ZB to set up microfinance unit
PHILLIMON MHLANGA
Listed financial services group, ZB Financial Holdings (ZBFH), is considering setting up a microfinance bank to cater for Zimbabwe’s growing informal sector as well as boost interest incomes.
Group chief executive officer Ron Mutandagayi disclosed the plan saying the financial services group was targeting the fast-growing informal sector. “The group is considering setting up a microfinance operation for better interaction with the micro, small and medium enterprises sector,” Mutandagayi said.
Zimbabwe’s economy is now highly informalised with statistics showing that more than 90 percent of Zimbabweans are informally employed.
The country’s formal economy crumbled around 2000 following a land reform programme that saw former white-owned farms being redistributed to landless blacks, most of whom were peasant farmers in rural areas.
The effect of this was the demise of the agricultural sector as many of the new farmers held land for speculative purposes, while the majority of them did not have the skills and commitment for large scale or commercial farming business.
As a result, the agro-based industrial sector suffered, with many companies closing, throwing thousands of workers onto the streets.
The situation worsened when the country adopted a hard currency regime in 2009 to escape a hyperinflationary scourge that ravaged the domestic currency.
Now, the bulk of the economy is largely informal and dependent on imports for food and other agro-related products and raw materials.
The informal sector was said to account for over $7 billion some few years ago, and its growth may mean it may now account for much more.
But, the sector has largely remained unbanked due to the inflexible conditions in the banking sector.
Recently, ZB also secured $30 million lines of credit facility from regional financiers, to support the productive sectors.
The development comes at a time when Zimbabwe’s industry is failing to recover due to the lack of longterm funding at concessionary rates.
Local companies require cheap long-term financing to replace obsolete equipment and become effective, thereby reducing the cost of production.
But, banks on the other hand are still constrained to offer long tenure loans due to the short-term nature of deposits with demand deposits accounting for more than half of the $8,48 billion total banking deposits as at the end of December 2017, according to official central bank data.
If available, long-term loans are offered at punitive interest rates of more than 20 percent.
This is despite that the Reserve Bank of Zimbabwe has directed banks to offer borrowers with medium credit risk to access loans at a cost of between 10 and 12 percent per annum.
Those with high credit risk to access loans at a cost of between 12 percent and 18 percent.
In its financial results for the six months to June 30 2018 released a few weeks ago, ZBFH’s profit for the period grew by 15 percent to $9,35 million from $8,17 million in the comparable period in the previous year
