Micro-finance institutions sprout

“Cash loans, cash loans, cash loans! screams an advert in a local daily.

“Consumer loans! Your family deserves a proper bread basket this festive season. That is why we at FMC are here to cushion you against incidental expenses around Christmas time. Come and access affordable loans to cover that bread basket!” announces another.

It continues to say pay your school fees now to avoid the January rush; access loans for wedding costs, bereavement costs and agricultural inputs.

Since dollarisation at the end of 2009, the country has seen a gradual return of micro-finance institutions (MFIs).

Viewed as critical for development worldwide, this does not seem to be the case in Zimbabwe given the extortionate interest rates of up to 30% being charged over 90 days. While industry continues to choke as a result of liquidity, so does the man in the street.

Recent months have witnessed an unprecedented increase in the number of institutions offering short-term loans, bridging finance, bereavement, school fees — you name it.

The cost of living, as depicted by the Consumer Council of Zimbabwe’s monthly basket for a low-income urban earner for a family of six, rose to $540,80 in October from $527,52 in September.

Several officials at MFIs told NewsDay they were only offering loans to mostly civil servants, salaried employees and the ones that can provide collateral in the form of cars, LCD plasma television sets, fridges, stoves and other expensive household property.

“If a person wants a $200 loan, they have to bring collateral of goods valued at $400, failure of which they would not be able to access the loan,” said an official at a local MFI.

He said they charged 20% interest on loans payable over 90 days.

The official said the company assisted mainly commercial clients, who use the loans for business purposes going to Dubai, Namibia, China and South Africa to import goods for resale.

In his Mid-year Fiscal Policy Statement, Finance minister Tendai Biti said there was need for the government to expedite the completion and gazetting of the Micro-Finance Bill as well as considering the creation of a Financial Services Authority with the sole responsibility of regulating the financial sector.

“The hyper-inflationary period that culminated in the introduction of the multiple currency system led to severe financial disintermediation and financial exclusion of the greater proportion of the Zimbabwean population,” said Biti.

“It is therefore, important to vigorously pursue the financial inclusion agenda through the development of a National Financial Inclusion policy.”

At the peak of the country’s economy there were an estimated 1 800 MFIs before the number decimated to 37 last year, but it seems the figures are on the rise again.

Currently MFIs are registered under various legal instruments such as Money Lenders and Rates of Interest Act, Banking Act, Co-operative Act (Chapter 24:05) of the Registrar of Societies and Private Voluntary Organisations Act (Chapter 7:05).

Another MFI, FMC, said it had stopped taking new applicants as it had a backlog it was trying to clear.
The official, however, said the institution uses payroll deduction.

“We enter into agreements with companies with more than 50 employees on payroll and who access their salaries from a bank,” said the official.

Several other “companies” are just placing phone numbers with addresses soliciting for business in this highly-rewarding business thriving on liquidity challenges gripping the country.

A significant chunk of formally employed Zimbabweans are believed to be in debt in one way or the other as most people’s salaries fail to satisfy their needs — forcing them to turn to their banks and loan sharks for bailouts.

In his 2011 Budget presentation, Biti said the micro-finance sector, which enhances financial inclusion through the provision of financial services to previously unbanked low-income groups, needs to be resuscitated.

“Multiplicity of MFI legislation needs to be harmonised into one,” Biti said. “For the first time the government will regulate deposit-receiving MFIs and interest rates charged by MFIs.”

CCZ last week warned consumers from being enticed to take loans and overspending ahead of the Christmas and New Year holidays as this could lead them into a debt trap.

“Many consumers are enticed to get loans from loan sharks and chimbadzo (usury) only to get themselves stuck in a debt cycle and also finding themselves unable to pay January school fees,” said CCZ.

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