ZIMBABWE Association of Microfinance Institutions (Zamfi) executive director Godfrey Chitambo has warned that the microfinance sector’s profitability is under threat from high interest rates and statutory reserve requirements.
The Reserve Bank of Zimbabwe’s Monetary Policy Committee recently opted to maintain a tight monetary policy stance, keeping the policy rate at 35% and retaining high reserve requirements of 30% for demand and call deposits and 15% for savings and time deposits.
This decision aims to foster price and exchange rate stability in the economy.
But Chitambo told businessdigest the decision would significantly impact the sector's ability to lend and exacerbate the liquidity crisis.
“Interest rates at 35% affect us primarily, in two ways — through the cost of funds for microfinance players in the industry and lending rates that are subsequently offered to customers,” he said.
“So, this means we are now accessing ZiG funds at rates above 35% per annum and subsequently our offering to our customers will be at a higher interest rate considering our operating costs.
“We hope that the initiatives put in place by the government through the monetary authorities will ensure sustainable interest rates into the future. If not properly balanced, this might negate the financial inclusion ethos the country is pursuing and might retard economic growth as some of the economic players might need to borrow funds for production.”
At high interest rates and statutory reserve requirements, it will make small to medium businesses and consumers struggle to access capital as lenders hold on to available liquidity, the Zamfi executive director noted.
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“The liquidity issues in the market have affected several players. In some instances, we have experienced delays, genuine delays, in loan repayments as our customers are unable to meet their obligations in time and in these cases, we have had to restructure loans to account for delays in repayments,” Chitambo said.
“Cashflow management has become key for microfinance players and access to diversified sources of funding is key for MFIs (microfinance institutions) to remain resilient.”
As at September 30, 2024, the credit-only microfinance sector reported strong financial performance. It generated a total income of ZiG1,04 billion (US$41,79 million) and this growth was primarily driven by interest income from the core business of lending.
Subsequently, the sector achieved a profit of ZiG385,8 million (US$15,5 million), up from ZiG130,9 million (US$5,26 million) reported during the first six-month period.
MFI’s had core capital of ZiG715,8 million (US$28,77 million) and total assets worth ZiG2,2 billion (US$88,41 million) as of September, from 174 278 active clients.
The sector also had total loans of ZiG1,8 billion (US$72,33 million) and US$84,9 million.
“Challenges faced by MFIs include access to affordable funding to allow players to advance loans at interest rates that are affordable to our customers,” Chitambo said.
“Increased operating costs coming with increase in outreach to rural communities have also been an area of concern. As an industry, we are committed to improving outreach to serve rural communities but the cost of going into these areas remains significantly high.”
However, he said MFIs remained optimistic about the prospects for 2025.
“We continue to explore new markets and products to remain relevant to our customers,” Chitambo said.
“We are optimistic that the initiatives by the government and the central bank will assist in providing a stable economy and open new opportunities for micro small to medium enterprises that we serve.”
