institutions (BNR, October 2015). However, this is only a small portion of
the sector (29%), and ideally, all MFIs should be inspected at least once a year, to ensure that full
compliance with prudential norms. In addition, BNR has carried out an on-site inspection of TransUnion, and recommendations from the inspection have helped to improve the quality of information
it provides, thus reducing the risk of over-indebtedness. One key change that was introduced was a
credit scoring tool that helps MFIs to assess creditworthiness of an applicant, thus reducing
asymmetry of information and potential defaults. However, it is still too early to assess the impact of
such innovations on the performance of microfinance institutions.
The legislative framework for microfinance is overall adequate, although, as the most recent World
Bank report on consumer protection and financial literacy in Rwanda34points out, there still exists a
gap in the legal framework in relation to the consumer protection legislation. For the same reasons
the “Market conduct rules” indicator is scored only 28/100. In fact, none of the existing regulations
include requirements concerning the transparency of the services terms and conditions, the
disclosure of the total cost of credit or effective interest rate, the debt collection practices, the
protection of the privacy of clients’ loan and savings information—aside from when reporting to the
credit bureau. However, we must point out that the risk of over-indebtedness is seriously taken into
consideration by the Supervisor, also considering the introduction of more players into the market
that somehow contribute to increase the risk of multiple borrowings. The regulation requires all
financial institutions, including SACCOs, to report new loans to the private Credit Reference Bureau.
Banks and MFIs must also consult this bureau before providing new loans. According to regulation
No. 02/2009 on the organization of microfinance activity, all MFIs must maintain a credit file on
indebtedness and credit history of every debtor and report its ten largest debtors on a monthly basis.
These reporting requirements are measures meant to monitor and help prevent over-indebtedness
and NPLs and the BNR is constantly collecting information from financial institutions on liquidity,
capital adequacy ratio, and non-performing loans (NPLs).
While the Microfinance Law includes the microinsurance operations among the activities that can be
carried out by the Microfinance Institutions, a specific regulation for microinsurance is yet to be
established. Currently a Microfinance Institution can only offer micro insurance services in
connection with an insurance company, which is regulated by the general Insurance law.
Alternatively, MFIs can also ask for a licence to run a microinsurance business, but the minimum
capital requirement are too high (RWF 1 billion) for any specialised microinsurance company to enter
the market. A project of a new insurance law will is currently being discussed and it is supposed to
contain specific regulations for the provision and supervision of microinsurance products offered by
insurance companies or through MFIs and banks in partnership with insurance companies. These
regulations will provide for specific exemptions and other requirements tailored for microinsurance
products, such as lower minimum capital requirements, permitting both short-term and long-term
products to be offered by the same insurer, with less onerous corporate governance and reporting
requirements and allowing for a variety of distribution channels.
In spite of an overall satisfactory regulatory and policy environment for microfinance we must note
that the capacity building in the sector could not keep pace and MFIs will require time to catch up.
This is particularly the case for standards of governance where the regulations are very clear,
although various MFIs struggle to achieve the required standards. According to BNR, the main
difficulties faced by MFIs are governance problems, lack of trained personnel and inadequate or
incorrect knowledge of the MIS.
34
The World Bank. 2013. “Diagnostic Review of Consumer Protection and Financial Literacy.” Volume II.
57
II.
Oct 2015
COLLATERAL REGISTRATION
As per current laws and regulations, any movable or immovable asset can be registered as collateral.
To start with, not many institutions know that, and they assume only immovable property can be
registered. However, this is exactly what happens in practice, as registration of movable property
except from vehicles is not viable. Any institution wishing to register collateral must pay a flat fee of
RWF 20,000 (USD 27.9). For real estate, it is necessary to produce an evaluation report, whose cost
can range from RWF 80,000 (USD 111.5) to RWF 150,000 (USD 212). Moreover, the collateral
agreement has to be notarized, which has to be paid separately. The cost depends on the number of
pages produced and the Land registry requires a 2-page abstract, which is not free of charge. The
current cost for registering collateral is excessive to small loan borrowers, who are not always
informed about the total cost they have to pay. The Rwanda Development Board, which is in charge
of managing collateral registration, stressed that they were considering a more flexible pricing
structure. However, in order to do so they would need to have a mapping of products offered by
institution, collateral required and average loan size, which is very difficult to produce given the low
transparency levels.
One positive aspect of the registration procedures relates to land titles, which can be registered
online. All microfinance providers suggested this constitutes a great contribution to efficiency.
One issue that should be addressed urgently is the tendency to produce overinflated evaluations.
We observed that for MFIs the collateral value should be at least 125% of the loan granted, so clients
try to obtain better evaluations in order to access bigger loans. Fraudulent behaviour is very common
despite the existence of lists of certified valuers managed by the Institute of Real Property Valuers35.
This poses a major risk to MFIs, as they excessively rely on land property titles and tend to over
disburse in the presence of real estate guarantees.
III.
LOAN RECOVERY
Among the causes that may explain the
decreasing portfolio quality registered in the
last years we can include poor loan recovery
procedures and the lack of a strong legal
framework to support loan recovery. Most
interviewees feel the judicial system does
not serve the needs of the microfinance
sector when it comes to recovery
procedures. Case in point, microfinance
providers are required to bring their case
before commercial courts, as they are
competent to settle commercial litigations of
any amount. Moreover, the recovery process
is cumbersome. The auction process is too
long and costly, resulting in excessive burden
to clients who are already in financial
hardship. Moreover, it creates inefficiencies
The auction process
Before an institution can auction an asset pledged as
collateral, it must be authorised to do so by a court ruling.
Therefore, the monetary cost to face includes: court fees
(RWF 50,000 in the first level; RWF 75,000 in case of
appeal; and RWF 100,000 in High Court). In addition, the
minimum honorary fees for a lawyer is RWF 500,000.
Moreover, it takes 3 to 12 months to get a case settled,
depending on the fact that on party decides to appeal or
not. On average, cases take up to six months to be settled
at the first level. And if the court has authorised
auctioning, the process must be publicised in a newpaper,
at least three months before auctioning. The "huissier", a
certified public auctioner, must be paid at least RWF
500,000 (some take a percentage of the proceeds). This
does not include the cost of publication, which varies
according to the size of the post in the newspaper (around
RWF 100,000).
35
The Institute of Real Property Valuers in Rwanda (IRPV) was established by Law Nº 17/2010 of 12/05/2010
establishing and organizing the real property valuation profession in Rwanda as published in Official Gazette n°
20 of 17/05/2010.
58
Oct 2015
for financial institutions.
Some institutions concocted creative ways of trying and recover collateral. One of them, for example,
engaged clients to liaise with defaulters and offered a commission equivalent to 20% of the value of
the recovered assets. The decision was taken after realizing that the cost of recovering the debts was
becoming excessive. However, in a country where client protection mechanisms are weak,
alternative loan recovery methods can lead to unacceptable recovery practices that can dent MFIs’
reputation.
IV.
CREDIT REFERENCE BUREAU
Credit Reference Bureau (CRB), which rebranded to TransUnion in May 2015, is the only agency
licensed by BNR. TransUnion Rwanda is a subsidiary of TransUnion Africa Holdings, which has a
presence in 11 African countries. Since 2010, all licenced institutions are required to share the list of
disbursed loans on a weekly basis and of active borrowers at the end of each month, including a
black list. TransUnion Rwanda shares credit information with all mandatory participants including
banks, microfinance institutions (MFI), savings and credit co-operatives (SACCOs) and insurance
companies The Credit Reference Bureau compiles credit information concerning the repayment
behaviour of a credit customer to assess their creditworthiness. However, despite great enthusiasm
shown by most interviewees, the database is far from being reliable, as it is not regularly updated
given the limits of the MIS of most MFIs, in particular SACCOs. Credit scoring, when available, should
complement rather than replace a careful and well-conducted repayment capacity analysis.
