Can microfinance change lives of low-income rural households in Zimbabwe?

Nixon Chekenya

“Microcredit has shown how you can reach out to people that conventional banking cannot. It has demonstrated that it’s a doable proposition.” – Muhammad Yunus 

In 2021, Sub-Saharan Africa’s population had reached 1,1 billion.

About 600 million of these people (55 percent) live in rural areas.

At least 66 percent of the total Sub-Saharan Africa population currently has no access to credit or brick-and-mortar and banking, making the continent a largely unbanked region (AfDB, 2022; World Bank, 2022).

In 2021, Zimbabwe had 16 million people and about 10,2 million of these people lived in Zimbabwe’s rural areas, with 75 percent falling into the low-income group (World Bank, 2021).

Forty percent of the entire Zimbabwean population currently has no access to credit or banking services (FinMark, 2021; ZimStat, 2022).

These numbers are very similar in most African countries.

This may sound fictitious but it’s true.

It is a sad account of the current situation among the bottom of the pyramid.

There is need for action and something must be done.

Microfinance institutions (MFIs) can help low-income households start and expand businesses in places most banks shun, like the slums of Calcutta, the impoverished hills in Mexico and the muddy fields of Rota village.

The efforts of MFIs are widely considered successful in transforming lives of people at the bottom of the pyramid in developing countries such as Zimbabwe and transforming the lives of youths and women who form the majority of rural entrepreneurs.

This idea called microfinance emerged in the 1970s with the goal of alleviating poverty.

In 1976, the pioneer of microcredit, Muhammad Yunus, made visits to the poorest households in Jobravillage, where he discovered that very small loans could make a disproportionate difference to a poor person.

This idea became so important and impactful that it got recognised with a Nobel Peace Prize in 2006.

Historically, banks have shunned rural markets mainly because of lack of collateral among poor people, high risk of serving these markets visa a vis the potential return on investment and missing markets.

But this is an opportunity for MFIs to offer small and customised microfinance products.

One way of doing this and managing risk is through group lending and taking advantage of existing social groupings in the rural areas like Mukando, in which social collateral can work.

The group is responsible for the repayments and in extreme cases can put social sanctions and destroy the social reputation of a member who defaults on their commitment.

Microfinance has the potential to provide linkages between business opportunities and social impact.

In Zimbabwe, people in rural areas are faced with the double tragedy of lack of collateral and missing markets.

The former is easier to deal with (for example, through social collateral), while the latter is more challenging and ambitious.

I always dream of a time when institutions and individuals will take financial resources to the poor people.

By doing so, they can make some return on their efforts and, most importantly, empower people.

There is a fallacy that poor people have no money.

It is often argued that if one invests in poor markets, they won’t make money.

That is incorrect. There are lots of people in the rural areas.

Lots of them with very little money but they are generally honest, hardworking and available to work.

Collectively, the combined income potential of this bottom-of-the-pyramid group is massive.

If one is clever, innovative and persistent enough, they can be able to invest in the poor markets, build a sustainable business and make money in the process.

The fact that this is a noble idea doesn’t mean it’s going to be easy to implement.

It’s hard and on the borderline of impossible.

Challenges must be faced head-on.

If we try, there is hope.

Nothing will happen until we take the initiative to try something out.

As Doug Munatsi would say, “we got to do things that are real and tangible and tough to do.”

 

*Nixon Chekenya is a lead research fellow & teaching assistant at the Department of Agricultural & Applied Economics (W. Davis College of Agricultural Sciences & Natural Resources)