Zimbabwe: Micro-Finance Sector Recovers from COVID-19 Shocks

Dec 2020
Zimbabwe, December, 31 2020 - The micro-finance sector is recovering from the Covid-19-induced shocks as most of the registered micro-finance institutions (MFI) resumed operations following the relaxation of the lockdown rules.

In a performance report of the micro-finance sector for the third quarter ended 30 September 2020, the Zimbabwe Association of Microfinance Institutions (Zamfi) said the results were showing positive gains.

“The general results for the quarter ending 30 September 2020 reflect a sector, which is gradually coming out of economic challenges with renewed optimism and hope for the future,” it said.

“Outstanding loans amounted to ZWL$651,1 million, up from ZWL$565,7 million reported in June 2020, an increase by ZWL$85,4 million (15,1 percent).

“This increase could be attributed to resumption of business by the majority of MFI clients especially in areas that had been severely affected by lockdown rules.”

The association said during the lockdown period, sectors such as mining, agriculture and food processing industries appeared to be less affected, an indication of them being good sectors for MFIs to focus on in their lending strategy.

Zamfi said the other area for support involves products earmarked for exports such as horticulture, which is reported to be doing well in the United Kingdom and the European Union (EU) markets.

The MFIs representative body noted a huge financing gap especially for artisanal and small miners who have been reported to be contributing more than 60 percent of gold production to Fidelity Printers and Refinery annually.

The total clients served by credit-only MFIs amounted to 156 037 with women representing 41 percent of the total figure.

“Financial inclusion in general among the marginalised clients remains largely constrained by a number of factors such as perceived high risk associated with the majority of the MFI clients and lack of identification of profitable business opportunities to be financed by micro-finance institutions,” reads the report.

During the period under review, loans by credit-only MFIs to productive sectors of the economy, which include agriculture constituted 64 percent of total loans.

“The quality of the loan portfolio is gradually beginning to improve since the advent of the Covid-19 pandemic, as reflected by a decline in Portfolio at Risk ratio from 19,5 percent as at 30 June 2020, to 15,36 percent as at 30 September 2020,” said Zamfi.

“This is largely attributed to the resumption of normal business and reduced business risk due to price and exchange rate stability, which has been achieved during the quarterly period.”

It said the introduction of the foreign exchange auction in June 2020 has been credited with the achievement of exchange rate stability, which, according to monetary authorities, was fuelling inflation and causing general instability of prices.

The exchange rate has since stabilised around US$1: ZWL$81 throughout the month of July to this month.

“This has tremendously worked to restore the local currency with its normal and expected functional roles such as the medium of exchange, unit of account and store of value,” said Zamfi.

On profitability and sustainability performance, Zamfi said the majority of small and medium sized MFIs have continued to declare profits while some of the large MFIs have reported losses, chiefly emanating from high operational cost against low-income revenues.

“Overall, the sector reported total income amounting to ZWL$442,7 million against operational expenses of ZWL$311,2 million as at 30 September 2020, leading to a net profit of ZWL$131,5 million and operation self-sufficiency ratio of 142, 2 percent,” it said.

“This is a significant increase in comparison to net profit of ZWL$94,5million as at 30 June 2020.”

Going forward, Zamfi said prospects for growth, profitability and sustainability for the micro-finance sector is gradually being restored especially after a high level of exchange rate stability was achieved during the June to September quarterly period including the general pricing of goods and services.

Experts say the prevailing stability enables business and individuals to plan for their expenditures and decide on extra amounts for borrowing from financial institutions.

Zamfi also noted Government’s short and long-term policies in the form of the 2021 National Budget and the National Development Strategy 1(NDS1), which outline clear priorities for the next five years.

“The onus is now on micro-finance players to decide on areas of financing support for the attainment of Government goals and aspirations for its citizens across the country,” said Zamfi.

Source : Chronicle

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