High interests charged on pro-poor financial services under VUP blamed for slowing poverty reduction

By The Inspirer

When Vision 2020 Umurenge Programme (VUP) was introduced in 2008, financial services to help uplift economically vulnerable Rwandans from poverty were introduced whereby the poor would get ‘loans’ that they should pay back at a flexible interest rate of 2 percent.

But, pursuant to a cabinet decision of July 29, 2014 regarding the implementation of VUP financial services in partnership with Umurenge Savings and Credit Cooperatives (Umurenge SACCOs), the interest rate went up to 11 percent.

That increased interest rate was, according to the officials, due to the fact that the VUP financial services were given to new administrator – Umurenge SACCO, which is a microfinance institution that has to make profits through managing funds.

Consequently, fewer people used the financial services compared to the period before the change as they felt burdened by the huge interest they had to pay.

VUP is an Integrated Local Development Program to Accelerate Poverty Eradication, Rural Growth, and Social Protection.

Speaking during the 16th National Dialogue Council ‘Umushyikirano’ which concluded in Kigali last month, Prime Minister Edouard Ngirente said that the funds were considered ‘loan to the vulnerable,’ explaining that the money would be paid off at 2 percent interest rate in the initial period when it was being managed by the local government in line with normal social protection arrangement.

However, after the management of the funds was given to the U-SACCOs), the situation changed such that the funds which were intended to support the economically vulnerable entred into a bank-like system whereby the money would be given to a person who has requested, and, its provision had to follow requirements applicable for one to get a loan.

“That very low interest was intended to make the beneficiaries make use of such funds, instead of thinking that they are given them free of charge,” the Premier said, adding that because of high interest it even reached a level where the financial services component missed the target that the government had set to identify the needy who deserved the money and offer it to them at a very low interest rate.

Low uptake, probable link to declining in tackling poverty

Giving some statistics on how VUP funds were mistakenly managed as other money by commercial banks, Prof. Anastase Shyaka, the Minister of Local Government (MINALOC) said that VUP started in 120 sectors only [around 2008], and over 50,000 needy Rwandans used the funds per year, then.

In 2014 and 2015, he said, the number of needy Rwandans used the VUP funds increased to about 80,000.

However, he said that this year and last year, VUP was implemented in over 250 sectors, but, people who use the finances are less than 30,000, yet the finances are currently higher than at its inception.

The poverty reduction in the 2006 to 2011 period, and 2011 to 2013, was higher than the performance of the last three years.

“If we relate those statistics with economy, it is one of the factors that contributed to poverty reduction in the previous period.

“It [Slow performance in tackling poverty registered recently] is not because the government invested less money, or interventions got reduced, rather we seem to have lost focus, and that badly affected performance,” he said.

The fourth Integrated Household Living Conditions Survey (EICV4) produced released in 2015 by the National Institute of Statistics of Rwanda shows that poverty among Rwandans was at 39.1 percent as of 2013/2014, down from 44.9% as was reported in 2010/2011.

That means poverty dropped by 5.8 percentage points in three year-period, which is better performance than 0.9 percent achieved from 2014/2015 to 2016/2017, according to the EICV5 published earlier this month, which revealed that poverty among Rwandans stood at 38.2 percent.

“We should agree on how this programme should continue to be managed through SACCO … But the first thing we are going to do is to follow up to know whether the finances go to the right beneficiaries, and that they benefit those who receive them,” he said.

High non-performing loans

The Central Bank (BNR) Governor, John Rwangombwa after the Cabinet approved that such financial services be managed by SACCOS, these financial institutions set 11 percent as interest rate, which they said could help them continue to run financial service delivery.

He said that non-performing loans in SACCOs are at 12.3 percent, while they are higher for VUP funds, at 35 percent countrywide, revealing that there is where it went up to 50 percent. This problem made SACCOs to cut the amount of loans they give under VUP as they were incurring losses.

He said that SACCOs requested that there should be an emergency fund that could help cover the defaulted loans under VUP initiative.

President Paul Kagame said that all poor performances not only in VUP, SACCOs, but in all sectors in question, should be improved for the benefit of Rwandans.

“The funds are not an asset of SACCOs; I think what they need to get is money for administration of the funds,” he said pointing lack of focus in implementation of the initiative,” the President said.

PM Ngirente said “we are ready to correct such mistakes, there are available measures we can take [to address the issue],” Ngirente said on behalf of the government.”


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Elias Hakizimana

Elias Hakizimana, CEO&Founder of The Inspirer Ltd,(www.rwandainspirer.com) is a professional Rwandan Journalist with Bachelor’s Degree in Journalism and Communication, received from University of Rwanda’s College of Arts and Social Sciences (CASS) in 2014. He served various media houses in Rwanda including Rwanda Broadcasting Agency (RBA) in 2013 and became passionate with English Online and Print Media Publications where he exercised his talent as a Freelance News Reporter for The New Times, The Independent, The Rwanda Focus, Panorama and more before he became a Self-Entrepreneur as the CEO and Founder of The Inspirer Limited in early 2017.

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