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In the past, micro-finance institutions in Zimbabwe were known for being the saviours of financially struggling individuals, to whom they would lend small amounts at extortionist interest rates of as much as 100 percent, particularly in January when many people would have run out of money after the festive season.

Latest figures from the Reserve Bank of Zimbabwe however tell a different story as it emerges that the micro-lenders have become the backbone of the country’s new economy – the informal sector which comprises small to medium enterprises as well as home industries.

By the end of last year, MFIs channelled into the market $158 million in loans and advances, with 69 percent of the funds going to the productive sectors.

The figures were an improvement from $155,3 million extended to the market in the quarter ending September last year, with 63,7 percent went to productive sectors.

“Cognisant of the correlation or nexus between microfinance and economic development, and the catalytic role of microfinance in mitigating poverty, facilitating women empowerment and enhancing financial inclusion, the Reserve Bank will continue to work very closely with the industry to facilitate access to finance by the micro, small, and medium enterprises,” the central bank said.

The Reserve Bank last year capped interest rates that MFIs charge for loans at 10 percent per month, down from over 20 percent that many of them were charging, in a bid to make funding affordable.

It is widely known that the country’s banking institutions shun supporting small players as they are considered a high risk, leaving MFIs to fill in the gap. The Government has since called on banks to refocus given the changing dynamics in the economy where the formal sector is shrinking and SMEs, mostly unregistered, are now the major economic drivers. The SMEs are providing employment for the bulk of employees being let off from struggling formal companies.

At the end of December 2016, the country had 181 registered MFIs, a jump from 165 in the previous quarter. The central bank has also licensed four deposit taking MFIs, known as microfinance banks in its bid to grow the sector.

Data shows that the MFIs had at least 639 branches at the end of the year, serving up to 222 007 clients. – New Ziana.