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 respondentsfrom clients of selected Microfinance institutions and 53 respondents from managers and staff of MFIs. Aquestionnaire was used to collect data. The data was first explored for the underlying factor structure among thestudy variables through factor analysis. Thereafter, the study undertook both descriptive and inferential statisticalanalyses.The findings revealed that liquidity, NPL, return on asset and return on equity are powerful instrument of financialperformance of MFIs in Rwanda, it assumes that the strategies to be taken in order to address the main challengesfacing MFIs in Rwanda are: Legal and Regulatory environment, Support infrastructure, Client Protection, Financialinclusion, Financial Education as well as Gender and Youth inclusion. The policy and law should also be reviewed toallow the transformed MFIs a tax holiday and exempt from tax any assets donated or transferred to the deposit takingmicrofinance institutions.