Low credit levels worry MFIs

Golden Sibanda Senior Business Reporter
CREDIT-only macro-finance institutions say the amount of funding extended to different sectors of the economy in the quarter to September 2019 was too low given depreciation of Zimbabwe dollar and inflation levels.

The micro lenders are, however, confident that the Reserve Bank of Zimbabwe’s decision to reduce the overnight bank rate from 70 to 35 percent would whet MFI’s appetite for credit to mostly productive borrowers.

MFIs are grassroots poverty alleviating financial institutions that provide door-to-door financial services to the poor or the unbanked shunned by commercial banks, which prefer to do business with the formal sector.

The MFIs total loan book marginally increased from $316,3 million as at June 30, 2019, to $352,2 million by September 30, 2019, which represented a growth of just $36 million against perceived annual inflation of 353 percent.

ZAMFI said annual inflation was estimated at 258,85 percent in August and officially reported at monthly rate of 38,75 percent in October, as such, the amount of loans at $36 million was smaller that $66 million in quarter to June.

Agriculture, which contributes the largest (16-18 percent) to gross domestic product (GDP), remains a favourite of MFIs especially lending for the production of cereal crops, fruits, vegetables and milk, which are in demand.

As inclination towards non-consumptive lending grows, the combined productive sectors of business and agriculture constituted 66 percent of the total loan book of the credit only MFIs as at September 30, 2019.

Lending to consumptive purposes used to account for over three quarters of MFIs, as recently as December 2018.

A September quarterly report from the Zimbabwe Association of Micro Finance Institutions (ZAMFI) also says lending was low, taking considering the Zimbabwe dollar depreciated from $6,54 to the US dollar in June to $15,19 by September 2019.

“The overall net effect of inflation is therefore a significant reduction of microfinance balance sheets in US$ dollar terms when compared with the 2015 period when the bond note surrogate currency was first introduced,” ZAMFI said.

The credit-only MFI’s sector is funding most of its lending from debt, at four times the level of equity which traditionally is known to be a cheaper source of funding, ZAMFI said in its report for the September quarter.

The loan portfolio quality for the credit only microfinance sector slightly improved during quarter as reflected by the portfolio-at-risk (PaR) (30 days) ratio of 13,61 percent in September from 14,58 percent in June 2019

ZAMFI said there is a worrying trend indicating inadequate loan losses provisions to fully protect the MFIs capital against erosion from nonperforming loans.

The risk coverage ratio for the quarter was 25,63 percent, down from 33,25 percent reported during the previous quarter.

“It should be noted that loan loss provisions are the first line of defense against unexpected deterioration in loan portfolio,” ZAMFI said, adding the rate of the global benchmark requires 100 percent cover.

On a quarter–to-quarter comparison the sector reported a cumulative net profit of $11,9 million for the 9 month period compared with $6,9 million as at half year period up to June 2019.

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