THE People’s Own Savings Bank (POSB) should be transformed into a fully-fledged commercial microfinance bank offering diverse services including credit to small-scale businesses and small landholders among a host of measures to promote financial inclusion, a local think-tank has recommended.
POSB has 31 branches and its services can also be accessed in 180 Zimpost branches countrywide.
In a report, Financial Inclusion Strategies for Making Financial Markets Work for the Poor in Zimbabwe, the Zimbabwe Economic Policy and Research Analysis Unit (Zeparu) said POSB was not associated with bank failures and hence trusted as the safest place for savings by the common person.
“The POSB’s current business model whereby it only provides working capital finance to elites is not developmental and is at variance with the objective of financial inclusiveness. Moreso, its current core capital base of $11,5 million is clearly inadequate for it to leverage its countrywide network. The government should, therefore, consider recapitalising POSB through public-private partnerships,” Zeparu said.
Zeparu’s recommendation to accelerate financial inclusion comes on the back of a recent survey that showed that a big chunk of the population was financially excluded.
A survey by the Zimbabwe National Statistics Agency showed that 40% of adults do not use any financial products. Should they desire to borrow, they turn to family and friends and if they opt to save, they do so at home.
Zeparu said the government should pursue the National Microfinance Policy which outlines strategies for financial inclusion that include, among others, the development of an appropriate regulatory and supervisory framework for the microfinance sector, encouragement of commercial banks and building societies to go downstream into microfinance either wholesaling funds to micro-finance institutions (MFIs) or retailing to consumers of MFIs, and establishing a credit reference bureau to enhance credit risk management practices.
“While the policy goes a long way in terms of reflecting international best practice, it still falls short in terms of its stated intent to regulate interest rates as a means of protecting the poor,” it said.
“As already discussed above, both international experience and Zimbabwe’s own track record in its efforts to enforce the Interest Rates Moneylending Act have shown that regulating interest rates of MFIs is counterproductive.”
While a fully deregulated microfinance sector could be dangerous, Zeparu said, one solution was to enact consumer protection laws that enforce transparency in disclosure of interest rates charged and penalise predatory practices.
Zeparu said it was necessary to remove specific barriers preventing small banks to downscale to microfinance banks by deregulating deposit and lending rates, permitting foreign currency transactions, especially remittance transfer services and permitting the cheque system.
“By removing these barriers, small banks that are struggling to raise capital could be persuaded to transform into microfinance banks and still be able engage in the same business operations. Existing MFIs will also find it attractive to upscale to microfinance banks,” it said.
Zeparu said the promotion of financial inclusion was critical for developing countries like Zimbabwe as a means to fight poverty and marginalisation.
“Financial inclusion is a key catalyst to the development of the rural economy and the informal sector in Zimbabwe and hence the need for all stakeholders in the country to actively work on reducing and eliminating financial exclusion,” it said.
It said banks should move away from the traditional brick and mortar model of banking especially when targeting rural communities and the informal sector and leverage on technology to provide “branchless” banking.
The introduction of new products like EcoCash for example, it said, has gone a long way in improving financial inclusion in the country as a number of people in remote areas could now easily access and send cash.
EcoCash is a mobile money transfer service of Econet Wireless designed to tap into the unbanked population. Telecel has also launched a similar service — Telecash.