Microfinance institutions (MFI) play a key role in providing financial services to the unbanked population of Zimbabwe. Zimbabwe has a fairly vibrant MFI sector and Parliament is currently tasked with amending laws that govern the sector.
Our reporter, Fidelity Mhlanga, spoke to Zimbabwe Association of Microfinance Institutions (ZAMFI) chairperson Virginia Sibanda to get more insights on the sector.
FM: Can you tell us your focus for this year?
VS: As you may be aware, microfinance is part of the pillars for financial inclusion, which is an effort towards providing financial services to financially excluded people in our country, including women and youths. In addition, microfinance is the main player in supporting income-generating projects for both individuals and small business.
For the greater part of this year so far, we have largely focused our work on lobbying and advocacy for the issues that matter to our members. Firstly, the Microfinance Act is now due for comprehensive amendments, which seek to align it with international trends and developments. Parliament is currently seized with the matter. We are happy and excited about the progress so far. Next is the 2% money transfer tax. We have since submitted our paper to the Ministry of Finance, seeking an exemption from the tax on all transactions by MFIs with respect to loan disbursements as well as repayments by clients to MFIs. This will go a long way in restoring commercial viability, sustainability as well as investment attractiveness of the sector.
FM: How do you intend to deal with the problems affecting MFIs?
VS: We are of the opinion that there is no problem without a solution. Therefore, as the mother body, we are constantly in touch with our members, on challenges which may range from operational, funding, quality of loans and liquidity issues.
FM: What measures are you putting in place to improve women’s access to finance?
VS: A fully-fledged bank, Zimbabwe Women Microfinance, is now in place through government efforts to improve women access to finance. We are happy with this bold support by government. MFIs, however, in their individual capacity still provide products for women loans and investments.
FM: Why is the sector continuously being dominated by the top five credit-only microfinance institutions in terms of credit outreach?
VS: Being in the top five is a function of capital and lending capacity of the respective institutions. Such levels are somehow still low for many MFIs in Zimbabwe, hence the dominance by a few. It’s a matter of concern to us as it affects the level of competition in the market.
FM: Are there any measures being put in place to ensure that credit outreach is shared equally among all players?
VS: As the country opens to international capital, things will definitely change as big players from outside will be attracted to our market. We are in support of such efforts by government.
FM: The recent Zamfi report showed that the institutional cost of delivering loan services by MFIs as measured by the operating expenses ratio (efficiency ratio) has significantly gone up due to the 2% money transfer tax. Are you engaging authorities over this matter?
VS: Yes, we have since submitted a paper to the Ministry of Finance, seeking a relook at the issue as it is affecting the commercial viability of the sector.
FM: According to the same report, MFIs are disbursing forex to some borrowers. What is the cost of sourcing and lending these loans?
VS: Not many MFIs are doing so at the moment due to lack of foreign currency even from the interbank market. We hope as things stabilise, some MFIs will be able to source forex for their clients locally.
FM: MFIs have been blamed for having usurious charges on loans. Do MFIs have a standard interest rate?
VS: Under the multicurrency regime, dominated largely by the US$, the standard interest for a US dollar-denominated loan was not more than 10% per month. Now things have changed since the introduction of the local currency RTGS$. It may not make economic sense to expect MFIs to charge interest rates of less than 10% per month as was the case under the US dollar-denominated loan. We are glad that even the monetary authorities have noted this matter and are currently working on revisiting the interest regulation. MFIs just like any businesses like retail shops are in the business of providing products and services, which should be priced accordingly in line with current economic fundamentals such as inflation and cost of funds.
FM: What plans are in place to transform the sector?
VS: A lot is being done to transform the sector especially at institutional level. Zamfi is proving world-class training to MFIs in partnership with local universities for MFIs to improve on efficiency and sustainability. The regulator, RBZ (Reserve Bank of Zimbabwe), is constantly coming up with innovative strategies such as the credit reference system and collateral system to help improve quality of loans. The Zamfi Winter Schools for microfinance CEOs are now an annual event to transform the minds of leaders running MFIs.