Agric leads, as MFIs extend $316m loans

Ndodana Sibanda shows how the center pivot works to water the wheat in Arda Jotsholo recently. (picture by Nkosizile Ndlovu)

CREDIT only microfinance institutions (MFIs) have shifted their lending priority from personal and consumptive loans to agriculture and other key productive sectors, which cumulatively received 64 percent of the $316 million loans in the second quarter of 2019.

Microcredit is touted as an important tool for poverty reduction in the world, and has received global recognition after the successful experience of Yunus in Bangladesh, where the population was stimulated towards better living conditions through own productive ability.

ZAMFI said at $316 million, the microcredit sector registered a 26 percent increase in the amount of loans extended to borrowers over the three months, mainly in the productive sectors in line with Government’s call to increase support to this part of the economy.

“The previous quarterly increase (January to March 2019 period) was $18,5 million, indicating that the sector is increasing its lending,” the Zimbabwe Association of Microfinance Institutions (ZAMFI) said in its latest quarterly report.

“As indicated…the sector that received most of the funds from MFIs is agriculture (35 percent) and the productive sector (29 percent) representing a total of 64 percent of the loan book,” ZAMFI said.

ZAMFI noted that there had been significant shift of the microfinance business away from the traditional consumption loans, generally regarded as less productive and inflationary.

“The support of the productive sectors of the economy by the MFIs resonates very well with current Government’s efforts to increase the production of goods and services,” ZAMFI said.

Zimbabwe, being an agro-based economy, has 80 percent of the population depending on agriculture, which justifiably took most of the MFIs’ loans in the second quarter of 2019.

In addition, agriculture is of strategic importance, given that, it is the major employer in Zimbabwe, accounting for 65 percent of the rural population while manufacturing derives most of its inputs from the sector.

As at 30 June 2019, the loan portfolio for the credit-only microfinance sector amounted to $315,84 million while the total for non-performing loans (value of loans in arrears by over 30 days) was $46,05 million, which constitutes about 14,58 percent the total industry loan portfolio.

This represents a deterioration of the quality of the loan portfolio compared with 11,01 percent reported in the quarter to March 2019.

The MFIs association said the international benchmark of the portfolio at risk (PAR) ratio is 5 percent.

ZAMFI said the main reason for the high delinquency level is the adverse macroeconomic environment characterised by high inflation and sudden deterioration in income levels of the majority of clients who borrow from the MFIs.

“Major policy changes such as introduction of the new currency (Zimbabwe dollar), interbank market for foreign currency trading, slow adjustment of workers’ salaries by many employers has left many clients highly exposed to over indebtedness,” ZAMFI said.

The sector reported total income for 6 months amounting to $53,7 million and a portfolio yield ratio of 19,9 percent, up from 14 percent reported in March 2019. This represents the amount the sector has received from clients in terms of interest and fees.

The benchmark for portfolio to yield is generally 20-30 percent. Net profit increased from $4,5 million in March 2019 to $6,9 million in June 2019 leading to return to equity of 10,4 percent for the shareholders. This is well above the international benchmark of 5-7 percent expected for the industry.