Microfinance Deliquencies on the Rise

Delinquency levels in Zimbabwe’s microfinance sector have worsened to 27.14%, a report by the Reserve Bank of Zimbabwe (RBZ) has shown. In its quarterly microfinance industry report for the quarter ended March 31 2014, the RBZ said portfolios at risk level for the microfinance industry had jumped to 27.14% from 16.03% for the quarter ended 31December 2013. Analysts said generally any portfolio at risk exceeding 10% should be cause for concern, because unlike commercial loans, most microcredits were not backed by bankable collateral.

The RBZ said the high portfolio at risk ratio was largely attributed to multiple borrowings on the background of high interest rates.

h3. Interest Rates reach 18%

Interest rates in the sector range from between 5% and 12% per month, but can go as high as 18% when dealing with unregistered or unscrupulous institutions. The RBZ said the high interest rates charged by the microfinance institutions had precipitated a high level of indebtedness among the microfinance clients. This goes against the financial inclusion objective of microfinance. Most of the loans, amounting to US$121.08m or 71.22% of the total, went towards consumption with the balance going towards the productive sector.

h3. ‘Pathway to Poverty’

A total of US$ 170m was given out by the microfinance institutions in the quarter under review, up from US$ 164.2m in the December 2013 quarter. Analysts said the microfinance model currently in use has largely deviated from the initial intentions. “Ideally microfinance loans are meant to go into supporting income-generating micro-enterprises but have often been used to support current spending, and the result has been a disastrous and irreversible pathway into chronic poverty.”

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