The Sunday Mail
Livingstone Marufu Business Reporter —
GOVERNMENT is rolling out a raft of reforms including amending the Microfinance Act, creating credit and collateral registries as well as encouraging consolidation among small businesses in order to enhance the operation of microfinance institutions (MFIs).
The credit registry, which is currently in the pilot stage, will enhance credit risk management and militate against rising non-performing loans (NPLs).
Finance and Economic Development Minister Mr Patrick Chinamasa told The Sunday Mail Business recently that tenure for licences of MFIs will likely be “perpetual” as opposed to the current lifespan of between two to three years.
“The Government has begun efforts to amend the Microfinance Act to address its shortcomings by, among other things, providing for perpetual licenses for deposit-taking microfinance institutions.
“In the same (Microfinance) Act, we are extending the tenure of the licence for credit-only microfinance institutions from the current one year to three years, this will give them an opportunity to plan for a reasonable period of time.
“This will enhance corporate governance and risk management practice of registered microfinance institutions and will also provide clarity with regards to different classes of microfinance institutions,” he said.
MFIs will now apply for the deposit-taking microfinance licence in terms of the new Microfinance Act. It is believed that MFIs have the potential to grow into bigger institutions and gain a competitive edge at a time banks are downscaling or establishing microfinance desks.
The new reforms, especially the introduction of the Movable Property Security Interests Bill, are expected to improve activity in the sector.
Most notably, the Bill seeks to provide for movable property to be used as security for the purpose of obtaining loans.
“This (Movable Property Security Interests Bill) will in no doubt hugely assist small to medium enterprises (SMEs) who have found it difficult to access loans from financial institutions which often require immovable assets as prerequisite for any credit application.
“The Government is cognisant of the significant contribution of an inclusive financial sector to the socio-economic development of the country.
“In this regard, there are continuous efforts to implement initiatives that promote the development of the microfinance industry in Zimbabwe,” explained Minister Chinamasa
Broadening access and use of financial services will likely stimulate both savings and investment. The collateral registry in particular will give poor and marginalised groups access to credit. MFIs accounted for 4,9 percent of total banking sector loans as at March 31, 2016.
According to the central bank, total loans in the microfinance sector amounted to US$187,5 million in the same period compared to US$3,8 billion in the banking sector.
Experts say MFIs are being weighed down by lack of long term funding, slow product innovation, inadequate skills due to brain drain as well as high default rates.
Government is actively pushing the institutions to consolidate operations and create bigger players than can leverage on their capacity.
It is also envisaged that the sector can take advantage of the country’s high mobile penetration rate to introduce new mobile technology driven products and services.
Overall, Government hopes that its intervention will help reduce interest rates, which are considered to be relatively high by consumers.
The country’s unbanked and uninsured market is estimated at over US$2 billion. Globally, microfinance is a big and high-growth industry.
In developed countries such as the United States, small and medium enterprises are considered key contributors to employment, innovation, productivity and economic growth.
