BULAWAYO — Aggregate lending by the country’s microfinance institutions (MFIs), which have played a pivotal role in financial inclusion, shrunk by eight percent last year, statistics from the Reserve Bank of Zimbabwe (RBZ) indicate.Critics blamed the shrinkage on the liquidity crunch in the economy as well as exorbitant interest rates charged by the institutions on borrowings.
The microfinance sector plays a vital role in enhancing financial inclusion through the provision of appropriate financial services and capacity building, particularly among the low income groups. MFIs reach remote and outlying areas that have not been adequately served by banking institutions as part of broader financial inclusion initiatives.
There were 482 MFI branches serving 220 357 clients with 252,565 loan accounts throughout the country as at September 30, 2014, according to central bank figures.
Despite this, MFIs have come under criticism, with entrepreneurs accusing the money lenders of impoverishing them through their interest rates which are higher compared to those charged by conventional banks.
“The microfinance institutions’ performance as measured by aggregate lending has largely remained subdued due to inadequate funding,” said the RBZ governor John Mangudya in his monetary policy statement presented last week.
“The sector’s total loans amounted to US$151,8 million as at 30 September 2014 down from US$164,2 million as at 31 December 2013.”
The central bank chief said portfolio quality as measured by the Portfolio at Risk (PaR) (30 days) however improved from 21,6 percent as at September 30, 2013 to 12,1 percent as at September 30, 2014. Mangudya said: “The noted improvement in the PaR is attributable to enhanced credit risk management systems in the sector. In addition, some MFIs are increasingly making use of credit checks.”
The RBZ governor however bemoaned the fact that the microfinance sector’s aggregate loan portfolio remained skewed towards consumption at the expense of productive sector funding.Head of research at Econometer Global Capital, Takunda Mugaga, said the decline in MFIs lending was an indication of a downward turn in the economy which had been exacerbated by continued company closures.
“Remember the greater part of lending by the MFIs has been biased towards salary-based lending,” said Mugaga.
He said the interest rate charges of above 20 percent per month were also discouraging borrowers.
“There is a need to strengthen the framework of the regulation of MFIs as some of them have been accused of taking deposits,” said Mugaga.
Stevenson Dlamini, an economist with the National University of Science and Technology’s Department of Banking and Investment Management, said interest rates charged by MFIs’ were “exorbitant” and the economy had come to a point where most people could hardly afford their loans. “The other thing is that people are now rational in terms of their valuation of the US dollar and their appetite for borrowing is therefore now less,” said Dlamini.
He added that: “No one is willing to take debt anymore because of uncertainties around salaries and shifting of pay days.”
“I know of some MFIs which are demanding daily repayments and that is unorthodox,” said Dlamini.
Zimbabwe Association of Microfinance Institutions (ZAMFI) executive director, Godfrey Chitambo, said the shrinkage in business among member institutions was caused by the liquidity crisis in the economy, which had limited their source of funding. He acknowledged that their interest rates, which he said ranged between 2,2 percent to 22 percent per month, were high but said they were looking at bringing them down.
Chitambo said they had since tried to move from consumptive to productive lending although the economic challenges still beset them with debtors struggling to repay.
“We are very accountable and anybody who sees us flouting laws and regulations has the right to come to talk to us or the Reserve Bank itself,” said Chitambo.
During the period under review, consumption lending which largely comprises salary based loans constituted 54,2 percent of total loans as at September 30, 2014.
“The Reserve Bank has been working with the sector’s key stakeholders to promote productive lending,” revealed the RBZ governor.
“The efforts have started bearing positive fruits as witnessed by the increase in the proportion of productive lending from 29,1 percent as at 31 December 2013 to 45,6 percent of total loans as at 30 September 2014.
The central bank however says it is concerned with skills and capacity of microfinance institutions which remain weak.
“The Reserve Bank is working with microfinance stakeholders towards the establishment of capacity building programmes tailored for the microfinance industry,” explained Mangudya. “These efforts should result in the introduction of certification, diploma and degree programmes in microfinance in the very short-term.”