THE Zimbabwe Association of Microfinance Institutions (Zamfi) has elected a new board to spearhead the microfinance industry’s transformation, rebuild confidence and mend a damaged reputation. Our Senior Business Reporter Clive Mphambela (CMp) caught up with the incoming Chairman of Zamfi, Clive Msipha (CMs) who is CEO of Untu Micro Finance for an exclusive interview. Excerpts below:
CMp: Please tell our readers about new initiatives by the industry?
CMs: Firstly, there is a new board at Zamfi, appointed at the industry AGM held earlier this month. The other board members elected are Tamirira Rusheche who is MD of MicroKing finance, Kenneth Chitando, MD of Imali capital, Spiwe Gudza of the Women’s Development Savings and Credit Union, Omega Zanamwe of Finnesse Capital and independent lawyer, Beaulah Chizura.
As a board, we have identified capacity building of our members and advocacy around the MFI Bill, which is being enacted into law as key strategic initiatives. Zamfi will also embark on a membership drive. We intend to foster greater co-operation among members and facilitate credit referencing and the sharing of credit information, within the context of the law.
You will see a new Zamfi that will actively engage and increase dialogue with the major stakeholders in the industry who are the press, consumer groups, the regulator and donors.
CMp: There has been some media reports linking microfinance organisations to unsavoury lending practices, such as “usurious” interest rates and unethical debt collection practices. What is your comment?
CMs: Let me clarify the mandate of microfinance institutions (MFIs) first. MFIs are providers of financial services to middle and lower income sections of the market. They provide services targeted at micro-enterprises and small-to-medium enterprises (MSMEs). MFIs typically have a double bottom line objective of delivering profits and ensuring marked developmental impact. By providing credit to sections of the market that other market players are not willing to participate in, MFIs play an important role in national economies. Globally, MFIs’ interest rates are relatively high due to the high-cost nature of the business. The industry is labour-intensive, the cost of administering small loans is very high and the cost of funding is also elevated.
Agreed they have indeed been reports to this effect. We need to understand the industry’s background. There are a number of both licensed and unlicensed players operating in the industry. Zamfi represents licensed MFIs.
The reality is that lending capacity of most industry players was decimated post-dollarisation in 2009. A lot of MFIs face high-cost structures and with limited funding they are forced to charge high interest rates in order to cover their costs. This is really a manifestation of the liquidity challenges that affected the economy.
We appreciate the regulatory interventions that have taken place. The Reserve Bank of Zimbabwe has introduced the microfinance bank licence that allows qualifying MFIs to be licensed as Microfinance Banks to take deposits. This will address the funding challenges of MFIs and result in lower interest rates to customers.
Lastly, I think it is not accurate to say every MFI has been engaged in predatory lending. There are a number of players that still maintain their development focus, serve their clientele loyally and fairly and maintain high ethical standards.
CMp: What is your organisation doing about these reported issues? What actions are you taking against truant members who bring the association into disrepute?
CMs: As Zamfi we advocate for responsible lending and pricing by our members. We endorse the SMART Campaign and the Client Protection Principles (CPPs). These principles spell out the minimum protection microfinance clients should expect from providers. Zamfi wants to grow its membership base in the short term. We hope, with an expanded membership, we will be able to influence the behaviour of the industry.
Zamfi has also worked with a number of partners in order to put together an Apex fund that will allow MFIs to be capacitated. In the long run, we hope this will result in members charging lower interest rates.
Firstly, it is important to note that Zamfi members voluntarily join the organisation. We do have a code of conduct to which every member subscribes. Zamfi’s mandate is that of advocacy, capacity-building and self-regulation.
We do engage our members when we have reason to believe that they are not abiding by our code of conduct. Various levels of censures are applied to members, depending on the offences.
The organisation plans to develop the Zamfi brand into one associated with high ethical standards, and well-received by members of the public.
CMp: What sustainable practices are you advocating for your members?
