Zimbabwe: Parly Reviews Microfinance Laws

Zimbabwean parliament (file photo).

Zimbabwean lawmakers will this week start the process of changing laws governing microfinance institutions (MFIs) in the country to strengthen supervision of the sector.

As at December 31, 2018, a total of 205 MFIs were operational in the country.

"The portfolio committee on budget, finance and economic development will hold public consultations on the Microfinance Amendment Bill (H. B. 11, 2018) from 08-11 April 2019, Clerk of Parliament Kennedy Mugove Chokuda said in a statement.

"The public, interested groups and organisations are invited to attend these consultations.

"Written submissions and correspondences are welcome and should be addressed to the Clerk of Parliament."

The committee would cover Harare, Mutare, Masvingo and Bulawayo during the four days.

According to a local law lobby group, Veritas, the Bill will amend the Microfinance Act [chapter24:30] to achieve two main objectives, which are to reduce the variety of institutions and strengthen supervision that can be exercised over MFIs.

"To reduce confusion and overlapping, the Bill will amend the Act to recognise only two institutions: credit-only microfinance institutions (namely companies that provide loans and credit to small-scale borrowers); and deposit-taking microfinance institutions, (namely companies that accept deposits from small-scale businesses and members of lower-income groups)," Veritas said in a statement.

The present law envisages four types of institutions, which include corporate, credit-only, deposit-taking MFIs and moneylenders.

Corporate MFIs engage in money- lending and/or accepting deposits from small-scale businesses and members of lower income groups, while credit-only MFIs provide loans and credit to small-scale borrowers.

Deposit-taking MFIs accept deposits from small-scale businesses and members of lower income groups and money lenders provide loans and credit.

In Zimbabwe, where the majority of citizens have no access to formal banking facilities, the MFI sector plays a significant role in the financial inclusion agenda and the attainment of sustainable development goals.

The amendments come at a time the microfinance sector showed a growth trajectory during the year ended December 31, 2018.

Positive growth was recorded in outreach, loan portfolio size, equity funding, and deposit mobilisation.

However, according to the Zimbabwe Association of Microfinance Institutions 2018 report, the institutional cost of delivering loan services from these institutions as measured by the operating expenses ratio (efficiency ratio) increased to 24% from 16% during the last quarter of 2018.

The report indicated that it now costs $24 to disburse a $100 loan, blamed on the 2% transfer tax and significant increase in inflation.

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