ZIMBABWE’S informal sector remains largely unbanked with only about 23,8% of players under the economic bracket with bank accounts, a new informal sector research done by the Bankers Association of Zimbabwe and the Zimbabwe Economic Policy Analysis and Research Unit says.
The report dated October 2014 attributes the low number of players with accounts to a negative attitude and difficulties associated with opening bank accounts in the country.
The survey also said informal sector traders currently generate more income compared to those in the formal sector employment.
“The average revenue for the informal sector players is about US$1 413, with the maximum being about US$24 000 per month, which is way above salaries for formal sector employees who get bank loans,” said the report.
Although the majority of the respondents do not have business bank accounts, about 44,6% of them have personal bank accounts while about 72,3% of those with personal bank accounts but without business bank accounts, use them for business purposes.
“The players pointed out the complicated procedures which take most of their time when trying to open bank accounts, including required documentation such as proof of residence, which is difficult to get. Business bank accounts are also difficult to open for unregistered businesses,” reads the report.
In terms of borrowing, the study said about 35,5% of the respondents have borrowed from friends, relatives, banks and microfinance institutions within the past four years. The main source of borrowing was microfinance institutions that accounted for 31,4%, while those who borrowed from other sources such as NGOs, government and producer associations constituted about 17,4%.
“The ability to borrow also appears to be related to the levels of income; even though borrowers constitute the minority at only 35,5% of the respondents. Their revenue as a percentage of the total revenue for all the respondents is about 51,7%. This could reflect that those who borrowed were able to enhance their sales potential.”
The research also indicated that about 27,3% of the respondents have applied for bank loans over the course of their businesses’ lifespan, while about the same number have also applied for loans from microfinance institutions.
Out of these applications, according to the survey, the success rate was about 51,5% for banks and 70,5% for microfinance institution, implying chances are high that informal sector businesses can get loans from microfinance institutions, while the probability of success for bank loans is about half.
Going forward, the study encouraged Zimbabwe’s banks to engage informal sector players by embracing the idea of fostering partnerships and clusters, where players pool their resources by bringing their capital and expertise together to make meaningful investment through the assistance of financial institutions.
This also allows the informal businesses to gain knowledge and improve their skills through knowledge transfer from their partners.
“It is important for banks to review their current know-your-customer (KYC) information and simplify information that is required for opening accounts to attract informal sector players into the banking fold,” reads the report.
“The success of electronic and mobile banking platforms (EcoCash, One wallet, TeleCash) in attracting the resources from the same customers that are considered risky by banks also point to the need by banks to review the KYC requirements so that they can access resources that are in the informal sector.”
The report said most informal sector traders in Zimbabwe claimed that banking services were time consuming and not easily accessible to them.
“It is therefore important that the banks come closer to the players rather than the players looking for the banks. There is need for the banks to be innovative by establishing branches close to the informal traders; introducing agent banking and leveraging on the cellphone capabilities to gather information on potential clients.”