Old Mutual Zim to tap informal sector
OLD Mutual Zimbabwe has shrugged off worries about Zimbabwe’s sluggish economic growth and has its eye on making inroads in the informal sector.
The integrated financial services provider, 75% owned by Old Mutual plc, is set to launch a microfinance business next month aimed mainly at the growing informal sector.
Old Mutual Zimbabwe, through subsidiary Central African Building Society, already offers various banking services and its unit is the largest mortgage lender in the country.
The building society posted a net profit of $39.2-million (about R515-million) in the year to December 2016, up 38% from the year before. Group profit was $91.8-million.
For financial services companies, the informal sector represents an untapped sweet spot.
Old Mutual Zimbabwe CEO Jonas Mushosho said its microfinance business would make funding affordable.
“Our staff who spent time attached to Faulu Microfinance Bank in Kenya, which is part of the Old Mutual Group, are back and are spearheading the establishment of the microfinance business,” Mushosho said recently at a briefing for analysts in Harare.
“We will be charging interest of about 5% per month and this is part of our efforts to advance financial inclusion.”
Takudzwa Mafongoya, a business intelligence expert in Harare, said microfinance operators in Zimbabwe had an advantage over their established rivals in the formal banking system as they were less stringent in upfront requirements for credit, a big attraction for informal sector players.
“Unlike banks, the microfinance operators are not stringent on security documents. The relationship and surety of the informal business is usually enough security,” he said.
According to Stern Zvorwadza, president of the Zimbabwe National Vendors’ Union, the union has on its books about 5.7 million registered vendors.
Independent estimates put the unemployment rate in Zimbabwe at 90% and official figures issued by the Zimbabwe Statistics Agency put it at about 11%.
Company closures, retrenchments and the high cost of doing business in Zimbabwe are some of the factors that have chipped away at the formal job market — forcing millions to enter the informal sector.
Zvorwadza said the informal sector was responsible for more than $7-billion in transactions a year versus Zimbabwe’s annual budget of $3.8-billion.
Old Mutual Zimbabwe chairman Johannes Gawaxab said the Reserve Bank of Zimbabwe gave its credit-only microfinance business an operating licence in January. According to the bank there were 153 licensed credit-only microfinance institutions on December 31 2016.
Gawaxab said: “This business will be key in driving the financial inclusion of previously economically marginalised groups, which is a key component of Old Mutual’s strategy.”
A FinScope survey conducted in 2012 and a FinScope consumer survey in 2014 found that 23% of Zimbabwe’s adult population was financially excluded. Only 30% of the adult population made use of banking services in 2014. Only 14% of micro, small and mediumsized enterprise owners used bank accounts and only 1% of the adult population made use of capital market services.