Mixed fortunes for Zim micro-finance sector

The micro-finance industry in Zimbabwe is coming of age, albeit at a slower pace than its peers in the region or internationally.

Report by Crispen Mawadza

This is mainly because of the “lost decade” of hyperinflation.

Nevertheless the sector is fast catching up with emerging trends across the world, particularly in terms of mobile telephony-based financial services.

Since the 1980s, the micro-finance industry has evolved from consisting mainly of savings co-operatives to fully-fledged private sector microfinance institutions (MFIs) regulated by the Reserve Bank of Zimbabwe (RBZ).

Despite this, the current state of the sector, though promising, is a far cry from ideal. One of its major challenges is that it is mainly composed of small-scale moneylenders and a handful of significant players.

Of the more than 170 registered MFIs, the majority are salary-based consumer lenders more interested in quick returns than on the long-term development of a sustainable micro and small enterprise sector.

The state of the micro-finance sector in Zimbabwe has lagged behind the region, in attracting more private institutional investments.

In other countries, investors like the International Finance Corporation (IFC) have injected money into investment grade MFIs.

In bigger economies such as India, Brazil, and Mexico, private investors have put in millions of dollars into institutions that now have bigger loan books than some commercial banks.

Most countries now allow MFIs to raise deposits from the market so as to finance loan books and underwrite more business. Zimbabwe is yet to reach this milestone although the possibility of having deposit-taking MFIs is now within reach given the proposed Zimbabwe Micro-finance Bill.

While Zimbabwe is yet to legislate for deposit-taking, Kenya is already pushing for a Micro-insurance Bill that will legislate microinsurance services as announced recently by its insurance watchdog, the Kenya Insurance Regulatory Authority (IRA).
Lack of loan capital has seen MFIs remain small; the few that are operating sometimes charge usurious interest rates to cover for their high cost of operations, some of which are caused by internal inefficiencies.

Lack of capital in the sector has resulted in a lag in innovation and harnessing of technology that would have meant a decline in operating costs, increased efficiency and better outreach.

Away from home territory, the MFI sector has become very sophisticated as other economies are climbing high up the innovation ladder. With the advent of technological innovations in financial inclusion, social performance monitoring and responsible lending, strong currents are sweeping across the industry.

Zimbabwe needs to catch up and expand microfinance services to excluded segments of society. The good thing is when Zimbabwe gets there, it will probably cope intelligently and come up with hybrid innovations, given the growth in money transfer services that is probably rivalled only by the M-Pesa of Kenya.

Zimbabwe is slowly catching up as seen by the recent launch of the Zimbabwe Micro-finance Wholesale Facility (ZMWF), which offers wholesale loans to MFIs for on-lending to micro and small enterprises (MSEs). The facility has got four lending windows, namely rescue capital, stabilisation capital, as well as growth and innovation capital loans through which eligible registered MFIs can borrow.

Apart from loan capital, the fund has small grants to build the capacity and expertise of MFIs in credit management, operational and financial management skills. The grants are given on a selective basis.

Other non-financial services offered by the fund are its Women Empowerment, Gender and HIV/Aids programme, which seeks to mainstream gender and HIV/Aids issues into micro-finance since poverty alleviation is not possible without empowerment of women.

There is need for a critical mass of investments to trigger credible thresholds in the microfinance sector. Examples from India give us a peek into what should be done. Indian microfinance institutions, such as MicroVentures India and India Financial Inclusion Fund (IFIF), are two examples of institutions dedicated to supporting the Indian microfinance industry.

IFIF, a US$90million off-shore Mauritius-based equity fund focused on high growth, small to medium MFIs.

Indian-based MicroVentures provides debt finance to promising MFIs to fuel their growth, expansion and outreach. Similarly, ZMWF seeks to recapitalise MFIs through their growth and consolidation phases. Zimbabwe needs intervention in shoring up the micro-finance sector, given the small scale and informal business sectors contribute almost 50% of the country’s GDP.

Though the sector has mixed fortunes, namely hampered access to capital on one hand and positive innovative prospects on the other, great times for the microfinance sector are ahead of us.

Legislation that will pave way for greater transformation of the sector should be passed urgently so as to increase and deepen outreach to more Zimbabweans. Without this, Zimbabwe’s microfinance sector will remain in the malaise so well articulated by Charles Dickens in A Tale of Two Cities: “It was the best of times, it was the worst of times … it was the spring of hope, it was the winter of despair’’.

Mawadza is a development finance practitioner. He can be reached on cmawadza2001@yahoo.com