Evolution and Development of the Microfinance Sector in Zimbabwe
1.6 The microfinance sector in Zimbabwe dates back to 1963 when the Catholic
Missionary initiated a Savings Development Movement, (SDM) for rural women2. The
savings clubs grew in numbers from an estimated 30 in 1970 to 1500 in 1974.
1.7 The post-independence period in Zimbabwe created an enabling environment for the
further development of microfinance, particularly savings and credit cooperatives
(SACCOs) and (Rotating Savings and Credit Associations (ROSCAs).
1.8 A new economic dispensation created by the liberalization of the financial sector in
the early 90’s created a financial system characterised by stringent lending practices
by banking institutions in Zimbabwe which excluded low income groups and MSMEs
from accessing finance from banking institutions due to lack of acceptable collateral.
The situation presented an opportunity for NGOs to provide financial support to the
1.9 The growth of the sector was however, affected by the hyperinflationary environment
experienced from 2000 to 2008 which resulted in some microfinance institutions
1.10 The microfinance sector which contributed 2.32% of Gross Domestic Product in 2015,
is expected to continue registering modest growth on the back of anticipated growth
of deposit-taking microfinance institutions (DTMFIs) coupled with high demand for
credit. Financial inclusion initiatives are also expected to spur growth in the
microfinance sector through outreach programmes by stakeholders.
2 Raftopoulos, B. and J. Lacoste. (2001). From Savings Mobilization to Microfinance: A Historical Perspective on the Zimbabwean Self Help Development Foundation (SHDF). Food and Agricultural Organization (FAO) Paper presented at the International Conference on “Livelihood, Savings and Debts in a Changing World: Developing Sociological and Anthropological Perspectives”.
Kyrgyz Republic 2.0% 3.6%
Georgia 2.0% 3.0%
Ecuador -0.6% 0.1%
Average 3.5% 4.0%
1.11 Microfinance as one of the key pillars of NFIS is expected to play a key role in
promoting access to financial services in Zimbabwe. It can offer a wide variety of
financial services to the unbanked particularly at the bottom of the pyramid.
1.12 Digital financial services continue to gain popularity and provide opportunities to not
only expand outreach and reduce costs but also expand the menu of financial services.
From allowing MFIs to access micro-entrepreneurs in remote areas, to enabling the
implementation of more robust ICT and risk assessment tools, technology represents
a huge opportunity for microfinance institutions across the world.
CHAPTER 2 REGULATORY FRAMEWORK
2.1 Prior to August 2013, microfinance institutions were regulated under the Moneylending
and Rates of Interest Act [Chapter 14:14] and the Banking Act [Chapter 24:20].
2.2 The legal and regulatory framework for the microfinance sector in Zimbabwe was largely
inadequate. The legislation for the sector was a notable constraint to the deepening and
broadening of microfinance services and the participation of foreign investors.
2.3 The Moneylending and Rates of Interest Act [Chapter 14:14] was deficient in that it did
not sufficiently provide for important issues such as consumer protection, corporate
governance and was now out of sync with market developments.
Microfinance Act [Chapter 24:29]…
2.4 In recognition of the need for a more supportive and efficient regulatory and supervisory
legislative framework for the microfinance sector, the Microfinance Act [Chapter 24:29]
(the Act) was gazetted in 2013.
2.5 The Act provides for registration and deregistration of microfinance institutions,
including deposit-taking microfinance institutions and expectations for the standard
loan agreement, administrative, accounting, and risk management and corporate
Code of Conduct
2.6 The Act is also customer–centric and has strengthened the consumer protection
framework for microfinance clients through embracing the Core Client Protection
Principles shown in Fig 2 below which are enshrined in the Code of Conduct which is in
3.15 The proportion of women borrowers increased from 32.90% in 2014 to 42.10% in
3.16 Increasingly, agent banking and e-banking are being recognized as efficient and cost
effective delivery channels for financial products and services.
3.17 To this end, a number of microfinance institutions have embraced the concept of
agent banking by establishing agents in various areas including rural areas where they
cannot establish branches.
