RBZ caps MFIs lend­ing rates

Chronicle (Zimbabwe) - - Business Chronicle - Oliver Kazunga Se­nior Busi­ness Re­porter

THE Re­serve Bank of Zim­babwe (RBZ) has di­rected mi­cro­fi­nance in­sti­tu­tions to re­duce their lend­ing rates to a max­i­mum of 10 per­cent with ef­fect from Oc­to­ber 1, 2016.

RBZ Gov­er­nor Dr John Man­gudya said mi­cro­fi­nance in­sti­tu­tions (MFIs) have been iden­ti­fied as an im­por­tant pil­lar of the Na­tional Fi­nan­cial In­clu­sion Strat­egy hence the sec­tor was ex­pected to re­duce lend­ing rates to fos­ter sus­tain­able eco­nomic de­vel­op­ment.

“The Re­serve Bank has noted with con­cern that while banks’ lend­ing rates have de­clined to an av­er­age of 15 per­cent per an­num, some mi­cro­fi­nance in­sti­tu­tions con­tinue to charge in­ter­est rates of over 20 per­cent per month.

“Ac­cord­ingly, all mi­cro­fi­nance in­sti­tu­tions are urged to re­duce their ef­fec­tive lend­ing rates to a max­i­mum of 10 per­cent per month ef­fec­tive, 1 Oc­to­ber 2016,” he said while pre­sent­ing the Mid-Term Mone­tary Pol­icy State­ment last Thurs­day.

Dr Man­gudya said the high costs of tra­di­tional MFIs loans limit the ef­fec­tive­ness of mi­cro­fi­nance as a de­vel­op­men­tal and poverty-re­duc­tion tool.

“The high cost of mi­cro­fi­nance loans is partly a re­flec­tion of the high cost of funds and the high trans­ac­tion cost of tra­di­tional mi­cro­fi­nance oper­a­tions as­so­ci­ated with high vol­umes of small, low-value loans,” said Dr Man­gudya.

He said fu­ture ad­just­ments would need to be in tan­dem with the im­prove­ment on the ten­ure of the oper­at­ing li­cences of MFIs, which are re­newed an­nu­ally.

There are about 164 reg­is­tered MFIs in the coun­try.

The sec­tor by na­ture tar­gets to erad­i­cate poverty and pro­mote eco­nomic de­vel­op­ment among low-in­come house­holds and mi­cro, small and medium en­ter­prises.

How­ever, due to high in­ter­est rates by MFIs, the sec­tor has in the past been char­ac­terised by a high de­fault­ing rate re­sult­ing in some bor­row­ers los­ing prop­erty they would have listed as col­lat­eral upon bor­row­ing.

The Zim­babwe As­so­ci­a­tion of Mi­cro­fi­nance In­sti­tu­tions chair­man, Mr Pa­trick Mang­wen­deza, had not re­sponded to writ­ten ques­tions from this pa­per by the time of go­ing to print.

Dr Man­gudya also hinted that the cen­tral bank was pro­ceed­ing to put in place mech­a­nisms to es­tab­lish an off­shore fi­nan­cial cen­tre as a con­fi­dence build­ing mea­sure un­der the aus­pices of the Spe­cial Eco­nomic Zones (SEZs).

“De­tails of this ini­tia­tive shall be un­veiled in line with de­vel­op­ments on the es­tab­lish­ment of the Spe­cial Eco­nomic Zones in the coun­try,” he said.

SEZs are des­ig­nated geo­graph­i­cal re­gions that op­er­ate un­der spe­cial eco­nomic reg­u­la­tions that are dif­fer­ent from other ar­eas in the coun­try.

The con­cept is meant to of­fer spe­cial con­di­tions and in­cen­tives to en­hance in­ter­na­tional com­pet­i­tive­ness as well as pro­mot­ing in­dus­trial growth and de­vel­op­ment.

The ini­tia­tive to in­tro­duce SEZs in the coun­try has been on the cards for about three years with the SEZs Bill hav­ing so far gone through sec­ond read­ing in Par­lia­ment. — @okazunga

Re­serve Bank of Zim­babwe

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