Rwanda: Interest Rates in Umurenge Saccos Fall As Consolidation Nears Completion

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As the automation process nears completion, interest rates in Umurenge SACCOs are expected to decrease from the current 24 per cent to between 2 per cent and 14 per cent annually, according to Yusuf Murangwa, Minister of Finance and Economic Planning.

This is in line with the government’s plan to boost the savings culture among Rwandans and ensure adequate liquidity.

In 2008, the government recommended the creation of at least one SACCO at the sector (Umurenge) level.

The concept was based on the understanding that banks and other financial institutions are concentrated in towns and less present in rural areas to serve the poor.

However, higher interest rates have been raised as a key limiting factor for many consumers who bank with these financial instructions.

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“Citizens have raised concerns about high interest rates on SACCO loans, many of which are at 24%, much higher than commercial banks. As a result, many people avoid SACCO loans and prefer informal savings groups (Ibimina), which offer lower rates,” the minister told parliamentarians last week.

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He explained that, in general, the cost of loans in SACCOs is influenced by the cost of funds, operational expenses (including loan monitoring), institutional risk, and the need to generate sustainable profit.

“SACCOs often operate in high-risk areas where commercial banks hesitate to invest. Most SACCO loans are small and short-term, costly to manage and recover, with limited returns,” he noted, adding that SACCOs have to incur costly transport on moving funds from one point to another, which raises operational costs.

Another challenge, he said, is the lack of reliable credit history.

Many SACCO clients have never interacted with formal financial institutions, making it difficult to assess their loan eligibility and offer competitive rates based on repayment behavior.

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“These limitations partly explain why SACCOs charge more than banks. The culture of long-term saving is not well established, which creates difficulties for institutions that depend on savings to offer loans,” he said.

As a result, Murangwa added, some must borrow at high costs, forcing them to pass on those costs to borrowers.

The finance minister indicated that strategies now include promoting long-term saving, expanding access to financial services, improving the use of digital payment systems, and supporting a cashless economy.

“Introducing digital systems and merging SACCOs at district level has started to show positive results. SACCO-related challenges have declined, and feasibility studies and business plans from district-level SACCOs indicate that interest rates are expected to fall from 24% to between 2% and 22%,” he revealed.

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The trend

According to Clarisse Mushimirwa, Director of Microfinance Supervision at the National Bank of Rwanda (BNR), following the consolidation of SACCOs at district level, seven of them have already recorded reduced interest rates.

She cited Kicukiro SACCO, which now charges between 14 per cent and 20 per cent.

Others, including Nyarugenge and Gasabo district SACCOs, charge between 14 per cent and 19 per cent.

“Over time, as SACCOs strengthen operations, mobilise more savings, and reduce risks, loan interest rates are expected to continue declining. Rates are market-driven, but BNR continues supervision to protect consumers. All institutions must explain the factors behind their rates to ensure transparency,” she observed.

According to Jackson Kwikiriza, Executive Director at the Association of Microfinance Institutions in Rwanda (AMIR), there is a need to boost the savings culture to help reduce high interest rates.

“Increased saving will help financial providers build enough capital to lend. Making cheap capital available for SACCOs and microfinance institutions (MFIs),” he said, adding that the sector is expected to benefit from the establishment of a Microfinance Liquidity Fund by late 2025 or early 2026.

The proposed fund, he said, is expected to give MFIs access to low-cost liquidity, enabling them to offer loans with single-digit interest rates.

However, he stressed this is not the only solution. “There are other projects and initiatives tailored to support women and youth through a facility fund.”

Addressing high rates of non-performing loans

According to the finance minister, some Umurenge SACCOs have high rates of non-performing loans (NPLs), exceeding the 5 per cent benchmark set by the National Bank of Rwanda.

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The assessment shows that 95 Umurenge SACCOs (22.8 per cent) have an NPL ratio equal to or less than 5 per cent, and 96 of them (23 per cent) have an NPL ratio above 5 per cent but not exceeding 10per cent.

On the other hand, 155 SACCOs (37.3 per cent) have an NPL ratio above 10 per cent but not exceeding 20 per cent, while 70 of them (16.8 per cent) have an NPL ratio above 20 per cent.

Murangwa said the main causes include poor management, weak loan assessment, and ineffective recovery mechanisms. “There are also cases of corruption, where people acquire loans through unethical means and later fail to repay.”