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Zimbabwe regulates microfinance business

THE passing of the Microfinance Act seeks to address irregularities in the sector as unscrupulous microfinance institutions (MFIs) continued to dupe the public of their money, the sector’s association has said.


The Act was gazetted on August 30 this year and provides for the registration, supervision and regulation of microfinance businesses in Zimbabwe, as well as amendments to the Moneylending and Rates of Interest Act and the Banking Act.

According to current acts on microfinance, it is illegal for an MFI to take deposits from members of the public, but high levels of financial illiteracy among the public have led to fertile ground emerging for the sprouting of crooked MFIs.

Zimbabwe Association of Microfinance Institutions (Zamfi) executive director Godfrey Chitambo told Standardbusiness that after the passing of the bill, only MFIs which would have been licensed accordingly would be able to take and intermediate deposits from the public.

“By virtue of taking deposits from the public, they will be able to attract funds at fairly cheaper rates and pass this on to the deserving portion of Small to Medium Enterprises,” said Chitambo.

A number of MFIs have earned a bad reputation as a result of the usurious interest rates that they charge on loans per month and the odious methods that they use to deal with defaulters.

The central bank plans to raise minimum capital requirements for microfinance institutions to US$5 million as part of a combination of measures aimed at protecting the public.

Chitambo said that the microfinance banks will be required to be capitalised to the tune of US$5 million because of the nature of their intended activities.

“Should there however be a move to capitalise deposit taking MFIs at US$5 million, the sector has no capacity for this magnitude of increase from the current US$10 000,” he said, adding that the RBZ however remained the sole authority on capitalisation levels which they may change from time to time.

At its peak period, during the 1990s, the sector had close to 1 800 MFIs but owing to challenges ranging from economic instability and inadequate capital, the sector witnessed a significant drop in numbers.

However, following the introduction of the multiple currency regime in 2009 and restoration of price stability in markets, Zamfi noted that the sector is currently on a growth trajectory.

According to Zamfi, the sector disbursed US$3,2 million in 2009, US$10,9 million in 2010, US$20,1 million in 2011 and US$30,7 million in 2012.


The performance of the microfinance sector, in terms of outreach, is largely driven by investments from equity and debt capital.

These sources of investments were negatively affected by negative economic developments prevailing in the country.

Without investments, it becomes difficult for MFIs to increase their lending activities.

“The subdued investment levels have also meant that coupled with the huge liquidity in the market, MFIs are forced to borrow from sources whose interest rates are slightly higher and this translates into higher interest rates to the borrowing public. This translates into unsustainable interest rates,” he said.

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