ZIMBABWE’S micro finance institutions say they risk collapse due to the “unreasonable” interest rates imposed by the central bank. Reserve Bank of Zimbabwe (RBZ) governor, John Mangudya, last year ordered MFIs to slash their lending rates to 10 percent from 20 percent as a way of promoting financial inclusion and fostering sustainable economic development.
However, Zimbabwe Association of Microfinance Institutions (ZAMFI)’s executive director, Godfrey Chitambo, said the central bank’s decision could result in most MFIs resorting to unscrupulous means of survival. “Operating within the 10 percent environment might have its challenges, but so far it’s working.
On whether it will promote financial inclusion or exclusion, we are not sure,” he told delegates attending the Zimbabwe Microfinance Workshop in Harare last week. “There’s now a lending shift since March this year from productive to consumptive. Maybe MFIs are responding to the RBZ directive, I am not sure. This might cause some institutions to go underground,” he said.
Statistics from the central bank show that consumptive loans grew from 27 percent during the six months to December 31, 2016 to 35,61 percent during the half year to June 30, 2017 out of the $229 million total loans given out by MFIs. Loans to the productive sector declined from a peak of 73 percent to 64,39 percent in the six month period.
The country’s MFI sector, which boasts of over 320 000 active clients, has a total of 187 licensed credit-only microfinance institutions and four deposit-taking microfinance institutions, with a branch network of 698, as at June 30, 2017. Chitambo noted that microfinance institutions are planning a meeting with the central bank to review the interest rate.
“We are soon going to bring all practitioners to hear their experiences under the 10 percent interest rate direction, before we lodge a complaint to the RBZ, to ascertain whether they are affording it or if they are not closing branches or reducing their staff to meet their expenses,” he said.
RBZ’s deputy director for bank supervision, Rachel Mushosho, said there was need for micro finance institutions to transform themselves in order to address the financial requirements of the growing economy. “For this economy to turn around, we need to re-focus on productive lending,” she said, adding that MFIs should start funding farmers in horticulture and value chain financing.
“Formal employment is going down and there’s need to focus on institutions such as small to medium enterprises that will drive our economy going forward. Our expectation as the central bank is that MFIs should channel at least 50 percent of their loans to the productive sector,” she said. Mushosho noted that MFIs must implement proper corporate governance structures and develop strategies to steer the institutions towards transformation.
“Our recommendation is that MFIs adopt adequate risk management systems and implement robust ICT systems and ride on technology to offer more diversified and innovative products,” she added. Speaking at the same occasion, RBZ chief bank examiner, Ruzayi Chiviri challenged MFIs to utilise the recently established Credit Registry that enhances credit information sharing, improve credit management and promote a responsible credit culture.
“Checking with the Credit Registry before granting a loan is compulsory, but the decision to lend remains the responsibility of the microfinance institution,” he said. Chiviri noted that the Credit Registry has so far loaded over 96 percent of banking sector loans, amounting to 370 000. “As at August 31, 2017, Credit Registry had 44 registered subscribers including 19 banking institutions, 23 microfinance institutions. Utilisation of the Credit Registry on an upward trend with cumulative utilisation at 39 614 reports as at September 2, 2017 up from 2 840 in May 2017,” he said. Data from the central bank, however, shows that MFI’s utilisation of the Credit Registry was very low at 4,61 percent while out of the 60 MFIs co-opted as subscribers, only 24 MFIs submitted names for registration. firstname.lastname@example.org