Nevertheless, most institutions heavily rely on the data provided by the CRB without cross-checking
the information. This is against all best practices in microfinance and should be urgently addressed.
The introduction of the CRB does constitute a big step forward, but it should not replace a thorough
check of the client’s ability and willingness to pay. Even more so since evidence suggests that the
CRB has not met minimum quality standards yet: information is often incomplete and outdated,
members of solidarity groups mostly go undetected and SMEs credit history is not effectively
tracked. Moreover, most users perceive the services offered as too expensive. Institutions can pay
up to USD 1,000 per month to have access to information. Based on information gathered on the
field, TransUnion Rwanda seems to apply a mixed payment model: some institutions pay a flat
monthly fee and are free to download an unlimited number of credit records, whereas others pay a
subscription fee as well as a variable amount depending on the number of downloads. Training
courses on new modules can cost as much as USD 1,500. There used to be concern about the fees
charged to individuals if they requested a correction to data maintained about them on CRB’s
database. According to a World Bank report36, the fee was RWF 50,000 (USD 69.5) for bank
customers and RWF 10,000 (USD 14) for MFI customers. Based on more recent information provided
by TransUnion Rwanda, there is no fee charged to individuals requesting a scoring report for the first
time in a given year. However, TransUnion charges RWF 3,000 for each subsequent report. There is
no other fee charged to individuals. His /her institution makes correction of clients’ data. Therefore,
the request to correct information in the database comes to TransUnion through banks and MFIs, not
directly through clients. TransUnion charges RWF 50,000 to the institution that previously submitted
erroneous data.
V.
CONCLUSIONS
The chapter has analysed the main elements of the market infrastructure for microfinance, trying to
highlight the strengths and weaknesses of the regulatory framework, collateral registration and loan
recovery procedures and the credit information through the credit reference bureau. The analysis
36
World Bank, Diagnostic Review of Consumer Protection and Financial Literacy, November 2013
59
Oct 2015
shows that the regulatory and supervisory framework is overall conducive, with an adequate set of
prudential rules to be respected and supervision activities regularly carried out by the Central Bank.
However, the overall framework would benefit from a better clarification of the role played by the
different agencies involved (BNR, MINECOFIN, RCA) and to keep pace with the increasing number of
MFIs (particularly after the creation of the Umurenge SACCOs), the number of dedicated to the
supervisory activities should be increased to ensure affective oversight. Moreover, the microfinance
regulatory framework should be completed by specific regulations related to consumer protection an
microinsurance services.
On the other hand, when it comes to credit management related infrastructure, MFIs find some
obstacles. The cost of collateral registration is still high and the loan recovery process does not serve
the need of MFIs , the process being quite cumbersome and costly.
Finally, the existence of a Credit Reference Bureau should help the MFIs to mitigate the risk of overindebtedness, whose relevance has been increasing, particularly in the urban areas, with the
increasing number of competitors in the market. However, the database is far from being reliable, as
it is not regularly updated given the weaknesses of the MIS of most MFIs, in particular SACCOs.
Moreover, most users perceive the cost of the services as too expensive, limiting the effective usage
of the database in the credit decisions.
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Oct 2015
Chapter 5 Conclusions and Recommendations
Based on the research activities outlined in previous chapters, we were able to draw a picture of the
microfinance sector that highlights virtues and shortcomings. These are summarized in the following
pages.
Moreover, we suggested possible corrective measures to the most relevant stakeholders. Each
suggestion is intended to spur further discussion and lead to concrete initiatives, thus fostering
cooperation among different parties and improving the microfinance sector as a whole.
Main characteristics of the financial system
Strengths and Opportunities
Weaknesses and Threats
• Rwanda is classified among the fastest growing
economies with significant economic growth rates
in recent years
• Geographic concentration of financial services in
urban areas
• Economic reforms undertaken have created a
conducive business environment and promoted
the private sector development
• Low levels of financial literacy that constrain the
demand for and use of financial services
• Financial sector reforms aimed at strengthening
the financial system
• Microfinance banks not included in statistics for
the microfinance sector, as they do not fall under
the definition of MFI
• Rural coverage significantly improved thanks to
the creation of Umurenge SACCOs
• NPL calculation is skewed because of widespread
refinancing
• Rwanda’s transition from a public sector-led, aiddependent economy to a more private sector-led
economy
Analysis of the supply side in the microfinance sector
• Poor portfolio quality, due to improvable credit
• Microfinance sector has registered sound growth
risk management systems, weaknesses in the
rates in the last years, with a positive effect on
products design and inadequate collateralization,
financial inclusion
with a negative impact on profitability
• Limited transparency as institutions do not
• Good capitalization level, which leaves the MFIs consistently disclose EIR/APR. Total cost of loans
an adequate margin to absorb potential losses
difficult to determine due to a complex fee
structure
• High liquidity levels in the market, that mitigate • Limited product innovations and demand-driven
the liquidity risk but leaving room for improvement products, "copy and paste" approach, low
in the effectiveness of the resource allocation
customer centricity
• Market potential: 28% (1.3 million adults) are still
• Uneven geographic coverage
financially excluded
• Availability of technical assistance providers, that
can support MFIs in strengthening their policies • Lack of skilled and specialized professionals;
and system, in line with the international best investments in capacity building are needed
practiices
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Oct 2015
• Weak risk management culture and poor risk
management systems within the MFIs
• Consumer rights not sufficiently disseminated
• Many MFIs have poor management Information
Systems (MIS)
•Social Performance Management to be improved
Analysis of the demand side in the microfinance sector
• There is still a large unmet demand (only 30% of • Limited access to facilities/services such as ATMs,
households in Rwanda have a savings account; and business development services, microinsurance,
only 50.8% have an outstanding loan)
micro-housing
• Interest rates and other costs perceived as too
• High level of awareness about financial services
high by the majority. Transparency about the costs
providers
also questioned
• Short term, current account is the most popular
• Prevailing positive image of financial services
form of savings, limiting on-lending possibilities for
providers
financial services providers
• Fixed assets are the most popular form of
• People use mostly formal institutions for saving
collateral, hence potentially excluding poorer
services (more than 84%)
segments of the population
• "Free riders" make group lending approach less
attractive in most cases
• There is often a mismatch between the loan
amount sought/needed and the actual loan
amount obtained from MFIs
• Long distances still a challenge to effective
savings mobilization
Analysis of the market infrastructure
• Consumer Protection Law currently under • Improvable contract enforcement and dispute
development
resolution
• Strong regulatory and policy environment for • Credit Reference Bureau not guaranteeing quality
microfinance
data
• Collateral are mostly fixed assets-based, and the
• Online collateral registration for land titles
cost related to them is excessive
• Increased oversight and supervision
• Poor loan recovery mechanisms
• Lack of a specific law for microinsurance
• The roles of different agencies involved in the
supervision (BNR, MINECOFIN and RCA) should be
better defined.
62
I.
Oct 2015
AFR
Credit information sharing is a key element to reduce transactions costs and improve portfolio
quality. AFR supports various initiatives aimed at increasing public awareness and usage of the
services offered by the CRB.
