MICROCAPITAL STORY: Depositors in Rwanda Approach the Ombudsman's Office for Help to Recover their Deposits From Corrupt Microfinance Institutions

Nearly two years after the crackdown on corrupt Microfinance Institutions (MFIs) in Rwanda by the Central Bank of Rwanda (BNR), depositors are still struggling to retrieve their deposits caught up with the fraudulent MFIs. According to a press release found on AllAfrica.com, in an effort to collect their money, depositors have decided to file their concerns with Rwanda’s Ombudsman’s office.

MicroCapital had previously reported on the corruption and shut-down of several local MFIs in Rwanda. Eight MFIs were shut down by the Rwandan Government in June 2006 due to mismanagement of funds and losses suffered as a result poor credit management practices. The 8 MFIs in question are Gasabo, Intambwe, Igisubizo, Ongera, Urumuri, Urugero, Gwiza, Ubumwe and Iwacu. After a year-long investigation following the crackdown of the MFIs, 15 MFI managers were arrested in April 2008 for defrauding depositor money. More information on the investigation can be found in this MicroCapital story. The story also states that following the crackdown, the Government disbursed more than USD 5.5 million to compensate clients for up to fifty percent of their total deposits. The Government channeled all transactions previously handled by the closed MFIs to Bank Populaire du Rwanda (BPR), a Rwandan commercial bank with nation-wide branches. As per the press release, some depositors have got back 50 percent of their deposits whereas several others haven’t been repaid yet. According to the latest statement issued by the Governor of the National Bank of Rwanda (BNR), François Kanimba, with regard to the repayment of deposits, the government ‘is yet to refund the victims of the closed MFIs’.

The press release states that the depositors have decided to approach the Office of the Ombudsman following several vain meetings with Bank Populaire du Rwanda (BPR) -which was entrusted with the transactions previously handled by the closed MFIs – to collect their deposits. Explaining the reason for the delay in disbursing depositor money, François Kanimba said the non-availability of proper records detailing the transactions of the depositors with the fraudulent MFIs delayed the process. Commenting on the issue, Vincent Komanda, the BPR official in charge of the refunds, said proper screening was done to identify and ensure the payments are made to the deserving. The press release also quoted the Governor as saying that refund of deposits might not commence until March this year. No further detail on this is available.

A United Nations research states that nearly 60 percent of Rwanda’s population lives in poverty with 42 percent living in absolute poverty. The 2008 Human Development survey of the United Nations ranks Rwanda among the 15 poorest countries, measured on the basis of standard of living, life expectancy and literacy. The Rwandan Microfinance industry is relatively new but a fast growing market, according to the Rwandan microfinance sector assessment produced by Enterprising Solutions Global Consulting, LLC. The Microfinance sector in Rwanda started (p7) with the creation of UBPR in 1975 and was mostly characterized by slow growth and the expansion of few financial institutions. After the Rwandan genocide in 1994 several non-government organizations (NGOs) became involved in the financial sector in Rwanda implementing relief oriented microfinance initiatives. As of June 2006, there were over 200 MFIs in Rwanda. According to the assessment report by Enterprising Solutions Global Consulting, MFIs in Rwanda service more clients than they have resources for and are unable to balance client growth with the growth in their institutional capacity. A majority of Rwanda’s microfinance institutions lack credit management skills and do not focus on avoiding delinquency. The assessment also states that the Rwandan microfinance sector lacks a client-oriented approach and that there is little effort to develop products that meet market demands.