Micro loans balloon

HARARE - Micro finance institutions’ loan disbursements grew to $170 million in March this year from $164 million in December 2013 despite exorbitant interest rates, reflecting Zimbabweans’ huge appetite for loans.

The lenders, charging between 20 and 30 percent interest per annum, provide short-term loans to hard pressed individuals as well as small and medium enterprises that fail to meet banks’ borrowing requirements.

Zimbabwe Association of Microfinance Institutions (Zamfi)’s newly-elected chairman, Patrick Mangwendeza, said the micro lenders’ interest rates were higher than banks’ “due to the nature of loans offered”.

“We deal with very small loans, but the numbers are huge. As such, the costs of managing small loans are very much higher compared to banks,” he said.

Mangwendeza noted that civil servants and women dominate micro lenders’ loan books, making up about 63 percent.

Industry experts say capacity utilisation at most microfinance institutions in the country have remained low despite the huge appetite for credit as a result of lack of financial muscle to parcel out to needy consumers.

According to a report by Daniel Makina, an associate professor at the University of South Africa in 2009, the sub-optimal performance of microfinance institutions and development finance institutions in the country was due to incompetent management, weak internal controls and poor corporate governance.

Mangwendeza also said the microfinance sector also continues to face funding constraints largely attributable to general liquidity constraints in the economy and limited availability of wholesale funds — a development that has caused significant reduction in the number of microfinance institutions that have remained operating viably since the adoption of the multi-currency system in 2009.

Latest Reserve Bank of Zimbabwe statistics show that 153 microfinance institutions were licensed by March this year but only 101 submitted returns, indicating a huge decline from at least 1 700 that were operational in the country in 2003.

“The sector has 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,” said the central bank in the report.

“The largest microfinance institution had a total loan book of $54,01 million and total assets of $52,20 million as at March 31, 2014.” Total assets were up 4,3 percent to $193,87 million as at March, the report also showed.

Last year, government gazetted a new Microfinance Act which provides for regulation and supervision of credit only and deposit-taking

microfinance institutions because of concerns that clients were being prejudiced by deposit taking institutions, some of which have been closed.

 

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