Recommendation 1: carry out a thorough qualitative analysis of data collected by CRB and create a
project management plan in close cooperation with the Credit Reference Bureau in order to
address current shortcomings.
Micro entrepreneurs tend to shift from one industry to the next in search of better fortune, without
giving themselves the time to build upon experience in order to strengthen their position in one
given field of expertise.
Recommendation 2: work in close cooperation with AMIR to develop non-financial services that
could be offered by microcredit providers in order to strengthen management skills of microborrowers. The specific focus should be the life cycle of the family business, highlighting constraints
and opportunities of a business activity passed down from generation to generation. Microborrowers should receive practical information about obstacles they are likely to face, and
management tools/mitigating strategies to stay the course despite adverse circumstances.
From the field activities, it emerged that LOs in SACCOs and MFIs engaged in rural areas ignore basic
notions of agronomy, with a consequent mismatch between demand for agricultural products and
offer, as products for farmers are not understood and scarcely promoted.
Recommendation 3: organise and/or facilitate countrywide trainings for Loan Officers on
agriculture-specific issues relevant to the development and sale of microfinance products.
II.
AMIR
AMIR is currently collecting data from its members, which are often used to produce reports on
specific topics (e.g., causes of non-performing loans). These reports are useful to get some
interesting insights about the performance of a part of the sector, but the limited amount of data
does not allow to have a complete picture.
Recommendation 1: using the data collected by the Central Bank (integrating the data from
Microfinance Banks, to have a complete picture of the microfinance sector), AMIR could regularly
carry out in depth analysis of the performance of the sector (in terms of portfolio quality,
profitability, growth, etc.), disaggregating the data by relevant breakdown (i.e., by MFI category,
size, type of outreach, maturity, etc.) , in order to keep the market informed about the evolution of
the sector and focus on the main challenges. Financial access mapping through the collection of
reliable information on the geographic and penetration of microfinance services would help
identify both underserved and saturated markets and help microfinance providers to support their
expansion strategies.
AMIR’s services include capacity building activities and trainings.
Recommendation 2: Organize capacity building activities for MFIs specifically on risk management,
in order to support different categories of MFIs to increase their awareness on the best practices in
risk management and allow them to strengthen their internal risk management frameworks
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Oct 2015
One recent move that caused confusion within the microfinance space is the creation of a separate
entity called AMIR Consult. As we read from AMIR 2014 annual report, “The year 2015 will leave
AMIR with a steady and operational AMIR Consult Ltd to ensure that the association can go further
and be sustainable financially”. However, the difference between AMIR and AMIR Consult in terms of
the services provided remains unclear to the intended beneficiaries.
Recommendation 3: clarify the difference between AMIR and AMIR Consult in terms of services and
tangible benefits for microfinance institutions.
The Code of Conduct for AMIR members entered into force in July 2013. However, it does not seem
the case that awareness level of institutions meets expectations, as the Code of Conduct was rarely
mentioned by interviewees when asked about AMIR’s main achievements in recent times.
Recommendation 4: increase cooperation with the SMART Campaign team to further disseminate
client protection principles within the sector and increase transparency. Focus on minimum
disclosure requirements, complaint resolution mechanisms, product design and delivery. Clarify
how supervision of consumer protection issues works and define regulatory requirements for
microfinance providers.
During the interviews we conducted, it emerged that several institutions felt AMIR could and should
do more to represent the interest of its members. In particular, the general impression was that
AMIR could not differentiate needs and expectations based on the features of its members, which
range from microfinance banks to Umurenge SACCOs. Consequently, any attempt to defend the
interest of the members themselves would bear little fruit, as apparently AMIR is keeping the
discussion at a general level without going deeper into the matter.
Recommendation 5: be more vocal and conduct satisfaction surveys for members to identify more
pressing issues by institution type.
Microfinance banks often have to maintain dual membership: the Rwanda Bankers Association (RBA)
and Association of Microfinance Institutions of Rwanda (AMIR). They pay the same fees as
commercial banks.
Recommendation 6: review the fee structure in cooperation with RBA to take into consideration
the additional financial burden caused by dual membership.
III.
GOVERNMENT OF RWANDA
The insufficient number of qualified graduates employed in the microfinance sector is a significant
constraint. The problem is twofold: on the one hand, the standard business administration/finance
syllabus received at university is ill-fitted to address the specific features of the microfinance sector.
On the other hand, MFIs and microfinance banks have limited retention power, as salaries are
significantly lower than commercial banks. Moreover, it should be noted that LOs have insufficient
knowledge of agribusiness features. This is particularly relevant in a country where agriculture
accounts for approximately a third of GDP, generates more than 70% of export revenues and
employs 80% of the total active population.
Recommendation 1: Develop policy interventions in cooperation with local universities to train
skilled graduates in microfinance. For example, this could be done by introducing specific
64
Oct 2015
microfinance-related exams in the academic syllabus of economics/business administration and
agronomy courses.
The current cost for registering collateral is excessive to small loan borrowers.
Recommendation 2: This issue requires close collaboration between the Rwanda Development
Board and the Ministry of Justice. For small loans (threshold to be defined), the authorities in
charge should consider the possibility to introduce a nominal flat fee for notarization, irrespective
of the number of documents to be notarised, and simplified collateral evaluation process.
One issue that should be addressed urgently is the tendency to produce overinflated evaluations
when registering real estate property. We observed that for MFIs the collateral value should be at
least 125% of the loan granted, so clients try to obtain better evaluations in order to access bigger
loans. Fraudulent behaviour is very common despite the existence of lists of certified valuers
managed by the Institute of Real Property Valuers (IRPV). This poses a major risk to MFIs, as they
excessively rely on land property titles and tend to over-disburse in the presence of real estate
guarantees.
Recommendation3: introduce a system to record overinflated valuations and report non-compliant
behaviour of certified valuers. Work in close cooperation with AMIR/RBA/IRPV to disseminate a list
of trustworthy valuers. For smaller loans, consider the possibility to come to an agreed value as
defined by MFIs based on given parameters.
The judicial system does not serve the needs of the microfinance sector when it comes to recovery
procedures. Microfinance providers are required to bring their case before commercial courts, as
they are competent to settle commercial litigations of any amount.
Recommendation 4: In an effort to decentralise justice and make it affordable and accessible,
consider that commercial litigations of limited amount (to be defined) could be settled by local
mediators (abunzi37) rather than commercial courts. Consider establishing commercial court
representatives at local level to receive commercial litigations and issue related documents.
Recommendation 5: Clarifying the role of the Office of the Ombudsman for microfinance-related
issues. The Ombudsman should be in charge of clarifying rights and duties of microfinance clients
and increase awareness on dispute resolution mechanisms.
IV.
NATIONAL BANK OF RWANDA
The role played by the three entities in charge of the supervision of the sector are not well defined
and this might entail overlaps and poor enforcement capacities.
Recommendation 1: clearly define the role of NBR, MINECOFIN and RCA in the supervision of the
microfinance sector, in to avoid overlaps
The data referring to the microfinance sector exclude important players such as microfinance banks,
whose priority is to serve groups with limited or no access to financial services. This is likely to have
37
The abunzi are local mediators mandated by the state to use mediation to resolve disputes. The relevant law
recognising the role and power of abunzi is Organic Law No. 31/2006.
65
Oct 2015
severe implications for the sector, as it generates confusion about who provides microfinance
services. Moreover, statistics about outreach are likely to be skewed, as data from microfinance
banks are not included in industry statistics. The microfinance data only provide a partial picture and
are not directly comparable with other countries.
