Money lenders hit by defaults
MICROFINANCE Institutions (MFIs) are struggling to cope with the high number of loan delinquency and defaults by borrowers largely due to poor financial management practices being accelerated by a myriad of economic challenges prevailing in the country.
Zimbabwe Association of Microfinance Institutions (Zamfi) executive director Mr Godfrey Chitambo said MFIs were also being affected by a myriad of challenges affecting other sectors of the economy.
“MFIs just like other companies have been performing as best as they can, given the challenges such a cash shortages, low investment inflows into the country and high cost of doing business, among others,” said Mr Chitambo.
He said the high loan non-payment rate was also adversely affecting MFIs’ viability.
“The particular challenges for MFIs are clients over-indebtedness, information asymmetry and lack of collateral by borrowers. The RBZ (Reserve Bank of Zimbabwe) has however, introduced the Credit Registry as well as the Collateral Registry in a bid to reduce these challenges. Once these are well established these challenges will be minimised,” said Mr Chitambo.
He also said the high cost of doing business in the country has contributed to the poor performance compared to other countries in Africa.
“The industry also still faces high cost of doing business especially when they spread out to rural areas as the cost of outreach remains high despite the development in ICT (Information and Communications Technology).
“The sector still has a long way to go in order to catch up with MFIs in Africa and this will require continued support from private sector, public sector and the donor community in order to come up with models that are efficient and have impact,” said Mr Chitambo.
He said MFIs’ profitability especially for those offering services to financially excluded clients has remained largely subdued, owing to huge operation cost and lack of diversified income over the years.
“Improvements have been noted to those MFIs that provide financial services for those that are salaried or have regular income through the use of technology as these operations can be standardised around technology.
“However, for those MFIs that work with people who are financially excluded and mostly in rural Zimbabwe, the cost of reaching out to these clients remains prohibitive and there is need to continue to look at ways to reduce the cost of outreach,” said Mr Chitambo.
He, however, said there was a need for Government to introduce a new raft of investor favourable policies so as to turn around the economy, with the ripple effects likely to spur the performance of the sector.
“The industry is expected to improve once good policies are introduced by Government to steer the economy towards recovery of all sectors especially mining, agriculture, and tourism and infrastructure development after the elections. The RBZ been very supportive of the sector coming up with funding that MFIs can access in order to reach out to financially excluded individuals,” said Mr Chitambo.