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institutions.
This comes as a number of money lending and micro-finance institutions have been associated with practices such as inadequate disclosure of business conditions, exorbitant lending rates of up to 50 percent a month, abusive debt collection practices and the disposal of pledged collateral without following due legal processes.
In an interview with Herald Business, chief econometrician at Cernic Finance Mr Joseph Sagwati said that the multiplier effect of injecting funds into micro-lending institutions has a potential in boosting the financial lucrativeness of a country.
“The effect of injecting funds into micro-lending institutions is bigger and has a more vortex transmission mechanism in alleviating poverty,” he said
He added that the Government should tie up low- level micro-lending institutions’ transactory processes through certified letters of credit with a bid to curb fraud and unscrupulous business practices.
“There should be structures that govern the operations of micro-lending institutions,
“The stringency formulae applied by the Government is unnecessary . . . there should be some kind of relaxation because it seems as if
the Government is underestimating the role played by micro-lending institution during the hyperinflation period,” Mr Sagwati added
Mr Sagwati said that US$2,8 billion is unbanked because there are no proper structures to make sure that such capital comes back into the formal banking system. Much of this money is lost in the micro-lending sector.
He also added that micro-lending institutions are still lobbying for the creation of a Micro-Finance Bank and their efforts are beginning to bear fruit.
Finance Minister Tendai Biti this year defended the proposed US$5 million capital requirement for micro-finance banks saying one should demonstrate that he has financial muscle before being allowed to operate a financial institution
Contributing to the Micro-Finance Bill, then Uzumba MP Mr Simba Mudarikwa said the Reserve Bank of Zimbabwe should not be allowed to have multiple roles in the financial sector as part of efforts to rebuild confidence in the area.
“Zimbabweans have no confidence in the banks and the RBZ. The RBZ issues licences, does the evaluation, does the monitoring of the micro-finance (institutions).
“There is a need for another player to register the micro-finance (institution) and the RBZ does the monitoring,” said Mr Mudarikwa
In a circular distributed to these institutions, RBZ Governor Dr Gideon Gono said it was clear that they were not complying with best practices as enunciated in earlier monetary policy statements. This is the reason why some big banks have been sceptical in venturing into money lending with issues of security taking centre stage.
Online Reporter