Anxiety grips MFIs over unstable economy

Melody Chikono

MICRO-FINANCE institutions (MFIs) are likely to see an increase in loans uptake in 2020, although the unstable exchange rate and hyperinflation remain major headaches, as they expose investor funds to exchange loss.

In the past year, MFIs’ performance was positive in terms of profitability, although challenges related to portfolio quality were experienced by many small MFIs emanating from reduced disposable income among clients.

This meant incapacity to repay most of the loans. Zimbabwe Association of Micro-Finance Institutions (Zamfi) executive director Godfrey Chitambo on Wednesday told businessdigest that an increase in uptake of loans is likely, but shall however remain low when converted into foreign currency, due to deterioration in the currency.

“Ultimately at the end, companies may record low profits and in some cases losses due to exchange rates. 2019 should be remembered as a year when there were too many policy announcement shocks which negatively affected all sectors of the economy.

“We look forward with hope that government will find a lasting solution to these problems. We once had these problems in the past and the time-tested solution in 2009 was adoption of a multi-currency regime dominated by US dollars and rand,” he said.

Chitambo said most of the challenges that bedeviled the sector in 2019 are likely to continue negatively affecting the performance on the sector in 2020, especially cash shortages, unstable foreign exchange rate, hyperinflation and generally deteriorating economic conditions.

“As an association, we are strongly of the opinion that the monetary and exchange rate policies should be changed in a way that promotes and boosts all businesses in terms of performance and viability. The current policies might have failed to impact positively on the sector hence there is need to revisit them. While as an association we are absolutely apolitical, we believe that the major issue affecting the local currency apart from other issues is the lack of trust,” he said

“There is a merry-go-round happening in the economy and the country is back in 2008 mode when the ‘wolf was at the door’. The wolf fear must be exorcised by the authorities and then the country, economy and sector can settle down and start operating in normalcy. The country is gripped in a crisis of expectations of ‘something ought to happen’. Nobody knows what should happen and when.”

Chitambo however appreciated the Micro-finance Act amendment, saying the issuance of a perpetual licence to all MFIs is likely to attract long-term funding to the sector.

“However, a cause for concern remains with unstable exchange rate and hyperinflation, which will exposes investors’ funds to exchange losses and erosion of value over time.” he said.

For the better part of 2019, the sector was saddled with loan loss reserves, as the loan portfolio quality deteriorated, driven by an adverse macro-economic environment characterised by high inflation and sudden deterioration in income levels of most clients of micro-finance institutions.

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