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Alfred Mkhutshwa is a mechanic who doubles as a motor spares dealer in the heart of Harare business district in a bid to enhance his paltry earnings. He says motor spares business is brisk considering the huge number of clients who come and inquire on motor spares at an open garage where he operates. Unfortunately, he is often out of stock and is many a times forced to turn away customers as he cannot cope with the huge demand for his merchandise due to lack of adequate capital investment into his motor spares business.
He says the biggest barrier to his breakthrough has been the failure to access financial borrowing to augment his stock hence expanding his business. Problems are compounded by the fact that Lot’s motor spares business operate from the back yard of the garage and is not a registered entity.
This has been an impediment to his quest to source capital from money lenders since lending to small enterprises such as his is widely regarded high risk by banks. He says he intends to formalize his operations once he gets adequate capitalisation since he has created a reliable clientele base to sustain his business.
“I have been at several Zvimbadzos (Micro Finance Institutions) without any luck,” Mkhutshwa narrates with an air of indifference.
“I have tried to convince them to lend some money to boost my business which has remunerated me more than I earn from my professional occupation as a mechanic but they prefer formally employed professionals with pay slips or registered companies with proper documents,” he adds.
He says if businesses as small as his were to grow and one day formalize there is need for availability of finance at a micro economic level to boost operations and rapport between micro-finance institutions (MFIs) and micro-small and medium enterprises (MSMEs) should be strengthened cognizant of the current economic environment.
In a country were only 30 percent of the population hold a bank account and a quarter of those accounts are domain (not used), thus according to the latest FinMark Trust survey, the majority of the population is therefore unwarranted to access a bank loan.
This has been driven by high levels of unemployment and an increasing in informal activity.
Growth of Small to Medium Enterprises (SMEs) in Zimbabwe has been curtailed by the complexities surrounding documentation of their operations in order to access finance in an economy that is over 70 percent informal.
There are about 3.5 million SMEs in the country employing 2.9 million people and posting a US$ 7.4 billion turnover in 2012 according to the Ministry of Small and Medium Enterprises, and the sector could grow further if finance was made available.
Due to a huge demand of cash most Micro Finance Institutions (MFIs) in the country have turned a blind eye on the marginalized communities in need of capital for small start-ups and place high interest rates which turns to favour the already economically privileged.
The cost of borrowing is not sustainable especially for small businesses a case that has attributed to many aspiring business ventures dying at infancy either due to heavy debt arising from exorbitant interest rates or failure to access borrowing.
Last month, Reserve Bank of Zimbabwe (RBZ) Deputy Governor, Dr Charity Dhliwayo lamented the propensity to maximize on quick profits by local MFIs and emphasised the need for reorientation of the sector players to ensure they focus on supporting marginalised people especially in the rural areas.
According to the RBZ, Zimbabwe had 155 registered MFIs with a total of 417 branches dotted across the country as at September last year but 89 percent of registered MFIs were based in Harare and Bulawayo which is a need for concern.
Economic analysts have also castigated the brevity of the lifespan of loans being issued by MFIs to small business. They argue that in an economy with generally low business activity as currently prevailing, it is practically impossible for a small business enterprise to have serviced the loans within a time-frame of 90 days considering the high interest charges.
A snap survey revealed that some local MFIs are charging astronomical interest rates as high as 31 percent per month which was suicidal for MSMEs to borrow from. “Funding has been our major challenge as MFIs,” Zimbabwe Association of Micro-finance Institutions, Executive Director Mr Godfrey Chitambo says.
“As of last year the MFIs all combined they are only reaching 21 percent of total demand, there is a huge demand out there which we cannot satisfy driven by the high rate of unemployment and the growth of informal sector,” he added.
“Due to shortage of cash, some MFIs borrow from commercial banks and obviously the interest rate automatically increase and become higher than that of the bank and in the cases were funding comes from the external funders it is usually expensive.
“We do not have the powers to impose interest rates for MFIs, before 2009 we were guarded by Statutory Instrument 129 of 1993 which stipulated that an MFI must charge the RBZ fixed rate plus 3 percent administration rate but since 2010 government said we were market related, it wanted investment as the IMF and World Bank called for non imposition of anything so except for banks we do not have control of interest rates for MFIs,” said Chitambo.
On decentralizing the MFIs from the cities, Mr Chitambo lamented lack of technology related to the sector which will capacitate MFIs in reaching out to remote areas without necessarily building office structures there but through use of digitalized technologies.
Economic analysts however say the Micro-finance fund established in 2012 with the objective of providing on-lending funding to MFIs across the country should play a pivotal role if it’s adequately capitalized.
Last year the fund’s disbursement to MFIs amounted to US$ 11.2 million and the fund managing director Brian Zimunhu recently said the fund cumulative loan disbursement is expected to grow to US$ 18 million in 2016.
The fund can mitigate the high interest rates dictated by external funders to local MFIs by availing disbursements with lower charges which in turn result in favourable interest rates for the borrowers in the MSMEs sector.
The MFIs sector however needs capacity building in developing micro-enterprise lending skills and the products to target micro entrepreneurs.
This has been a major cause for many MFIs loosing huge amounts of money by lending without assessing the borrower’s business capacity to repay. This has also resulted in lack of professionalism in the sector as business malpractices have become rampant.
This has seen a general mistrust of the MFIs sector in the country.
According to the survey titled “Making Access Possible (MAP) Diagnostic” done by FinMak, on financial inclusion in Zimbabwe in 2014, it stated that MFIs are the least trusted platform on the country’s financial inclusion landscape on a list that was topped by Mobile Money Operators, Banks, Retirement Funds, Insurance companies and Co operatives respectively.
The survey showed that of the interviewed cross section of society, only 12 percent trusted MFIs compared to 63 percent who trusted banks.
There is also need to orient the public about the role of MFIs in the country as this has seen unfavourable outcomes with most people borrowing for consumption rather than for productive purposes.
A Quarterly report done by the RBZ in 2014 showed that 71.2 percent of the US$ 170 million worth of loans was borrowed for consumption purposes from the registered 153 MFIs with the remainder borrowed for productive purposes.
“We are working on our image as a sector, we now have a micro-finance act and a micro-finance policy which makes us legitimate, so we urge the public to attend our public lectures on awareness so that the public know what we stand for in the process creating relationships with our intended customers,” said Chitambo.
The MFI sector has hailed the RBZ for issuing licenses to 2 MFIs to start Deposit-Taking micro-finance business a move analysts have said is a huge leap towards financial inclusion of the country’s massively unbanked population.
Depositor’s money will also boost MFIs financial stocks for further borrowing.
Online Reporter