Banks still shun rural areas: RBZ

constrained efforts to bring the poor and marginalised into the mainstream economy, said a key RBZ official this week.
The central bank’s chief bank examiner, Mrs Rachel Mushosho, was speaking at a meeting of the African chapter of the International Association of Depositor Insurers in Victoria Falls.
The conference is running under the theme “Financial Stability: Role of Deposit Insurers and Financial Inclusion”.

Mrs Musahosho said a study conducted by the RBZ established that only 30 percent of the adult population had access to financial services.
The study noted that while about 70 percent of the population were in rural areas, only 11,7 percent of the banks’ total branch network served them.

“Banks shun establishing branches in rural areas because they claim high information, transaction and monitoring cost, inaccessibility due to poor infrastructure, dispersed and intermittent demand for financial services, seasonality deposits and lack of collateral,” said Mrs Mushosho.

She said the survey established that rural people had little or no access to financial services due to long distances to the nearest banks, low interest rates by banks on deposits, high bank charges, stringent account opening conditions and lack of information regarding financial services.

But the central bank said it realised excessive reliance on informal sources of credit, lack of investment opportunities, aversion to a saving culture, high exposure incidence of crime, hoarding of cash and proliferation of illicit and economic activities contributed to the financial exclusion of the ruralfolk.

Like many developing countries, Zimbabwe is battling to ensure the financial inclusion of the poor and marginalised, seen as critical to the socio-economic welfare of people and country.
Financial inclusion refers to ensuring timely access to financial services and credit by vulnerable groups.

The objectives of financial inclusion include ensuring access to basic financial services by all, promoting economic growth, social and economic empowerment, breaking cycles of poverty and inculcating a savings culture in rural areas, to foster realisation of Millennium Development Goals.

It was against this background that the central bank had set out to facilitate the fast growth in a manner that does not destabilise the financial sector and to promote the growth of micro-finance institutions.
But challenges have been encountered on how best to go about this policy target without exposing people to the dangers associated with micro-credit institutions, some of which actually take deposits.

This emerged as it was realised that players involved in the provision of micro-credit institutions handled cash and took custody of deposits – meaning there is need to institute prudential measures regulations.
There was also great need to regulate financial institutions to prevent money laundering.

The fear was that while regulation was critical to ensure the safety of depositors’ funds, transparency and accountability in the provision of financial services, it could also stifle the growth of micro-finance entities.
In a speech read on his behalf at the IADI conference by RBZ deputy Governor Mr Nick Ncube, RBZ Governor Dr Gideon Gono said financial development impacts positively on economic growth and development.

“Empirical evidence suggests that improved access to finance is not only pro-growth, but (also) pro-poor, thus making it a means to achieving income quality and poverty reduction,” said Dr Gono.
He said micro-finance was a powerful tool of achieving higher levels of financial inclusion by empowering individuals economically and socially and allowing them to integrate into the mainstream economy.

Dr Gono said having realised that only 30 percent of the adult population had access to formal financial systems, the central bank set out to draft the National Micro-finance Policy in partnership with other stakeholders.

New micro-credit would be required by law to ensure that 40 percent of their operations be located in rural areas as a way to ensure that the poor and marginalised receive formal or semi-formal financial services.
Dr Gono said the micro-finance policy would harmonise operating standards and provide a platform for the evolution of a vibrant micro-finance sector to be integrated into the mainstream financial system.

He said that 20 percent of the funds mobilised by deposit-taking micro-credit entities would be reinvested in rural areas.
To foster the growth of micro-credit entities, the RBZ has set up a micro-finance division.