Recommendation 2: include Microfinance Banks in microfinance sector data.
Rwanda has come a long way and now records single-digit NPLs, which are nevertheless well above
the 5% threshold. It should be noted that refinancing practices are widespread. Therefore, it is likely
that the official figures do not entirely reflect reality, as refinanced loans are not included in the NPL
calculation.
Recommendation 3: closely monitor refinancing practices.
In its official definition of interest rate, the National Bank does not refer to either EIR or APR, which
can differ significantly from the nominal interest rate. Clients are heavily penalised by this practice,
as there is no uniform parameter they can use to “shop around” and make informed decisions.
Recommendation 4: make disclosure of EIR or APR compulsory for all institutions and publish
related data.
Recommendation 5: review of fees charged by microfinance providers to assess whether they
constitute an obstacle for the financial inclusion objectives of the government. These objectives are
designed to build trust in and increase the usage of the formal financial sector and to encourage
competition in the banking industry.
Based on the interviews we conducted, it emerged that lack of alignment between institutional
mission and operations of microfinance providers might determine mission drift (i.e. deviation from
stated social objectives). Poverty-oriented microfinance institutions could potentially deviate from
their mission by extending larger loan sizes neither because of “progressive lending” nor because of
“cross-subsidization” but because of considerations related to the cost differentials between poor
and unbanked wealthier clients, and region-specific clientele parameters.
Recommendation 6: reinforce the importance of Social Performance Management (SPM) through
ad-hoc programmes.
The current definition of microfinance highlights the role of banks and ordinary financial institutions.
The first paradox is the operations of institutions classified as banks, whose target clients belong to
vulnerable groups (i.e. microfinance banks), would not fall under microfinance activities, as their
clients are technically served by a bank. Moreover, there is no further indication of what ordinary
financial institutions represent. Last, but not least, microfinance services should go beyond the classic
traditional credit and savings activities and encompass microinsurance, micropensions, remittances
etc.
Recommendation 7: forge an exhaustive definition of microfinance activities and microfinance
institutions. For example, the definition of microfinance institutions could include any financial
institution that is engaged primarily in MF activities. Primarily could be defined as deriving more
than 50% of the revenues from MF activities (defined in terms of average loan portfolio, target
clients, sectors etc.)38
38
As stated in AFR’s “Improving regulatory environment for MFBs and NB MFIs in Rwanda” study, December
2014.
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Oct 2015
67
V.
Oct 2015
MICROFINANCE INSTITUTIONS
One of the main challenges currently faced by most MFIs in Rwanda is the deterioration of their
portfolio quality.
Recommendation 1: MFI facing high NPL ratios should better investigate the specific reasons
behind the bad portfolio performance. Moreover, the credit management policies and procedures
should be strengthened, particularly the loan appraisal and monitoring. Credit risk should be
regularly and adequately monitored through a complete set of performance indicators and
prudential limits should be established and regularly assessed.
With the increasing number of competitors in the market, the exposure to the risk of overindebtedness is increasing..
Recommendation 2: MFIs should raise awareness at all levels (from Governance to field staff)
about the increasing risk of over-indebtedness and strengthen the internal policies and procedures
to prevent the risk (e.g., establish clear threshold for the clients indebtedness level taking into
consideration the household expenses and other loans outstanding, set a maximum number of
loans per client, perform regular visits to the client business and household, cross checks the data
collected at different levels, etc.). Updated data should be transmitted to the CRB on a regular
basis and the CRB database should be checked before issuing each loan.
One of the reasons behind poor repayments rate can be related to poor product design.
Recommendation 3: MFIs should establish internal mechanisms to regularly monitor the quality of
their services (i.e., customers satisfaction surveys, clients complaint mechanisms, etc.), in order to
better understand if the products offered are well designed to meet their clients’ needs. These
mechanisms will help the MFIs to take informed decisions on how to improve the existing product
offer and develop new products based on clients’ needs.
As we saw in previous chapters, few clients in Rwanda benefit from loans priced transparently. This is
mostly due to the use of multiple components that ultimately affect the total cost to clients. There is
a wide variety of fees being applied in the industry: application fees, set-up fees, monitoring fees,
legal fees, and compulsory credit life insurance. Moreover, compulsory savings ranging from 10% to
20% are usually required for group loans.
Recommendation 4: Although some of third party charges included in the administration fees
charged to clients are beyond the institutions’ power (e.g. stamp duty, legal fees, credit bureau
fees, etc.), MFIs and MFBs should actively examine existing charges with a view to consolidating or
reducing them.
Loan Officers have the duty to ensure their clients have a good understanding of what the loan
entails, making sure they effectively overcome linguistic and educational barriers. Evidence from the
fields suggests this is not done systematically. This shortcoming, apart from violating the basic
principles of client protection, is extremely detrimental in combination with poor repayment capacity
practices, as loans are given to clients who cannot respect repayment schedules, especially in
presence of hidden costs that were not sufficiently outlined before loan disbursement.
Recommendation 5: increase transparency levels by raising awareness internally and externally. In
this respect, the seven Client Protection Principles of the SMART Campaign could be particularly
68
Oct 2015
helpful. Institutions can refer to the principles and standards of Annex 4. In the table shown, the
assessment refers to average values of the microfinance sector as a whole, based on observations
of interviewed institutions. The level of effort required indicates how distant institutions are, on
average, from meeting the standard39.
Refinancing practices are widespread. Therefore, it is likely that the official figures do not entirely
reflect reality, as refinanced loans are not included in the NPL calculation. This situation could
significantly underestimate the number and size of restructured loans and create negative value for
clients by increasing the likelihood of over-indebtedness.
Recommendation 6: Corrective measures should be implemented in order to limit refinancing
practices as much as possible. Examples of good practice include: refinancing is only possible after
the second loan, only granted once for each loan, cancellation of at least 50 % of loan principal,
good credit history, reassessment of the clients’ repayment capacity, verification of the collateral.
Most of the clients are characterized by poor literacy levels.
Recommendation 7: Organize capacity building and financial education activities for clients.
VI.
CREDIT REFERENCE BUREAU (CRB)
The CRB has not met minimum quality standards yet: information is often incomplete and outdated,
in several instances identity card numbers and personal details do not match, members of solidarity
groups mostly go undetected and SMEs credit history is not effectively tracked. Moreover, most
users perceive the services offered as too expensive.
Recommendation 1: Establish an effective reporting mechanism by which financial institutions can
flag obvious mistakes and omissions, which should be dealt with expediently and thoroughly given
the scale of the problem.
Recommendation 2: organise workshops to gauge expectations of users and gather suggestions,
including potential review of pricing policy, either directly or through representative associations
(AMIR and RBA).
CONCLUDING REMARKS
The main objective of the study was to perform an analysis of the microfinance sector in Rwanda
and explain the underlying reasons for the apparent market stress.
The market has been displaying sound levels of growth and enjoys an overall good regulatory
framework. However, the sector currently registers a poor performance in terms of loan portfolio
quality which is directly linked to a number of important weaknesses that still affect the Rwandan
microfinance sector: weak credit management policies, poor product design, low literacy levels,
improvable staff capacities, inadequate collateralization are the most important. Moreover, the
increasing number of microfinance providers operating in the market contribute to increase the risk
of over-indebtedness which may further affect the repayment rate. At the same time, the study has
demonstrated that there is still space for the market to grow, as some unmet demand still exist,
particularly in certain regions of the country and among certain segments of population.
