Reprieve for microfinance institutions

HARARE - Microfinance Institutions (MFIs) will soon be allowed to renew their operating licenses once in every three years as the country moves towards financial inclusion, businessdaily has established.

This compares favourably with the current annual license registration.

“The government has begun to amend the Microfinance Act to address its shortcomings, by among other things, providing for perpetual licenses for deposit-taking MFIs, extending the tenure of the license for the credit-only microfinance institutions . . .” Finance minister Patrick Chinamasa said on Tuesday.

The Treasury chief also said government was moving to establish clarity with regards to different classes of MFIs, pointing out that the sector — traditionally known to have exorbitant interest rates — needed investment in order to offer “reasonable rates.”

“I have always said this about financial institutions; the charges are just too high. With MFIs it mostly has to do with the fact that investment in the sector is just too low so companies end up passing their costs to clients.

“Then there is the banking sector, the charging there is just unethical! At the end of the day they are imposing a penalty for people banking money with them and this discourages saving . . . However, government is working to address this,” he added.

Chinamasa noted that most MFIs had to expand their portfolios to cater for women and youths.

“...Financial institutions should increase lending to women which at the moment constitutes less than 10 percent of total banking sector loans and advances as at June 30, 2016. Credit to the youth is practically non-existent.

“Currently, Zimbabwe seeks to unlock economic opportunities, especially for the women and youths by expanding access to savings, credit, insurance, capital markets and payment systems,” he said.

Zimbabwe’s MFI sector —which is on a growth path after its loan book jumped 13 percent to $225,13 million in the half year to June 2016 — has seen more players applying for licensing with disposable incomes shrinking as Zimbabwean turn to borrowing to make ends meet.

The MFIs — which traditionally target low income households and micro, small and medium enterprises (bottom of the pyramid) — recorded an increase in licensed players in 2016, with the central bank licensing four additional MFIs in the quarter June 2016, bringing the number of MFIs licensed in the first half to 12.

Chinamasa however cautioned MFIs to strictly vet their clients as the sector’s portfolio risk — at 10,72 percent for the year ended December 2015 — remains above the prudential regional benchmark of five percent.

“In my constituency I know the people who need loans, but somehow they never get credit. MFIs grant their monies to crooks who know how to write business plans . . . This is an emotional matter to me, because the honest people never get credit,” he said.

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