Government plans to tighten microfinance regulations to improve working conditions of microfinance institutions (MFIs) in the country, Finance minister Tendai Biti said recently.
Zimbabwe currently has 37 microfinance institutions from 1 800 MFIs that closed during the hyperinflationary period in 2008.
Currently MFIs are registered under various legal instruments such as Money Lenders and Rates of Interest Act, Banking Act, Cooperative Act (Chapter 24:05) of the Registrar of Societies and Private Voluntary Organisations Act (Chapter 7:05).
“Multiplicity of MFI legislation needs to be harmonised into one,” Biti said.
“For the first time government will regulate deposit receiving MFIs and interest rates charged by MFIs.”
In his 2011 Budget presentation, the Finance minister said the microfinance sector, which enhances financial inclusion through the provision of financial services to previously unbanked low-income groups need to be resuscitated.
“Government will mobilise resources for seed money for the setting up of a microfinance revolving fund. CBZ Bank and the Arab Bank for Economic Development in Africa will each make available resources to the tune of $5 million to the fund, raising the total capital to $15 million. This fund should facilitate access to reasonably- priced lending by marginalised groups,” Biti said.
Microfinance institutions eradicate poverty by providing financial support to small-to- medium enterprises, the disadvantaged and self-employed who cannot access finance from financial institutions.
These institutions foster economic growth and development by increasing productivity and employment opportunities.
A local analyst, Brains Muchemwa, said developmental institutions and banks need to take a more active role in providing loans and grants to enable MFI deeper penetration into marginalised areas.
“MFI have the effect of accelerating economic growth via the provision of credit that enables small producers to contribute positively to the economy whilst borrowing consumers get the edge to bring forward future consumption by borrowing, which has the overall impact of driving growth through creating strong domestic demand for local producers,” Muchemwa said.