39
The effort to fill the gap between required standard and current practice is as follows: ● = low, ●● = medium,
●●● = high.
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Oct 2015
Drawing lessons from some important cases of microfinance sector crisis (we can mention Nicaragua,
Morocco, Pakistan and Bosnia and Herzegovina40), where the repayment crisis that followed a period
of high growth was mostly related to: lending concentration and multiple borrowing, overstretched
MFI capacity, and a loss of MFI credit discipline. Although Rwanda’s sector performance in terms of
portfolio growth and portfolio quality is not comparable with the abovementioned countries - that
have recorded loan portfolio growth rates between 33% and 67% and PAR 30 exceeding 10% -the
lessons learned from these recent microfinance crisis can be used to build a stronger microfinance
industry in the next years and prevent serious crisis. For the growth of the Rwandan sector to be
sustainable, the abovementioned weaknesses must be taken into consideration and the different
stakeholders have a role to play in the strengthening of the sector. Particular attention should be
given to:
• Balance growth objectives with the need to improve the quality of client services and ensure the
long-term sustainability of client relationships. More emphasis will be needed to regularly assess
client satisfaction and the behavioral dynamics of markets.
• Improve the quality of the data provided by the Credit Reference Bureau, which is an essential
component of the market infrastructure for microfinance. CRB alone will not prevent delinquency
problems, but it represent a critical tool to improve credit risk management and to manage multiple
borrowing, that all microfinance providers should use on a regular basis to support their credit
decisions.
• Financial access mapping through the collection of reliable information on the geographic and
penetration of microfinance services would help identify both underserved and saturated markets
and help microfinance providers to support their expansion strategies.
Microfinance remains a risky business and MFI stakeholders should constantly collaborate and be
open to discuss about the new risks that may arise along with the growth of the sector and work to
find the most appropriate mitigation measures.
40
Growth and Vulnerabilities in Microfinance, CGAP Focus Note, No. 61 February 2010.
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Oct 2015
References:
Reports and Publications
AFR, Assessment of the refinancing gap for MFIs and SACCOs in Rwanda
AFR, Improving regulatory environment for MFBs and NB MFIs in Rwanda, 2014
African Economic Outlook, Rwanda, 2015
Basel Committee on Banking Supervision, Microfinance activities and the Core Principles for Effective
Banking Supervision, August 2010
CGAP, Brief: Customer Centricity for Financial Inclusion, June 2014
CGAP Focus Note, No. 61 February 2010, Growth and Vulnerabilities in Microfinance.
Economist Intelligence Unit, Global Microscope, 2014
Economist Intelligence Unit, Global Microscope, 2013
Economist Intelligence Unit (EIU). 2015. Global Microscope 2015: The enabling environment for
financial inclusion. Sponsored by MIF/IDB, CAF, Accion and the Metlife Foundation. EIU, New York,
NY.
MINECOFIN, Rwanda Financial Sector Strategy 2013-2018 – Final Report, June 2013
MFTransparency, Microfinance pricing analysis, September 2013
National Institute of Statistics of Rwanda (NISR), Rwandan Integrated Household Living
Conditions Survey – 2013/14, Main Indicators Report, August 2015.
National Bank of Rwanda, List of UMURENGE SACCOs licenced by BNR, August 2015
National Bank of Rwanda, List of MFIs, October 2013
National Bank of Rwanda, 2014 Annual Report
Rwanda, Monetary Policy and Financial Stability Statement, August 2015
National Bank of World Bank, Doing Business 2015, 12th Edition
World Bank, Diagnostic Review of Consumer Protection and Financial Literacy, November 2013
Economist Intelligence Unit, Rwanda Country Report, 1st quarter 2014
Finscope Rwanda 2008
Finscope Rwanda 2012
IMF Rwanda Country report No. 15/141, January 2015
UNDP, Human Development Report 2014: Sustaining Human Progress- Reducing Vulnerabilities and
Building Resilience
Rwanda Country Report, BTI (Bertelsmann Stiftung’s Transformation Index), 2014
Rwanda Country Survey, Microfinance Transparency, 2011
Websites
Access to Finance Rwanda (AFR), www.afr.rw
AMIR, www.amir.org.rw
AfricaEconomic Outlook:http://www.africaneconomicoutlook.org/en/country-notes/eastafrica/rwanda/
National Bank of Rwanda: http://www.BNR.rw
Doing Business: http://www.doingbusiness.org/data/exploreeconomies/rwanda
IMF library: http://elibrary-data.imf.org/
MFT: http://www.mftransparency.org/microfinance-pricing/rwanda
Mix Market: http://www.mixmarket.org/mfi/country/rwanda
Rwanda Development Board, www.rdb.rw
Rwanda Cooperative Agency, www.rca.gov.rw
Transparency International: http://www.transparency.org/cpi2014/results
UNDP: http://www.zm.undp.org/content/rwanda/en/home/countryinfo/
World Bank data: http://data.worldbank.org/
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Oct 2015
Annex 1: Interviews – Supply Side
Banks:





AB BANK
Bank of Kigali
Banque Populaire du
Rwanda
Equity Bank
Urwego Opportunity
Bank
Limited companies and
SACCOs:
 Amasezerano
Community Bank
 Copedu
 Duterimbere IMF
 Goshen Finance
 Letshego Rwanda
 Umutanguha Finance
Company
 Umwalimu SACCO
 Vision
Finance
Company
Other relevant stakeholders:
















AFR – Access to Finance Rwanda
AMIR
AMIR Consult
Business Development Fund (BDF)
Grameen Credit Agricole - “Take-Off
Facility for Sub-Saharan Africa”
Ministry of Finance and Economic
Planning
Oikocredit
Réseau
Interdiocesain
de
Microfinance “RIM LTD”
Rwanda Cooperative Agency
Savings Banks Foundation for
International Cooperation (SBFIC)
Société Mutuelle de Garantie et de
Financement
Terrafina
Transunion/CRB
National Bank of Rwanda
Rwanda Development Board
UNCDF – BIFSIR Programme
(“Building Inclusive Financial Sector
in Rwanda”)
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Oct 2015
Annex 2: List of FGD Participants and Survey Tools – Demand side
FGD 1: SACCO Rugalika (September 1st, 2015)
#
1
2
3
4
5
6
7
8
9
10
11
12
13
Name
NyiramanaLiberathe
KanakuzeMarthe
IzabirizaGaudence
SumutakirwaAnastaze
Nishimwe Olive
Umwari M. Rose
BayinganaPhilibert
Nyiramategeko Collette
RwabukwisiAloys
RucamihigoWellars
Ufitibanga Deo
Musabimana Yves
KalisaCallixte
Sex
F
F
F
M
F
F
M
F
M
M
M
M
M
Type of business
Agriculture
Shopkeeper (retail)
Agriculture
Agriculture
Agriculture
Garments (retail)
Taxi
Agriculture
Vegetables (retail)
Shopkeeper (retail)
Vegetables (retail)
Livestock
Agriculture
Client since
2012
2013
2013
2012
