Microfinance institutions inadequately capitalised
THE Reserve Bank of Zimbabwe says only two out of seven deposit-taking microfinance institutions (DTMFI) are compliant with the US$5 minimum capital requirement despite the sub-sector recording improved earnings during the period under review.
According to the latest Monetary Policy Statement (MPS) announced on Thursday, while earnings improved, under-capitalisation remains a source of worry.
Figures availed by the central bank show that aggregate core capital for the sub-sector rose to ZW$11.68 billion as at 31 December 2022 from ZW$9.94 billion as at 30 September 2022.
The MPS comes at a time the global economy is projected to record a slowdown as a result of tight monetary conditions as central banks fight inflation, declining investment, lagged effects of the Covid-19 pandemic, global supply chain disruptions and rising commodity prices emanating from the Russia-Ukraine conflict.
“The sub-sector has not been able to significantly grow its capital over the year with some of the DTMFIs posting losses since inception,” reads the MPS in part.
“The DTMFIs need to be adequately capitalised on an ongoing basis to capacitate the institutions to play a more critical role in fostering financial inclusion. In this regard, the Boards and shareholders should remain resolutely focused on implementing measures including viable strategic options that bolster the institutions’ capital levels.”
The sub-sector, the central bank says, recorded an improvement in aggregate earnings from ZW$29.49 million for the period ended 31 December 2021, to ZW$6.53 billion for the period ended 31 December 2022.
The earnings performance was, however, largely driven by revaluation gains on investment properties and foreign currency-denominated assets.
“Four (4) institutions namely African Century Limited, Getbucks Microfinance, Innbucks Microbank and Success Microfinance reported profits during the period ending 31 December 2022. This underscores the need for the institutions to review their business models and institute credible revenue enhancement measures to ensure institutional sustainability,” the central bank says.
“The total sub-sector loans of ZW$7.21 billion as at 31 December 2022 represent a 39.19% increase from ZW$5.18 billion as at 30 September 2022. Portfolio quality improved as evidenced by the decline in the Portfolio-at-Risk (PaR) ratio (>30 days) of 15.22%, down from 19.36% as at 30 September 2022. However, the ratio compares unfavourably with the international benchmark of 5%. It is, therefore, imperative for the institutions to strengthen their credit risk management practices and internal controls to improve the quality of their loan portfolios.”