Microfinance sector on recovery path

THE quality of the loan portfolio for the microfinance sector is now on the rebound as it is gradually improving since the advent of the Covid-19 pandemic, reflected by a decline in Portfolio at Risk ratio from 19,5% as at June 30, 2020, to 15,36% as at September 30, 2020.

This is largely attributed to the resumption of normal business and reduced business risk due to price and exchange rate stability which has been achieved during the quarterly period.

In a Q3 update, Zimbabwe Association of Micro-Finance Institutions ( Zamfi) said the introduction of the foreign exchange auction in June 2020 has been credited with the achievement of exchange rate stability which, according to monetary authorities, was fueling inflation and the general instability of prices across thecountry before June 2020.

“According to the latest official government reports, the exchange rate has since stabilised around US$1: ZWL$81 from the month of July to November 2020. This has tremendously worked to restore the local currency with its normal and expected functional roles such as the medium of exchange, unit of account and store of value.

The restoration of the fundamental roles of money are critical for the resumption of significant and real lending in local currency to individual and business by the microfinance institution, including the banks.” Zamfi said.

During the period, the majority of small-and-medium-sized MFIs continued to declare profits while some of the large MFIs have reported losses, chiefly emanating from high operational costs against low income revenues.

Overally, the sector reported total financial income amounting to ZWL$442,7 million (US$5,4 million) against operational expenses of ZWL$311,2 million (US$3,75 million) as at September 30, 2020, leading to a net profit of ZWL$131,5 million ( US$1,58 million) and Operation Self Sufficiency ratio of 142,2%.

This was an significant increase in comparison to net profit of ZWL$94,5 million (US$1,1 million) reported as at June 30, 2020.

On the other hand, loans by credit-only microfinance institutions to sectors of the economy which include agriculture constituted 64% of total loans as at September 30, 2020.

“The general results for the current quarter ending September 30 reflect a sector which is gradually coming out of economic challenges with renewed optimism and hope for the future.

Outstanding loans amounted to ZWL$651,1 million (US$7,8 million) up from ZWL$565,7 million (US$8,8 million) reported in June 2020, an increase by ZWL$85,4 million (US$1,03 million) (15,1%).

This increase could be attributed to resumption of business by the majority of MFI clients especially in areas that had been severely affected by lockdown rules.” Zamfi said. — Staff Writer.