ZIMBABWE’S microfinance institutions (MFIs) are now on survival mode and have adopted a raft of measures to keep afloat in a highly volatile economy that has made it difficult to do business.
A weakening economy and wage pressures resulting from high inflation are forcing many employed Zimbabweans to turn to the micro lenders. But the current high interest rate regime has in recent times slowed down borrowings.
Figures from the Reserve Bank of Zimbabwe show that most MFIs are making frantic efforts to boost their balance sheets after it emerged that the bulk credit-only entities have not yet met the US$5 million minimum capital threshold.
According to a Zimbabwe Association of Microfinance performance report for the first quarter of 2023, the period under review reflects an operating environment characterised by massive exchange rate instability which incidentally is fueling hyperinflation and the general loss of confidence among economic players.
“Among other effects, the situation is leading to challenges in product pricing, high delinquency levels and capital erosion. This is the same scenario which the sector experienced during the hyperinflationary period of 2006– 2008,” the report reads.
“The ever-increasing costs on all goods and services, now common in the country, call for a critical analysis on service delivery methods so as to ensure that MFIs plug out all unnecessary costs and leakages that pose a threat to the long term survival of the organisations. Investing in right technology can significantly reduce the cost of microfinance business leading to MFIs charging low interest rates to clients and remain competitive.
“High delinquency levels could be reduced through continuous rating of clients in terms of performance particularly on issues such as timely repayment of loans. Such performance ratings enable micro lenders to deal with good clients only while bad clients are blacklisted and denied access to new loans. Good clients could be graduated to access bigger loans under favourable repayment terms and conditions.”
The report also shows that the overall performance of the microfinance sector for the first quarter ending year ending 31 March 2023 generally reflects a sector that surprisingly has remained resilient in the face of challenges, chiefly among them, being instability of the exchange rates, resurgence in inflation and rising interest rates.
“Going forward, the tightening of monetary policy both locally and globally in countries such as the United States of America, European Union and South Africa, our major trading and investment partners, is going to negatively impact on our level of interest rates, sovereign debt levels and debt service capacity,” the report reads.