2014
2015
2012
2013
2011
2012
2014
2014
2015
Type of business
Grains (retail)
Telephone cards (airtime)
Vegetables (retail)
Local brew
Local brew
Tailor
Grains (retail)
Mechanic
Grains (retail)
Bananas (retail)
Mixed foodstuffs (retail)
Shopkeeper (retail)
Banana juice (retail)
Bicycle spareparts (retail)
Client since
2015
2010
1998
2008
2013
2005
2001
2008
2008
2014
2012
2009
2003
2008
FGD 2: UOMB Rwamagana (September 2nd, 2015)
#
1
2
3
4
5
6
7
8
9
10
11
12
13
14
Name
Mukayiranga Vestine
ItangishakaLaurien
MutegarugoriMarguerite
KankindiBerancille
KabanyanaJosiane
GahongayireImmaculée
Gasimba Venuste
Ruzizi P. Celestin
Maniraguha Emmanuel
ItangishakaInnocent
Nampijya M. Gorette
Uwera Gloriose
Gasayire Chantal
Murekatete Dative
Sex
F
M
F
F
F
F
M
M
M
M
F
F
F
F
FGD 3: DuterimbereNyarugenge (September 3rd, 2015)
#
1
2
3
4
5
6
7
8
9
10
11
Name
Umuraza Collette
Uwimpuhwe M. Louise
MukayisengaErnestine
Numukobwa Sophie
KamporoLiberée
Bazubagira Elina
Nyiransanzabera Violette
MukagasanaEugénie
Rutaganira Chantal
MujawamariyaFrancine
Nyirarukara Solange
Sex
F
F
F
F
F
F
F
F
F
F
F
Type of business
Garments (retail)
Garments (retail)
Garments (retail)
Shopkeeper (retail)
Restaurant
Grains (retail)
Shopkeeper (retail)
Taxi
Restaurant
Eggs (gross sale)
Poultry
Client since
2015
2012
2015
2015
2015
2004
2010
2010
2013
2012
2015
Type of business
Shoes (retail)
Welding
Client since
2015
2015
FGD 4: UOMB Rubavu (September 4th, 2015)
#
1
2
Name
Ihogoza Yvonne
NizeyimanaRachid
Sex
F
M
74
Oct 2015
3
4
5
6
7
8
9
10
Yadufashije Clarisse
Nyirandizihiwe Salama
Nteziryayo Venuste
Kuradusenge Angelique
MukamasaboVirginie
Ukwishaka Rosine
Nyampinga M, Christine
NyirakanyanaCorine
F
F
M
F
F
F
F
F
11
Ingabire Charlotte
F
Shoes (retail)
Womencloths (retail)
Bakery
Shoes (retail)
Shoes (retail)
Weddinggowns (retail)
Restaurant
Tigo Cash & MTN Mobile
Money
Garments (retail)
2015
2015
2015
2015
2015
2012
2013
2012
Type of business
Agriculture
Poultry
Agriculture
Agriculture
Agriculture
Agriculture
Agriculture
Agriculture
Agriculture
Livestock
Seeds (retail)
Agriculture
Client since
2006
2011
2011
2005
2011
2009
2011
2013
2005
2005
2002
2009
2015
FGD 5: DuterimbereMusanze (September 4th, 2015)
#
1
2
3
4
5
6
7
8
9
10
11
12
Name
NyirahabimanaJosephine
Nyiransabimana Marie
Nyiransabimana Mediatrice
MusabyimanaImmaculée
UwamahoroPélagie
Nyiratunga Catherine
Mukanyindo Elina
Mukaperezida Jeanne
Uwamariya Alice
Nyirambwirande A. Marie
HategekimanaDrocella
Uwambayinema Louise
Sex
F
F
F
F
F
F
F
F
F
F
F
F
Questionnaire - Individual interviews with potential MFI clients
Presentation
Presentation of interviewer and note-taker
Explanation of objectives of the study, confidentiality of information and
how results will be used
Questionnaire
1
Name of the respondent
2
Gender
3
Age
4
Location (District/province)
5
Type of business activity (sector)
6
Size of the business (average monthly
turnover)
7
Number of employees in the business
8
Do you currently have any funding needs
Male
a
Female
Yes
75
9
10
Oct 2015
for your business?
b
If answer to question 8 is YES, do you
need funds for working capital or for fixed
assets (e.g., machinery, investment)?
a
Working capital
b
Fixed assets
If answer to question 8 is YES, how do you
intend to satisfy your business funding
needs?
No
a
b
c
d
e
f
Use savings
ask to family/friends
ask to moneylender
ask to an MFI
ask to a Bank
other (specify)
a
b
c
d
e
f
Use savings
ask to moneylender
ask to an MFI
ask to a Bank
other (specify)
a
b
c
d
e
It's cheaper
It's closer to my home/business
A friend/family member recommended it to me
I can get the money in a shorter time
Procedures are easier
f
g
h
They don't ask for guarantee
The personnel of the bank/MFI is friendly
Other reasons (specify)
*If the respondent answers MFI or Bank,
please specify the names of the
Institutions
11
If answer to question 8 is NO: Should you
have any needs for funding for your
business in the future, how would you
satisfy them?
Institutions
12
If answer to question 10 or 11 is Bank or
MFI, what are the main reasons why you
chose/would choose those specific
Institutions and not other?
DO NOT READ THE ANSWERS TO THE
RESPONDENT, BUT MARK WITH A X THE
ANSWERS HE/SHE GIVES
13
Do you know other local financial
institutions? Which ones?
14
Do you currently have any funding needs
for your household?
a
b
Yes
No
15
If answer to question 14 is YES, how do
you intend to satisfy your household
funding needs ?
a
b
c
d
e
f
Use savings
ask to moneylender
ask to an MFI
ask to a Bank
other (specify)
76
Oct 2015
Institutions
16
If answer to question 14 is NO: Should you
have any needs for funding for your
household in the future, how would you
satisfy them?
a
b
c
d
e
f
Use savings
ask to moneylender
ask to an MFI
ask to a Bank
other (specify)
a
b
c
d
e
It's cheaper
It's closer to my home/business
I can get the money in a shorter time
Procedures are easier
f
g
h
They don't ask for guarantee
a
b
Yes
No
- why did you choose it?
DO NOT READ THE ANSWERS TO
THE RESPONDENT, BUT MARK WITH A X
THE ANSWERS HE/SHE GIVES
a
b
c
d
e
f
g
It's close to my home/business
It's the only financial institution I know
I believe my money is safe
Procedures to open an account are easy
20
If answer to question 18 is NO, why?
a
b
c
d
e
f
I have no savings
I prefer to keep money at home
I don't know any financial institution
It's too expensive to open an account
I don't trust the financial institutions
21
Do you know any Microfinance
Institution?
a
Yes
b
No
a
b
business loans
consumption loans
institutions
17
If answer to question 15 or 16 is Bank or
MFI, what are the main reasons why you
chose/would choose those specific
Institutions and not other? DO NOT READ
THE ANSWERS TO THE RESPONDENT, BUT
MARK WITH A X THE ANSWERS HE/SHE
GIVES
18
Do you have any savings deposited with a
financial institution?
19
If answer to question 18 is YES
- what is the name of the Institution?
22
Are there any services offered by the
Microfinance Institutions that might be
77
23
Oct 2015
interesting for you? If yes, which ones?
DO NOT READ THE ANSWERS TO THE
RESPONDENT, BUT MARK WITH A X THE
ANSWERS HE/SHE GIVES
c
d
e
f
group loans
sight deposit
term deposit
Other (specify)
In the past, did you have any experience
with any financial service provider?
a
b
Yes
No
If yes, mention which ones and tell us the positive and negative aspects.
Names of financial providers
Positive aspects
Negative aspects
24
Which are the main difficulties/challenges
that you and other entrepreneurs are
currently facing ?
a
b
c
d
e
Low demand, decrease of sales
High operating costs
Poor infrastructure
Difficult access to funding
Other (specify)
25
Do you think it is easy for you and other
entrepreneurs to have access to financial
services (credit, savings, insurance, etc.)?