CMs: We are advocating for the Client Protection Principles. The CPPs describe the minimum protection microfinance clients should expect from providers. These principles are distilled from the path-breaking work of providers, international networks and national microfinance associations to develop pro-consumer codes of conduct and practices. While the principles are universal, meaningful and effective, implementation will require careful attention to the diversity within the provider community and conditions in different markets and country contexts. Over the past years, consensus has emerged that providers of financial services to low-income clients should adhere to the following six core principles:
Avoidance of over-indebtedness. Providers will take reasonable steps to ensure that credit will be extended only to borrowers who have demonstrated an adequate ability to repay and loans will not put borrowers at significant risk of over-indebtedness. Similarly, providers will take adequate care that only appropriate non-credit financial products (such as insurance) are extended to clients.
Transparent and responsible pricing. The pricing, terms, and conditions of financial products (including interest charges, insurance premiums, all fees) will be transparent and will be adequately disclosed in a form understandable to clients. Responsible pricing means that pricing, terms, and conditions are set in a way that is both affordable to clients and sustainable for financial institutions.
Appropriate collections practices. Debt collection practices of providers will not be abusive or coercive.
Ethical staff behaviour
Staff of financial service providers will comply with high ethical standards in their interaction with microfinance clients and such providers will ensure that adequate safeguards are in place to detect and correct corruption or mistreatment of clients.
Mechanisms for redress of grievances. Providers will have in place timely and responsive mechanisms for complaints and problem resolution for their clients.
Privacy of client data
The privacy of individual client data will be respected in accordance with the laws and regulations of individual jurisdictions and such data cannot be used for other purposes without the express permission of the client (while recognising that providers of financial services can play an important role in helping clients achieve the benefits of establishing credit histories).
CMp: How are you dealing with issues surrounding the “taking of deposits” by some MFIs?
CMs: As Zamfi we do recognise that current legislation clearly doesn’t not allow members to take deposits. Any member engaging in any such activity is doing so illegally. Having recognised this, one can also see how this is a manifestation of the issues of a lack of funding that MFIs are facing. However, taking deposits is illegal. The Reserve Bank of Zimbabwe has recognised the funding issues and the development role that MFIs are supposed to play, and they have created specially-licensed entities, microfinance banks, to take deposits.
- Asset Management companies and pension funds have a significant role to play in funding the growth of the microfinance industry. In other emerging market countries, microfinance investments have carved a niche for themselves as significant alternative assets investments. They are also viewed as socially responsible investment due to the developmental impact MFIs have. Generally, microfinance investment performances are not correlated with the wider economy and as such they are a vital part of portfolio construction for the asset manager. In other countries asset managers and pension funds have funded the expansion of MFIs by buying their securitised loans.
CMp: What lobbying have you or are you doing to ensure that members follow regulations?
CMs: Zamfi has been working hard through advocacy and lobbying campaigns to ensure that the regulatory and supervisory environment is conducive for the operations of the sector. We successfully lobbied for the formation of a national task force which produced a draft microfinance policy which was subsequently announced as policy. As a follow up to the policy, a draft Microfinance Bill was drawn up and is awaiting final touches before it is ready for presentation to parliament. It is hoped that the promulgation of the Act, which is anticipated before end of 2012, will usher microfinance governed by a proper microfinance Act as opposed to the current scenario where MFIs and MLIs are both governed by the Moneylending and Rates of Interest Act Chapter 14.14 and excerpts of the Banking Act.
CMp: There are some “members “ who are reportedly conniving with employees at SSB to effect unauthorised deductions on civil servants salaries, what are you doing to curb this practice?
CMs: A consultative forum has been set with the SSB and this is meant to address all the major issues. Thisconsultative forum is meant to deal with these and other issues. This is a positive development and we believe this platform will allow for better interaction between the SSB and the industry.
Coming back to the question, we have heard reports of this, although this is not widespread.