Microfinanciers shun small enterprises

Published: 03 July 2014

LENDING by microfinance institutions (MFIs) has remained skewed towards consumptive lending at the expense of supporting small and medium enterprises that are critical to economic development, the Reserve Bank of Zimbabwe has said.

In a quarterly report ending March 31, 2014, the central bank indicated that of the $170 million total loans disbursed by MFIs about $121.08 million went to consumptive lending while $48.92 million was for productive lending.

"The lending activities of the majority of the operating MFIs are skewed towards salary-based loans for consumption purposes at the expense of support to micro, small and medium enterprises."

As of December 31, 2013, the microfinance sector disbursed a total of $164.20 million with $116.40 million going towards consumptive purposes while $47.80 million was for productive lending.

RBZ said delinquency levels in the microfinance sector had remained high as reflected by the level of Portfolio at Risk (PaR > 30) ratio of 27.14 percent during the period under review.

The high PaR ratio was largely attributed to multiple borrowings on the background of high interest rates.

By the end of the first quarter, there were 153 registered MFIs under the supervision of the central bank.

"During the quarter, four new microfinance licences were issued and 27 microfinance institutions renewed their licences," RBZ said.

It said MFIs continued to be concentrated in urban centres although some of them have opened offices and branches in rural and peri-urban centres such as Gokwe, Matobo, Beitbridge, Rusape and Checheche.

The number of licensed MFIs grew from 213 in 2005 to 309 in 2007.

In 2008, the number of operating MFIs plunged to near zero as the hyperinflation decimated the institutions' balance sheets.

However, following the adoption of a multicurrency system in February 2009, the number of operating MFIs has gradually increased.

The monetary authorities said the microfinance sector had remained largely dominated by 10 microfinance institutions which controlled 83.76 percent of the market share in terms of total loans as at March 31, 2014.

"The largest microfinance institution had a total loan book of $54.01 million and total assets of $52.20 million. The microfinance sector continues to face funding constraints largely attributable to general liquidity constraints in the economy and limited availability of wholesale funds.

"High interest rates charged by the MFIs have precipitated a high level of indebtedness among the microfinance clients which has the undesirable effect of negating the financial inclusion objective of microfinance," said the central bank.
- chronicle