Explain why.
a
b
Very easy
Easy
c
d
26
Difficult
Very difficult
In your opinion what could be done by the
government/public entities to support the
growth of your business and in general of
micro and small entrepreneurs?
Thank you very much for your time!
Checklist - Focus group discussions with Dropout Clients
To guarantee a quality output, the moderator ensures:
1. Good knowledge of the objectives of the assignment
2. Group discussion management skills (e.g. even participation, leader role, majority effect, respect of rules,
etc)
3. Good interview skills (e.g. open questions to avoid driving the answers and minimize bias)
Topic
Presentation
Question
Welcome and ice breaking (if necessary)
Presentation of moderator and note-taker
Explanation of objectives of the study and how results will be used
Agreement on rules: confidentiality, rules of interaction, motivation, logistics,
anything specific agreed with MFI
Introduction
Name
78
Oct 2015
Last loan amount taken and number of years with the MFI
Type of business activity, type of credit product and use of the last loan
1. Contact
How did you approach / were you approached by the MFI?
How did you decide to borrow a loan?
2. Initial information
Which are the products available at this MFI (client awareness)?
How did you obtain the information (Promoter, friend, bank, etc.)?
Did field staff explain to you about the products available?
Who choose the type of product which you took?
3. Reasons for dropout
What was the main reason why you left the Institution?
4. Availability and access
to financial services
Do you know other financial providers (MFIs, banks, etc.) that could serve your
financial needs?
Why did you choose this MFI and not another financial provider? What did you like
about the MFI and what you did not like?
Were you ever refused a loan from a financial service provider? If yes, was it a bank
or an MFI? Why was your demand refused?
What are the most important considerations for you when choosing a financial
service provider?
Are you currently a client of another financial service provider ? If yes, why? (ex:
what kind of service was missing? How another financial provider is serving you
better? etc.)
Which are the products/services that you would need and are not currently offered
by the Microfinance Institutions?
Are these products/services offered by other providers (ex. Commercial banks)?
How could MFIs adapt their product/services to better meet your expectations?
Per each of the following characteristics, how much are were you satisfied with the
service received from the MFI? Explain why you liked or did not like.
Ex. proximity of branches, loan officers go to clients or vice versa, additional
transaction costs? Are the process and documents required for loan application
too burdensome?
Ex. how long does it take to get a loan? How is the disbursement time compared to
other financial providers?
Ex: Have you always received the amount you asked for (more or less)? Why?
What would you do in case the amount received is not enough (borrow from
someone else)?
5. Client satisfaction:
5.1 Delivery system
and procedures
5.2 Time to get a loan
5.3 Loan amount
5.4 Loan term
5.5 Frequency of
repayment
5.6 Instalment amount
5.7 Interest rate and
commission
5.8 Customer service
from staff
5.9 Guarantee
ex. is the repayment frequency adapted to your business cash-flow?
Ex. Have you ever struggled to pay back the loan?
How does the instalment compare to the amount that you can repay?
Ex. How much are the interest rate and commissions?
How do you find the interest rates and fees?
How is the price compared to the other financial providers?
Do you pay additional charges to the loan officers?
Ex. How do you evaluate the customer service? How is the relationship with the
loan officers?
Is your loan backed by a collateral?
How is the collateral value compared with the loan amount?
How was the information received before pledging the item (enough)?
What have you heard related to confiscation practices by the MFI or by other
market players?
79
5.10 Group solidarity
and issues
5.11 Training and
technical assistance
5.12 Savings
5.13 Late payment and
default
Oct 2015
What are the experiences of clients accessing loans through the group lending
approach? Focus should be on the process, good/ bad experience
Ex: did you receive any training from the MFI? How was the quality of the service
provided?
Ex: does the MFI offer savings services? Do you have any savings deposited in the
MFI? How are the savings terms (fees, minimum amount, remuneration, etc.)
compared with banks?
Ex. Did you ever experience late payment? If yes, what were the reasons? What are
the consequences of late payments? Have you heard about the consequences with
other institutions in the market?
6. Future expectations
What are your future perspectives for your business? Are you going to invest to
expand your business?
Are you willing to take another credit in the future? Why?
7. Clients feedback
Do you feel that clients feedback were taken into consideration by the MFI to
adapt its services and products? If yes, how? (please make some examples of
changes in the products following clients suggestions or complaints ).
Any suggestion for the MFI to improve its product and services (including changes
in the characteristics of the existing products and introduction of new products) ?
Answer client questions or channel them to the appropriate person
Clarify expectations: ensure not that the services will change, but that the clients'
observations will be brought to the MFI management
Acknowledge participants time and feedback
Conclusion
Checklist - Focus group discussions with Active Clients
To guarantee a quality output, the moderator ensures:
1. Good knowledge of the objectives of the assignment
2. Group discussion management skills (e.g. even participation, leader role, majority effect, respect of rules,
etc)
3. Good interview skills (e.g. open questions to avoid driving the answers and minimize bias)
Topic
Question
Presentation
Welcome and ice breaking (if necessary)
Presentation of moderator and note-taker
Explanation of objectives of the study and how results will be used
Agreement on rules: confidentiality, rules of interaction, motivation, logistics,
anything specific agreed with MFI
Introduction
Name
Loan amount and number of years with the MFI
Type of business activity, type of credit product and use of the loan
1. Contact
How did you approach / were you approached by the MFI?
How did you decide to borrow a loan?
2. Initial information
Which are the products available at this MFI (client awareness)?
How did you obtain the information (Promoter, friend, bank, etc.)?
Did field staff explain to you about the products available?
Who choose the type of product which you took?
80
3. Availability and access
to financial services
4. Client satisfaction:
4.1 Delivery system
and procedures
4.2 Time to get a loan
4.3 Loan amount
4.4 Loan term
4.5 Frequency of
repayment
4.6 Instalment amount
4.7 Interest rate and
commission
4.8 Customer service
from staff
4.9 Guarantee
4.10 Group solidarity
and issues
4.11 Training and
technical assistance
4.12 Savings
4.13 Late payment and
default
5. Future expectations
Oct 2015
Do you know other financial providers (MFIs, banks, etc.) that could serve your
financial needs?
Why did you choose this MFI and not another financial provider? What do you like
about the MFI and what you dislike?
Were you ever refused a loan from a financial service provider? If yes, was it a bank
or an MFI? Why was your demand refused?
What are the most important considerations for you when choosing a financial
service provider?
Are you currently a client of another financial service provider at the same time? If
yes, why? (ex: what kind of service was missing? How another financial provider is
serving you better? etc.)
Which are the products/services that you would need and are not currently offered
by the Microfinance Institutions?
Are these products/services offered by other providers (ex. Commercial banks)?
How could MFIs adapt their product/services to better meet your expectations?
Per each of the following characteristics, how much are you satisfied with the
service received from the MFI? Explain why you like or don't like.
Ex. proximity of branches, loan officers go to clients or vice versa, additional
transaction costs? Are the process and documents required for loan application
too burdensome?
Ex. how long does it take to get a loan? How is the disbursement time compared to
other financial providers?
Ex: Have you always received the amount you asked for (more or less)? Why?
What would you do in case the amount received is not enough (borrow from
someone else)?
ex. is the repayment frequency adapted to your business cash-flow?
Ex. Have you ever struggled to pay back the loan?
How does the instalment compare to the amount that you can repay?
Ex. How much are the interest rate and commissions?
