Analysis of the Legal and Institutional Framework of Loan recovery for Microfinance Institutions in Rwanda

Abstract

In recent times, Rwanda government has been trying to achieve the goal of poverty eradication through establishment of policies where inclusive finance would contribute to reach that goal. Microfinance is considered as one of the significant tools in achieving the objective of inclusive finance due to multiple reasons based on the fact that the strength of microfinance lies in its mechanism of affordable credit provision to the communities with low-income. However, statisticsof the National Bank of Rwanda show that non-performing loans in the microfinance sector have been growing progressively since 2014due to the context where the regulatory system was ineffective.1 This study aims at identifying and comparing the legal avenues for debt recovery available to Microfinance Institutions (MFIs) in Rwanda inorder to minimize the risk of loan default in the microfinance business and the subsequent reduction of the number of nonperforming loans (NPL).It will analyze the existing mechanisms for microfinance loan recovery including the established legal and institutional framework in Rwanda.