THE promulgation of the microfinance Act will assist some microfinance institutions to attract funds at fairly cheaper rates and pass this on to an eligible portion of Small to Medium Enterprises (SMEs), a microfinance association has said.
The Act, gazetted on August 30 this year, provides for the registration, supervision and regulation of microfinance companies in the country.
Zimbabwe Association of Microfinance Institutions (Zamfi) executive director, Godfrey Chitambo told Standardbusiness that the microfinance sector was poised for better collaboration with SMEs.
"While banks support the SMEs sector, there still remain other SMEs projects which seem unbankable to them, mainly due to lack of collateral. These are the projects that MFIs seek to support, due to the fact that they are highly skilled in handling such projects," said Chitambo.
He added that banks seek to grant loans to people either with accounts with them or who receive a monthly salary.
"The bulk of people in need of credit are self-employed, engaged in informal business and do not have accounts with banks. These are the people that seek credit services from the microfinance sector," he said.
Analysts contend that SMEs play a pivotal role in employment creation, economic growth and as a cradle for future firms operating on a large scale.
The SME sector reportedly employs 70% of Zimbabwe's population through an estimated three million projects.
Economist, John Robertson said the sector bears enormous potential in transforming the economy.
"The informal sector is making a huge difference because this is where the majority of SMEs are operating effectively. These businesses avoid operating on a larger scale because they are afraid of attracting the attention of the tax collector. This consequently limits the growth that they could enjoy," he said.
This scenario, he said points towards the existence of an unfriendly tax environment.
"The future of SMEs is likely to remain in the informal sector, unless tax policies on the part of the municipal authorities and government are changed," he said.
He said there was not much evidence of microfinance funding of the sector.
Access to funding, markets and market information is some of the challenges that affect SMEs in the country.
A number of SMEs focus on a wide array of activities ranging from selling packed fish, soap making, shoemaking, metalwork, furniture making and food catering services among many others.