How do you find the interest rates and fees?
How is the price compared to the other financial providers?
Do you pay additional charges to the loan officers?
Ex. How do you evaluate the customer service? How is the relationship with the
loan officers?
Is your loan backed by a collateral?
How is the collateral value compared with the loan amount?
How was the information received before pledging the item (enough)?
What have you heard related to confiscation practices by the MFI or by other
market players?
What are the experiences of clients accessing loans through the group lending
approach? Focus should be on the process, good/ bad experience
Ex: did you receive any training from the MFI? How was the quality of the service
provided?
Ex: does the MFI offer savings services? Do you have any savings deposited in the
MFI? How are the savings terms (fees, minimum amount, remuneration, etc)
compared with banks?
Ex. Did you ever experience late payment? If yes, what were the reasons? What are
the consequences of late payments? Have you heard about the consequences with
other institutions in the market?
What are your future perspectives for your business? Are you going to invest to
expand your business?
Are you willing to take another credit in the future? Why?
81
6. Clients feedback
Conclusion
Oct 2015
Do you feel that clients feedback are taken into consideration by the MFI to adapt
its services and products? If yes, how? (please make some examples of changes in
the products following clients suggestions or complaints ).
Any suggestion for the MFI to improve its product and services (including changes
in the characteristics of the existing products and introduction of new products) ?
Answer client questions or channel them to the appropriate person
Clarify expectations: ensure not that the services will change, but that the clients'
observations will be brought to the MFI management
Acknowledge participants time and feedback
82
Oct 2015
Annex 3:Distinctive Features of the Business of Microfinance41
As stated by the Basel Committee on Banking Supervision, some of the more distinctive features of
microcredit include:
(a) Micro-borrowers. Loans are usually very small, short term, and unsecured, with more frequent
repayments and higher interest rates than conventional bank loans. Many providers require
higher interest rates to offset higher operational costs.
(b) Credit risk analysis. Borrowers often lack formal financial statements. LOs use expected cash
flows and net worth to determine amortisation schedule and loan amount. The borrower’s
character and willingness to repay are assessed during field visits. Credit scoring, when used,
complements rather than supplants the more labour-intensive approaches to credit analysis.
(c) Use of collateral. Micro-borrowers often lack collateral traditionally required by banks, and what
they have to pledge is of little value for the financial institution but are highly valued by the
borrower (e.g. TV, furniture). Collateral is for leverage to induce payment rather than to recover
losses. In the absence of collateral, underwriting depends on a labour-intensive analysis of the
household’s repayment capacity and the borrower’s character.
(d) Credit approval and monitoring. Because micro-lending tends to be a highly decentralised
process, credit approval by loan committees depends heavily on the skill and integrity of loan
officers and managers for accurate and timely information.
(e) Controlling arrears. Strict control of arrears is necessary given the short-term nature, lack of
collateral, high frequency of payments (e.g. weekly or bi-weekly), and contagion effects (see h.
below) of microloans. Traditionally, monitoring is primarily in the hands of loan officers as the
knowledge of the client’s personal circumstances is important for effective collections.
(f) Progressively increasing lending. Microfinance clients are usually dependent upon ongoing
access to credit. Incentive schemes are used to reward good borrowers with preferential access
to future, larger loans (e.g. better repayment schedules and lower interest rates), which raises
the risk of over-indebtedness, particularly where credit information systems are absent or
deficient. This feature also affects interest rate risk management, as microfinance clients expect
rates to decline overtime, regardless of changes in the general level of interest rates.
(g) Group lending. Some micro-lenders use group lending methodologies, where loans are made to
small groups of people who cross guarantee other members of the group. Peer pressure also
helps to ensure high repayment levels, as the default of one group member could adversely
affect the availability of credit to others.
(h) Contagion effects. Borrowers who notice increasing delinquency in the institution may stop
paying if they believe the institution will be less likely to offer future loans due to credit quality
problems.
(i) Currency-related risks. Occasionally micro-lenders lend in a currency other than that of a
borrower’s repayment source (e.g. sale of goods or services), so foreign currency fluctuations
may affect the borrower’s ability to repay. Micro-borrowers may be less able to appreciate the
nature of this exposure, much less take measures to mitigate it.
(j) Political influences. Microfinance may be seen as a political tool in some countries, tempting
politicians to demand forbearance or forgiveness of loans to poor customers during times of
economic stress. This might affect repayment culture of microfinance borrowers.
41
Basel Committee on Banking Supervision, Microfinance activities and the Core Principles for Effective
Banking Supervision, August 2010
83
Oct 2015
Annex 4: Client Protection Principles in Rwanda
Client Protection Principle 1: Appropriate Product Design and Delivery
Channels
1.1
FIs design products that are appropriate to client needs and do no harm
1.2
FIs seek client feedback for product design and delivery
1.3
FIs do not use aggressive sales techniques
Client Protection Principle 2: Prevention of Over-indebtedness
FIs conduct appropriate client repayment capacity analysis before
2.1
disbursing a loan
2.2
FIs incentivize quality loans
2.3
FIs use credit bureau and competitor data, as feasible in local context
FIs Management and Board are aware of and concerned about the risk of
2.4
over-indebtedness
FIs's internal audit department monitor that policies to prevent over2.5
indebtedness are applied
FIs avoid dangerous commercial practices (i.e., avoids combining loan
products to meet the same need, or restricting the loan use; sets prudent
2.6
limits to allow for the renewal of a loan in case of early repayment; sets
guidelines for appropriate rescheduling policies)
Client Protection Principle 3: Transparency
3.1
FIs fully disclose cost and non-cost information
FIs communicate proactively with clients in a way that clients can easily
3.2
understand
3.3
FIs use a variety of disclosure mechanisms
3.4
FIs leave adequate time for client review and discloses at multiple times
3.5
FIs provide accurate and timely account information
Client Protection Principle 4: Responsible Pricing
4.1
FIs offer market-based, non-discriminatory pricing
4.2
FIs’ efficiency is in line with its peers
4.3
FIs do not charge excessive fees
Client Protection Principle 5: Fair and Respectful Treatment of Clients
FIs culture raises awareness and concern about fair and responsible
5.1
treatment of clients
FIs have defined in specific detail what it considers to be appropriate debt
5.2
collection practices
FIs's HR policies (recruitment, training) are aligned around fair and
5.3
responsible treatment of clients
5.4
FIs implement policies to promote ethics and prevent fraud
In selection and treatment of clients, FIs do not discriminate
5.5
inappropriately against certain categories of clients
In-house and 3rd party collections staff are expected to follow the same
5.6
practices as FIs staff
5.7
FIs inform clients of their rights
Client Protection Principle 6: Privacy of Client Data
6.1
FIs have a privacy policy and appropriate technology systems
FIs inform clients about when and how their data is shared and gets their
6.2
consent
Client Protection Principle 7: Mechanisms for Complaints Resolution
7.1
FIs's clients are aware of how to submit complaints
7.2
FIs's staff are trained to handle complaints
7.3
FIs's complaints resolution system is active and effective
7.4
FIs use client feedback to improve practices and products
● = low, ●● = medium, ●●● = high
Standards
Effort Level
●●●
●●●
●●
●●●
●●●
●
●●
●●
●●
●●●
●●
●●
●●
●●
●●●
●●
●●
●●●
●●
●●
●●
●
●●
●●●
●●●
●●
●●●
●●●
●●
●●●
84

Assessment of the Rwandan Microfinance Sector Performance

Transcription

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