Major Challenges Affecting Financial Performance of Microfinance Institutions in Rwanda

Abstract

This paper sought to determine the specific challenges affecting financial performance of Microfinance institutions
(MFIs) in Rwanda.
This study used the cross-sectional survey research design. The target population of the study was 199 respondents
from clients of selected Microfinance institutions and 53 respondents from managers and staff of MFIs. A
questionnaire was used to collect data. The data was first explored for the underlying factor structure among the
study variables through factor analysis. Thereafter, the study undertook both descriptive and inferential statistical
analyses.
The findings revealed that liquidity, NPL, return on asset and return on equity are powerful instrument of financial
performance of MFIs in Rwanda, it assumes that the strategies to be taken in order to address the main challenges
facing MFIs in Rwanda are: Legal and Regulatory environment, Support infrastructure, Client Protection, Financial
inclusion, Financial Education as well as Gender and Youth inclusion. The policy and law should also be reviewed to
allow the transformed MFIs a tax holiday and exempt from tax any assets donated or transferred to the deposit taking
microfinance institutions.