MICROCAPITAL STORY: Crackdown on Crooked Microfinance in Rwanda

Rwandan Prosecutor General, Martin Ngoga announced that fifteen former microfinance institution managers had been arrested over a period of four days for defrauding depositor money after a year-long investigation following a government shut-down of 8 bankrupt microfinance institutions in June 2006.

According to the Prosecutor General, the 8 local microfinance institutions shut down by the Bank of Rwanda had mismanaged funds and suffered huge losses as a result of poor credit management practices. The government disbursed more than USD 5.5 million to compensate clients for up to fifty percent of their total deposits.

The Rwandan government channeled all transactions previously handled by the closed MFIs to the Bank Populaire du Rwanda, a local commercial bank with nation-wide branches.

A 2005 Rwandan microfinance sector assessment produced by Enterprising Solutions Global Consulting, LLC reports that the majority of the country’s microfinance institutions lack credit management skills and do not focus on avoiding delinquency. The report also cited a poor credit culture caused by market distortion from the post-war influx of international aid and grants. This has resulted in costly and ineffective delinquency management and high portfolio at risk percentages.

The assessment reports that many MFI’s are servicing more clients than they have resources for, unable to balance client growth with the growth in their institutional capacity. The Rwandan microfinance sector lacks a client-oriented approach, and there is little effort to develop products that meet market demands.

Before the 1994 civil war outbreak, Rwanda had a well-established Micro Small and Medium Enterprises (MSME) sector in manufacturing, crafts, carpentry, tailoring, garment making, metal working, leather products, minerals, and maintenance work. Post-war, lack of finances and qualified human resources are huge obstacles in the rebuilding of Rwanda’s MSME sector and the development of sustainable microfinance institutions.

By Melissa Duscha

Additional Resources:

All Africa: Rwanda: Major Crackdown

Bank Populaire du Rwanda

Enterprising Solutions Global Consulting, LLC

Enterprising Solutions Global Consulting, LLC: Rwanda Microfinance Sector Assessment 2005

The Microcredit Investment Legacy of Plundering Poor People’s Savings: National Bank of Rwanda Shuts Down 8 Local Microfinance Institutions (MFIs)