PIGGY has noted that there has been a proliferation of Micro Finance Institutions (MFIs) in Zimbabwe over the past years.
The mainstream banking sector has also been pushing out micro-loan products. The increase in the number of MFIs in Zimbabwe has generally been viewed as a drive to promote financial inclusion.
However, the subject of micro-financing can be complex, particularly within the context of developing countries.
Globally, we have seen how impact-investing and micro-financing has captured the world’s attention. In fact, microfinance has emerged from the periphery of finance, offering hope for financial inclusion and poverty alleviation in most emerging nations.
However, there has been a level of criticism on “whether micro-lending really helps the poor”. It should be highlighted that microfinance is a business. Many of those who lend money borrow it as well.
In some cases, loans offered may be expensive and short-term. The impact thereof could just be on basic household units and covering household expenses, such as groceries or just for consumptive purposes.
We also note that some neighbourhood moneylenders (mostly unregulated) typically charge exorbitant monthly interest of as high as 100%.
As a result, individuals and households that engage “loan sharks” may find themselves in a debt trap or financial black-hole whereby they remain in a vicious borrowing-cycle.
- Loan sharks or impact lenders?
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The question that always remains is, “Could microfinance be another capitalist tool used to peddle unaffordable debt services just for the financiers to increase their wealth?”
That said, the Government of Zimbabwe has come to appreciate the impact of microfinance and has been improving policing mechanisms. Financial exclusion in Zimbabwe presents significant opportunities for well managed MFIs, especially those that are on the fore-front of promoting access to financial services through the use of technology.
In Zimbabwe, many people (including informal businesses and SMEs) are still excluded from the financial sector.
Piggy believes that for maximum impact, more focus should be on small to medium sized businesses (SMEs).
According to Small Enterprise Impact Investing, Exploring the “Missing Middle” Beyond Microfinance by Symbiotics (Roland Dominicé and Julia Minici), more than 95% of registered businesses in the world are small.
Together, they constitute the largest employer in any given private-sector economy, whether of high, middle or low-income levels.
Generally, lower income countries tend to have a much higher concentration of micro-enterprises than SMEs, contrary to higher income countries which have many more SMEs than micro-enterprises — a gap referred to as the “missing middle” in the low-income SME markets.
The current growth they face will gradually bridge this gap. But ultimately, the pace at which they will grow will depend on the sources of financing they can access, and the quality of their growth will depend on regulation and behavioural standards that guide their expansion.
Despite the recognised importance of the SME sector, evidence indicates that SMEs continue to be undersupplied with the financial products and services that are critical to their growth.
The more obvious structural impediments that explain banks’ subdued interest in financing the SME sub-sector include:
Problems of information asymmetry,
High NPLs,
A lack of collateral,
High administrative costs, and
High risk perception.
However, mounting evidence suggests that some banks are finding effective solutions to constraints such as determining credit risk and lowering operating costs and are profitably serving the SME sector.
The potential profitability of serving SMEs has been enhanced by the development of new business models to engage small enterprises.
It is encouraging that some banks in Zimbabwe such as NMB, First Capital, CBZ and FBC are increasingly shifting their focus and strategy towards SME banking, an area which is expected to drive significant economic growth in the long-term.
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- Matsika is the managing partner at Mark & Associates Consulting Group and founder of piggybankadvisor.com. — +263 78 358 4745 or [email protected]/ [email protected]
