Published: 19 October 2017

MICRO Finance Institutions (MFIs) in Manicaland have registered a reduction in the rate of non-performing loans due to tighter lending methods implemented by the sector following the reduction of interest rates by the Reserve Bank of Zimbabwe last year.

 The Central Bank directed MFIs to reduce their lending rates to a maximum of 10 percent with effect from October 1, 2016 after realising that high costs of traditional MFI loans were limiting their effectiveness as developmental and poverty-reduction tools.

Speaking on the sidelines of a consultative meeting on the Collateral registry and operation of the credit registry in Mutare last week, Zimbabwe Association of Micro finance Institutions executive director, Mr Godfrey Chitambo said as of June this year, non-performing loans in the sector had declined by five percent to nine percent from 14 percent.

"Since the Central Bank came up with the rate of 10 percent interest rate for MFIs, we have also tried to make sure that we don't lose much money, so we are using stricter and tighter lending methods to our clients. In our case, we do not have something like the Zimbabwe Asset Management Corporation (Zamco) where we can park our non-performing loans. For us, if our money is gone, we cannot get it back, so we have to make sure that we collect it all," he said.

The sector targets to eradicate poverty and promote economic development among low-income households, as well as micro, small and medium enterprises. Due to high interest rates charged by MFIs, the sector has in the past been characterised by a high default rate, resulting in some borrowers losing property they would have put up as collateral. Mr Chitambo said 70 percent of the money circulating in the micro finance sector was privately sourced, making it important to avoid non-performing loans. He said the inclusion of MFIs in the Amended Banking Act helped legalise their operations, which had seen more players getting funds from external donors for on-lending to their clients.

"We take note that our interest rates have not been the best, but they have been a function of a lot of things including the dynamics of the economy," Mr Chitambo said.He said while the Wholesale Fund and the Empowerment Fund had provided some MFIs with cheaper money, there were still challenges that needed to be addressed for them to access even more cheaper money externally.

"The issue with our law is that our tenure of license is one year, which is causing some reservations in some of the donors. This is why we are asking the Ministry of Finance to consider giving us a three-year licence to help grow the donor's appetite to put money in the MFIs in Zimbabwe," said Mr Chitambo.
- zimpapers

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