How financial institutions in Rwanda are reducing their Portfolio at Risk (PAR)

Microfinance institutions in Rwanda are using technology to build stronger client relationships and to improve repayment rates. By focusing on client relationships, MFIs in Rwanda are reducing their Portfolio at Risk (PAR).

How financial institutions in Rwanda are reducing their Portfolio At Risk (PAR)

The Association of Microfinance Institutions in Rwanda (AMIR), accredited the recovery of Rwanda’s MFIs to the association’s new measures to reduce the non-performing loans in the sector. In the third quarter of 2017, according to the National Bank of Rwanda, bad loans in the microfinance sector decreased by 4.3 percentage points to eight per cent. Rwanda’s central bank is additionally encouraging the decline of the level of bad loans under five per cent (The New Times).

What is PAR and why is it important?

PAR is the percentage of a total loan portfolio that is at risk, or the value of outstanding balance of all loans in arrears (Rural Finance and Investment).

PAR 30 tracks the number and total amount of loans where no repayment has been made for 30 days. PAR 30 is a key metric because it is the most accepted measure of portfolio quality and one of the most common international measurements of portfolio risk.

It’s an especially important metric for funders, as they look at the quality of your loan portfolio. Organisations should display solid past performance as well as potential for steady growth in the future. Investors want to see low numbers for your portfolio at risk (PAR) over 30, 60, 90 and 180 days.

Reducing your PAR with consistent client communication

Findings by the National Bureau of Economic Research show that by sending monthly text message reminders before a loan payment is due, it’s more likely that the client will send a repayment on time, and the average days late drop by two days a month.

With simple and immediate reminders, clients make payments sooner than they would without reminders and you can reduce the number of days that their loan is overdue, which reduces your PAR and improves your portfolio performance.

Automating the reminders and simple messages is the most efficient way to ensure that each client receives timely reminders for every loan repayment.

How financial institutions in Rwanda are reducing their Portfolio At Risk (PAR)

How Instafin Messaging enables you to reduce your PAR

Instafin Messaging is part of Oradian’s toolset. It enables you to send messages to your clients about their accounts and their account activity directly from your Instafin dashboard.

When you sign your MFI up for Instafin Messaging, you choose which types of messages that you want to send to your clients. Examples of Instafin’s messaging options include:

  • Notifying a client when they have an upcoming loan payment due
  • Sending notifications to your clients if they miss a loan payment

Ready to improve your MFI with Instafin?

Oradian provides visionary financial institutions with a cloud-based core banking system designed to enable you to become more competitive and grow in your market.

Now is the time to improve portfolio performance in Rwanda and build stronger client relationships.