MFIs adjust as cash shortages persist

MICROFINANCE institutions (MFIs), the bulk of which provide money to individuals and small to medium scale enterprises, are switching from cash to plastic money as cash shortages persist.

However, companies operating in remote areas are facing resistance as customers insist on cash payouts.

Zimbabwe Association of Microfinance Institutions (ZAMFI) executive director Mr Godfrey Chitambo told The Sunday Mail Business last week that MFIs are now resorting to cashless systems of disbursing loans to customers.

MFIs have so far disbursed more than US$187 million in the year to March 31, 2016.

“Though the sector has not been spared from the current cash shortage, the players have responded well to a shift towards alternative electronic payment systems such as RTGS, Paynet, use of point of sale (POS) machines and mobile platforms such as Ecocash.“This shift has not come as a surprise to many members since the international trend had long shifted in many countries . . . but some of our members serving in remote areas like Binga, Mahenye are still finding this as a challenge as their clients were used to receiving credit in cash,” said Mr Chitambo. MFIs, which provide credit for income generating projects and consumption, have largely been financially supported by the Zimbabwe Agriculture Development Trust (ZADT).ZADT, through the Credit for Agricultural Trade and Expansion (CREATE) that was set up in 2012, provides general working capital and capital expenditure loans.Usually, the tenure of working capital loans is up to 12 months, while capital expenditure loans have a repayment period of up to 36 months.

CREATE mainly benefits smallholder farmers.Overall, the Zimbabwe Microfinance Fund (ZMF) has helped in improving funding for MFIs.ZMF disburses a minimum of US$50 000 and repayments are monthly, quarterly, bi-annually, annually or balloon payments. There is a grace period of three to six months depending on the project.Mr Chitambo claims that delays in salary payments especially for civil servants are also negatively affecting the institution.The credit registry will allow banks and MFIs to assess the creditworthiness of a borrower before approving a loan.MFIs, just like banks, have been plagued by high default rates as borrowers reel under economic challenges and a general culture of non-payment of obligations by citizens.“Due to other misfortunes, the clients of our members are finding the going tough and some are unable to pay back loans. Without A1 security like properties or at some level without security at all, our members can find collecting (loans) a nightmare,” said Mr Chitambo.Despite having 164 players, only 20 MFIs cover 88 percent of the market share.

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