Abstract

Microfinance Institutions (MFIs) have the potential to alleviate poverty across the world. However, they face many challenges before they can grow to meet set objectives. In Rwanda, high costs and loan defaults are the biggest threat to microfinance profitability and sustainability. The use of Information and Communication Technologies (ICTs), particularly mobile banking (m-banking), holds promise to enable such profitability and sustainability. Some MFIs in Rwanda had already tried to develop this opportunity by launching m-banking projects and small-scale experiments across the country. But though these initiatives exist–so far with limited achievements –there is no clear indication that integrating mobile technology banking into MFIs has contributed to the greatest challenges faced by MFIs in Rwanda. This qualitative study examines the possibilities for MFIs being more efficient by introducing m-banking. The case study was applied to Urwego Opportunity Bank (UOB), a Rwandan microfinance bank that had launched m-banking. The analysis focused on two major dimensions including transaction costs and loan defaults. Those dimensions were found restricting the Rwandan’s MFIs from achieving profitability and sustainability. The analysis results indicate that the adoption of m-banking could contributes towards efficiency in operation that allows for lowering the transaction costs and higher repayment rates in microfinance industry in Rwanda.

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