Zimbabwe’s high interest rates, multiple borrowings and growing debts
A total of 153 registered firms, which are largely concentrated in urban areas, prefer salary-based loans to individuals or corporates ignoring the productive sector.
Delinquency levels in the microfinance sector have remained high
The productive sector only accessed $48.92m with $121.08m going towards domestic consumption where more than 180 000 people got the loans.
Economists say the closure of companies, liquidations, property attachment over debt and continued spiraling of unemployment indicates that the economy remains fragile.
A report by the Reserve Bank of Zimbabwe indicates that despite the high interests rates by the moneylenders’ people still prefer them for cash.
“High interest rates charged by the MFIs have precipitated a high level of indebtedness among the microfinance clients which has the undesirable effect of negating the financial inclusion objective of microfinance,” the central bank said.
“The sector has remained largely dominated by 10 microfinance institutions which controlled 83,76% of the market share in terms of total loans as at March 31 2014.
“The largest microfinance institution had a total loan book of $54,01 million and total assets of $52,20 million as at 31 March 2014.”
The number of operating MFIs has been gradually increasing over the years and from 213 in 2005 to 309 in 2007.
However, the sector is threatened by the high default rate as hundreds of Zimbabweans continue to lose their jobs every month.
“Delinquency levels in the microfinance sector have remained high as reflected by the level of Portfolio at Risk (PaR > 30) ratio of 27.14% as at 31 March 2014,” the RBZ said.
The high par ratio is largely attributed to multiple borrowings on the background of high interest rates.
“High interest rates charged by the MFIs have precipitated a high level of indebtedness among the microfinance clients which has the undesirable effect of negating the financial inclusion objective of microfinance” the central bank said.
The RBZ said the average ratio of non-performing loans (NPL) to total advances rose marginally in three months to March as the weak economy militated against borrowers’ ability to repay.
NPL to total loans increased to 17 percent in the quarter to March from 16 percent as at December 31 last year, the RBZ said in its latest banking sector quarterly report.
Loans and advances for the quarter stood at about $3,64 billion.
“This trend is partly a reflection of macroeconomic challenges that have militated against borrowers’ ability to service loans,” said the central bank.
In the first six months, the banking sector was capitalised to the tune of $909 million and $755 million in terms of net capital and core capital respectively, compared to $933 million and $784 million as at 31 December 2013.