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Microfinance institutions are geared to drive SMEs

Walter Muchinguri
MICROFINANCE institutions hold the key to the growth of Zimbabwe’s small and medium enterprises (SMEs), according to industry officials who say a large chunk of the sector is still unbanked and relies on small lenders for capital.

The Reserve Bank of Zimbabwe notes that lending by micro-houses to the productive sector jumped to about 70 percent of the $206,28 million disbursed in 2016 from $187,16 million advanced the previous year.

Zimbabwe Association of Microfinance Institution executive director Godfrey Chitambo believes that microfinance institutions are geared to drive SMEs as they understand the sector better than large commercial and merchant banks.

“SMEs that are facing challenges in getting support from mainstream banking sector are accessing working capital from microfinance institutions that understand SMEs business operations and risks far much better than commercial banks,” he told The Herald Business.

The country’s central bank also sees the small lenders as an important pillar of financial inclusion, holding capacity to provide a wide range of services to the previously marginalised and unbanked sections of the population.

“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,” it said.

At the end of May this year, there were four deposit taking microfinance institutions and 176 credit-only microfinance institutions, with a branch network of 642.

The total number of active clients accessing financial products through microfinance institutions as at March 31, 2017 was 247 707 clients while the total sector loans was $215,21 million.

“There is a generally acceptable and undisputed role that microfinance does support income generating projects for small business, leading to poverty reduction and improved standards of living.

“Microfinance also involves micro insurance apart from microcredit, which raises the capacity of many poor people to transfers some of their risk to insurance companies.

“Remittance business is part of microfinance, hence mobile money services of the likes of Ecocash, Telecash and One-wallet and MyCash are indirectly part of microfinance products.

“These products have given hope and support to previously unbanked people in opening mobile money accounts, which are same as bank accounts in commercial banks. All this is microfinance in action! ,” Mr Chitambo said.

He believes that the future of MFIs is bright going forward. “The future looks promising, though there could be disruptions from other innovative means of supporting the poor with loans such at the Peer-to-Peer (P2P) lending models as well as other big players such as telecommunications companies, retail stores and commercial banks coming into the sector.

“While this may seem unwelcome to current players, it may have the positive effect of increasing access to finance for the poor at affordable prices and better customer service due to competition. This has already taken place in countries such as Kenya and Tanzania,” he said.

SMEs are a large component of the country’s informal sector which is potentially the sixth largest in the Sub-Saharan region, contributing between 40 percent and 50 percent to economic growth — an estimated $7 billion — especially for the four-year period between 2010 and 2014, according to the latest International Monetary Fund (IMF) working paper.