Rwandans Turn to Microlenders As Banks Tighten Rules

Nov 27, 2017 | The EastAfrican; All Africa

The number of borrowers from Rwandan commercial banks has dropped, as customers migrate to microfinance institutions to avoid the former's stringent credit conditions.

Data from the National Bank of Rwanda (BNR) shows that the number of bank borrowers declined by 12.5 per cent to 261,871 in June 2017, from 299,498 in the same period last year. On the other hand, loan accounts in the microfinance sector reported a 17.5 per cent growth to 222,900, boosted by the presence of the institutions in rural areas. BNR had attributed the decline in lending to weak demand, but the increase in micro-lending indicates a growing credit appetite in the market. "This decline reflects an overall slowdown of the economy, which triggered a reduction in the number of borrowers and the amounts borrowed in 2016 and in the first half of 2017," said BNR in its annual report. The August presidential election and a tough global economic environment were blamed for the slow credit expansion. Bad loans, which increased to over 8 per cent, also forced commercial banks to adopt a conservative lending approach as they worked on cleaning up their books. The tightening of credit appraisal is believed to have pushed potential borrowers to microlenders, whose conditions are more lax, although their credit is more expensive than commercial banks, said BNR. But their lax stance has been blamed for loan defaults rising to 12.3 per cent. Microfinance institutions reported losses of Rwf3.6 billion ($4.3 million) as at June this year. But banks reported a 14.3 per cent loan book growth, indicating that those who qualified for credit were receiving large-ticket loans. Read more on All Africa. Source: All Africa