Zamfi to blacklist perennial defaulters
THE Zimbabwe Association of Microfinance Institutions (Zamfi) has proposed to blacklist perennial defaulting clients as part of a raft of several survival strategies amid indications that members have been advised to lend more using the United States dollar to hedge against foreign exchange risk.
The association said blacklisting perennial defaulters has the positive effect of making sure the defaulters do not switch from one micro-lender to another.
Early last year, the Reserve Bank of Zimbabwe (RBZ) incorporated micro-finance institutions as data providers under its Credit Registry database to strengthen national credit reporting systems and the effectiveness of collateral and bankruptcy laws in facilitating lending.
The Credit Registry went live in 2017 as part of efforts to bridge Zimbabwe’s ease of doing business deficiencies relating to getting credit. In its performance report for the six months ended June 30, 2023, Zamfi said the period under review experienced a rapid loss of value with respect to the local currency against major international currencies leading to an exchange loss on locally denominated monetary assets and liabilities including capital.
“To hedge against the foreign exchange risk, the MFIs are advised to recapitalise in foreign currency and lend the same amount to clients in need of foreign currency denominated loans.”
Microfinance is increasingly considered as a key instrument in the implementation of effective and sustainable strategies aimed at poverty alleviation and inclusive economic development.
The sector continues to contribute towards the attainment of Zimbabwe’s 2030 Vision of ‘an Upper Middle-Income Society by 2030’ through the provision of essential financial services to low-income and marginalised communities and their micro and small enterprises.
Zamfi has proposed cost cutting and right technology adoption, client rating and retention measures, sharing information about bad debtors and product and market diversification as part of survival strategies.
On Client Rating and retention, Zamfi said “High delinquency levels could be reduced through continuous rating of clients in terms of performance particularly on issues such as timely repayment of loans.
“Such performance ratings enable micro lenders to deal with good clients only while bad clients are blacklisted and denied access to new loans. Good clients could be graduated to access bigger loans under favourable repayment terms and conditions. Survival Strategies for MFIs under Exchange Rate instability.”
It noted that sharing information about bad debtors is critical for the sector as it believes that “there is more to be achieved when MFIs work together in sharing of information particularly on bad clients and defaulters.”
“This has the positive effect of making sure the perennial defaulters do not switch from one micro lender to another.”
The report added that MFIs may need to diversify their products by increasing product range instead of concentrating on one type of product, loan or sector of the economy.
The report adds that to reduce and counter the threat of capital erosion, especially on working capital denominated in local currency, it is strategic for MFIs to inject new capital into the business in the form of foreign currency such as the US dollar which of late has been appreciating against most major currencies of emerging markets in the region including Zimbabwe.
According to the 2023 mid-term monetary policy, Reserve Bank of Zimbabwe governor, Dr John Mangudya noted that microfinance is increasingly considered a key instrument in the implementation of effective and sustainable strategies aimed at poverty alleviation and inclusive economic development.
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On capitalisation, the sector registered a 596,83 percent increase in aggregated equity from $35,91 billion as at 31 December 2022 to $250,23 billion as at 30 June 2023.
Dr Mangudya said the increase was attributed to organic growth and fresh capital injection by some microfinance institutions.
Meanwhile, Zamfi said aggregate equity capital for the sector amounted to $10,7 billion as at 31 March 2023, an increase from $8,2 billion reported as at 31 December 2022, representing a 32,9 percent increase.
The total assets for the credit only microfinance sector amounted to $48,3 billion as at 31 March 2023, up from $20.8 billion reported as at 31 December 2022.
The dominant asset being loans decreased slightly from 80 percent to 76 percent during the period under review.
The number of active clients being served by the credit only MFIs remained largely unchanged from 135 620 as at 31 December 2022 to 137 949 as at 31 March 2023.
It said there is a large and significant portion of the financially excluded clients which are yet to access financial services from the microfinance sector.-chronicle
