Profitability of Zimbabwe’s microfinance institutions (MFIs) has remained largely subdued over the years, owing to huge operational costs and lack of diversified income streams, the central bank has said.
By Taurai Mangudhla
The majority of MFIs are still relying on salary-based income on the backdrop of high operational costs, Reserve Bank of Zimbabwe (rbz) supervision deputy director Racheal Mushosho told an MFI winter school for chief executives in Kariba recently.
“The product offering by the sector has remained limited and largely dominated by micro loans, which constitute a significant portion of the microfinance institutions’ balance sheets. Financial inclusion for sustainable economic growth requires that the poor and low income earners have access to a wider array of micro-financial services, including micro-housing, micro-leasing and micro-insurance, among others,” said Mushosho.
Mushosho said the sector had registered a total of 176 licensed credit-only microfinance institutions and four deposit-taking microfinance institutions, with a branch network of 642, as at March 31 2017.
“The total number of active clients for period ended March 31 2017 was 247,707, against 23% of the Zimbabwean population that are financially excluded,” Mushosho said.
Zimbabwe’s population is estimated around 14 million. She said given the potential impact and catalytic role that microfinance plays among the low-income and marginalised groups in poverty alleviation and improved income, at individual, household and enterprise level, the static trend in the number of active clients for the sector over the year is disturbing.
“The sector has not been able to go beyond 300 000 active clients in the last two to three years,” Mushosho said.
According to the RBZ statistics, the sector is largely dominated by the top 20 microfinance institutions which account for 84,92% of the total sector loans of US$215,21 million, with the rest of the institutions accounting for only 15% of the total market share.
The majority of the microfinance institutions have loan portfolios of less than US$1 million. “In the majority of cases, the loan book sizes have remained static over the year, pointing to stunted growth in terms of loan size and number of active clients,” Mushosho said.
The central bank said loans to the productive sector of US$143,65 million as at March 31 2017, representing 66,75% of the sector’s total loans of US$25,21 million, was largely driven by strategic decisions by some MFIs to focus on agricultural value-chain financing, as well as support from some developmental partners such as the Zimbabwe Agricultural Development Trust and the UN Food and Agriculture Organisation, Zimbabwe Microfinance Fund.
The shift towards the productive sector, said the RBZ, is also a response by some microfinance institutions to the central bank’s call for microfinance institutions to focus more on productive lending in order to stimulate growth and development among the marginalised.
“While productive sector lending has been on the upward trend, the quantum is still insignificant compared to the demand for such loans,” Mushosho said.
“The sector registered a slight deterioration in the quality of the loan book as measured by the Portfolio at Risk (PaR) ratio which deteriorated over the quarter from to 8,34% as at December 31 2016, to 12,35% as at March 31 2017, against the international benchmark of 5%,” added Mushosho.
According to the World Bank’s 2016 research, about 10,7% of the global population or 767 million people, live below the international poverty line of US$1,90 per person per day.
In Zimbabwe more than 70% of the population is considered extremely poor and living below the food poverty line of US$32,70 per month.
As such, the microfinance sector in Zimbabwe is seen as potentially a powerful multi-faceted approach to sustainable development and growth, in line with the National Financial Inclusion Strategy.
Mushosho said the microfinance sector is expected to promote access to credit in a sustainable manner and break the cycle of poverty, design lending strategies which target vulnerable groups such as women and SMEs with viable projects in order to promote sustainable development, as well as become an economic inclusion tool by lending to projects with high impact and which can create employment opportunities.
Currently, Zimbabwe is working on a number of initiatives to support MFIs including establishment of a credit registry.
The newly-deployed credit reference system will reduce the problem of information asymmetry between borrowers and lenders. Vetting of borrowers prior to approval is mandatory.
The National Financial Inclusion Strategy (NFIS), anchored on four pillars of innovation, financial literacy, financial consumer protection and microfinance, is already in place. The RBZ has established the Credit Guarantee Scheme to facilitate the partial transfer of credit risk stemming from loans with inadequate collateral.
A collateral registry is expected to be compiled to facilitate the use of movable assets as collateral substitutes for credit which is expected to benefit the marginalised who do not have collateral.
Establishment of a collateral registry is expected to enhance access to microfinance services by the low-income groups using movable property as collateral.
The central bank is also establishing a US$15 million Business Linkage Facility for financing value chain linkages for farmers to manufacturing entities to enhance value addition.
The RBZ is currently developing a Financial Consumer Protection Framework to enhance public confidence in the financial system, including the MFI sector, as they access financial services. A National Financial Literacy Framework to facilitate awareness of financial service and responsible access is also being developed.