COVID-19: How the pandemic impacted Rwanda’s microfinance sector

The microfinance sector in Rwanda plays a critical role in financing the country's economic development, serving around 4 million account holders, predominantly in rural areas and small to medium-sized enterprises. However, the sector has faced significant challenges due to the COVID-19 pandemic, impacting various categories of microfinance institutions. Aimable Nkuranga, the Executive Director of the Association of Microfinance Institutions in Rwanda, highlighted these issues in an interview with CNBC Africa's Julius Bizimungu. Nkuranga discussed the effects of the pandemic on different types of microfinance institutions, such as Microfinance Banks, Public Limited Companies, and Savings and Credit Cooperatives (SACCOs), which primarily cater to micro, small, and medium enterprises (MSMEs). He emphasized that the public limited companies, in particular, were heavily hit as they traditionally engaged clients through group lending, which became challenging during COVID-19 restrictions on gatherings and movement between districts. As a result, the assets of microfinance institutions deteriorated, with non-performing loans increasing from 5.6% in 2019 to 6.7% by the end of 2020, peaking at nearly 13% mid-year. Deposit levels also saw a decline in 2020 compared to the previous year, as people withdrew savings to meet basic needs, affecting the capital position of MFIs. Despite a nominal increase in deposits from 2019 to 2020, the growth rate was significantly lower, posing challenges for lending activities. Nkuranga addressed concerns about the high credit risk in the microfinance sector, noting that 84% of funding comes from client deposits, making diversification crucial. Prior to the pandemic, plans to establish a financing facility to mobilize funds from various sources were disrupted, emphasizing the need for strategies to mitigate risks and enhance financial resilience in the sector.