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Micro-financiers struggle to raise US$5m regulatory requirement

Reserve Bank of Zimbabwe (RBZ)

ONLY two out of the seven operational deposit-taking microfinance institutions (DTMFIs) have complied with the US$5 million regulatory capital requirement set by the central bank, a new report reveals.

The Reserve Bank of Zimbabwe (RBZ) set December 31, 2022 as the deadline for DTMFIs to comply with the new minimum capital requirement of Zimbabwe dollar equivalent to US$5 million.

But a new report compiled by the apex bank reveals that only two out of the seven micro-financials had complied with the requirement, forcing the RBZ to extend the date to December 31, 2023.

“Core capital for deposit taking micro-finance institutions increased by 16,71% from US$9,93 billion as at 30 September 2022 to US$11,59 billion,” the RBZ said in a micro-finance industry report for the quarter ended December 31, 2022.

“Two out of the seven operational deposit-taking micro-finance institutions complied with the new minimum capital requirement of ZW$ equivalent to US$5 million effective 31 December 2022.

“Compliance with the minimum capital requirements by non-compliant deposit-taking micro-finance institutions was extended by a further 12 months to December 31 2023, to allow for completion of the recapitalisation processes currently underway.

“The bank continues to monitor progress towards compliance with both minimum capital requirements and economic capital to facilitate underwriting of more meaningful business.”

The report noted that non-compliant institutions were at various stages of implementing measures to raise their capital levels.

In the period under review, total deposits for DTMFIs increased by 83,27% to $6,23 billion.

The growth in deposits, the report notes, was mainly driven by foreign currency deposits of US$6,75 million, equivalent to $4,64 billion, which accounted for 74,47% of total subsector deposits.

The subsector’s prudential liquidity ratio increased to 189,52% due to increased deposit levels.

In the quarter under review, there were 206 registered micro-finance institutions comprising 198 credit-only microfinance institutions and eight DTMFIs.

The micro-finance industry recorded an aggregate equity of $35,1 billion, representing an increase of 60,59% compared to the prior period.

The growth was largely attributed to organic growth and injection of additional capital by shareholders of some micro-finance institutions, in order to comply with minimum capital requirements of Zimdollar equivalent of US$25 000.

The DTMFI subsector’s aggregate core capital registered a 27,77% increase to $12,70 billion.

“The increase in capitalisation was largely attributed to a combination of revaluation gains on investment property and foreign currency, organic growth and additional capital injections by some DTMFIs,” the report said.

The DTMFI subsector recorded a significant improvement in the aggregate net profit of $6,53 billion for the year 2022, as compared to a profit of $29,49 million recorded for the comparative period in 2021.

“The profits were largely driven by revaluation gains on investment properties and financial assets denominated in foreign currency.

“The lack of critical mass in underwriting business has heightened income generation risk at a few institutions in the subsector which have recorded operating losses during the quarter. Institutions are exploring various strategies for revenue enhancement and cost reduction.”

The subsector’s average operational self-sufficiency ratio last year was 187,29%, down from 284,88% recorded in the previous quarter.

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