The Sunday News
Ngonidzashe Chiutsi Business Correspondent
MICRO-FINANCE institutions must reduce lending rates and remodel their business structures towards pushing volumes if they still want to remain relevant in the prevailing economic environment, experts have said. The sector has come under heavy scrutiny over its high interest rates, some as high as 100 percent and its heavy handedness in dealing with defaults, something that is seen as a repelling factor to customers.
SNV World Sector leader Mr Mbekezeli Mthunzi said most local MFIs were “rigid and expensive” because of their modus operandi.
“In Zimbabwe we are seeing a situation where MFIs are pushing for margins rather than volumes and this is why I am saying you are expensive,” said Mr Mthunzi in Bulawayo, during a Zimbabwe Association of Micro-Finance Institutions (Zamfi) meeting last week.
He said MFIs have the potential if they can crack into the small and medium sector where capital appetite was high.
“MFIs need to design products that suit the demands of the SMEs, in terms of the amount and tenure that they are looking for and be flexible in their collateral security requirements,” said Mr Mthunzi.
He said according to a Finscope 2012 survey, 46 percent of the adult population in Zimbabwe were Micro, Small to Medium Entrepreneurs (MSME) owners.
“Only 14 percent of MSME owners are banked, that is, they use formal financial products and services offered by a commercial bank. The majority of business owners do not use or have a bank account for business purposes. In fact, only three percent use a bank account in the name of the business,” said Mr Mthunzi.
He said that showed a majority of them were getting capital through informal means.
“So 51 percent borrow from friends and family, 15 percent borrow from a commercial bank, 11 percent borrow from MFIs, Sedco and six percent borrow from informal sources, such as money lenders,” he said.
Mr Mthunzi said according to the study, about 43 percent of the MSME were still financially excluded as local banks were not willing to serve them.
“If we still have a lot of people who are financially excluded it means your market as microfinance institutions is very big. At the moment we are saying 43 percent are financially excluded and as microfinance this is the market that you should consider looking on,” said Mr Mthunzi.
National University of Science and Technology Graduate school senior lecturer Mr Samson Mtisi said MFIs needed to come up with new business models.
“If we change the model of pushing for volumes rather than margins we will be able to make more money,” said Mr Mtisi.
He said the SMEs sector was set to grow even bigger as more people were set to start businesses after many companies retrenched.
“Following the firing of workers on the three months’ notice, there is going to be exponential growth in the SMEs sector,” said Mr Mtisi.
Due to liquidity challenges, the microfinance sector is growing tremendously as more people are seeking financial aid to cover their pressing needs.
The sector is reportedly set to grow even bigger to cover the gap where most commercial banks are failing to provide personal loans or short terms loans to the heavily under capitalised industries.
The money lending institutions have become popular with a number of civil servants and small entrepreneurs, who go there to borrow money for various purposes.
Some also approach the MFIs to borrow money to buy luxurious goods such as cars and furniture.