3.18 Some Microfinance Institutions have also become agents of banking institutions,
mobile financial services providers and insurance companies. This has enhanced their
service delivery channels as they are now able to disburse and collect loans using the
banks and mobile money platforms.
3.19 The Reserve Bank has developed Prudential Standards on Agency Banking, which
provide a framework for the participation of banking institutions and MFIs in
branchless banking and bring financial services to the target markets particularly the
31-Dec-11 31-Dec-12 31-Dec-13 31-Dec-14 31-Dec-15
No. of clients No. of women clients
Fig 5 Growth in Number of
CHAPTER 4 CONDITION AND PERFORMANCE OF THE MICROFINANCE
4.1 The microfinance sector plays a significant role in promoting financial inclusion, self-
sufficiency and economic development particularly among the low income groups and
small to medium enterprises.
4.2 Loans to the microfinance sector amounted to $187.16 million as at 31 December 2015,
an increase of 19.21% from $156.99 million as at 31 December 2014.
4.3 The top twenty microfinance institutions with a total loan book of $162.79 million
controlled 86.98% of the sector’s total loans as at 31 December 2015. The largest
microfinance institution, with a loan book of $32.50 million, commanded a market
share of 17.37% as at 31 December 2015.
4.4 As at 31 December 2015, loans comprised 83.13% of total microfinance assets of
$225.13 million compared to 77.45% as at 31 December 2014.
4.5 Fig 6 shows the trend in growth of loans in relation to growth in total microfinance
Fig 6: Growth in Total Microfinance Sector Assets and Loans
4.6 The bulk of loans disbursed by microfinance institutions were for consumption
202.71 202.58208.76 207.74
164.2156.99 163.53 162.2
2013 2014 MAR-15 JUN-15 SEP-15 DEC-15
Total Assets Total Loans
purposes constituting 54.26% while loans for productive or income generating
purposes constituted 42.43% as at 31 December 2015.
4.7 Table 2 shows the distribution of loans between productive or income generating
purposes and for consumption purposes.
4.8 There has been a significant shift from consumption lending as reflected by the drop in
the proportion from 70.89% in 2013 to 54.24% in 2015. It has also been established
that some of the individual loan facilities under consumption lending are utilised for
4.9 MFIs have contributed to the development of
various areas in the country through financing
projects involving activities such as:
i. Banana Plantations in Honde Valley,
ii. Micro-mortgage facilities to staff of universities, teachers unions and other
iii. Irrigation Projects such as Redwood Irrigation Scheme in Umguza, Matebelenad
iv. Cattle Fattening Schemes such as Masakhane Zihlobo Pen Fattening in Nkayi;
2013 2014 2015
Fig 3: Distribution of Loans : 2013-2016
Mhende Irrigation Scheme-
Chirumanzu District, Mvuma
v. Small Scale Dairy projects in Chipinge.
4.10 The funding by MFIs has positively impacted
on the livelihoods of people around the
country. Small scale general dealers who
benefited from working capital increased the
variety of their trading stock and diversified
their businesses as well as introducing credit
4.11 Microfinance institutions have also provided value chain financing to smallholder
livestock farmers who managed to increase their fattened cattle throughput. Small
scale horticulture farmers have also benefited immensely from microfinance loans that
have increased their disposable income and assets accumulation.
Portfolio at Risk (PaR)
4.12 The size of the portfolio at risk (PaR) ratio in the microfinance sector increased
marginally from $19.29 million as at 31 December 2014 to $20.06 million as at 31
December 2015. The growth was in line with the growth in the loan portfolio for the
entire sector on a year on year basis.
Small Scale Farmer, Mutoko, Mashonaland East
4.13 Although the level of credit risk in the sector as measured by the Portfolio at Risk (PaR)
ratio has been declining over the years from a peak of 25.52% as at 31 December 2012
to 10.72% as at 31 December 2015, the sector remains vulnerable to credit risk.
4.14 The improvement in the PaR ratio in the sector over the years is largely attributable to
improving credit risk management strategies and strengthening of underwriting
standards employed by microfinance institutions including enhanced credit risk
analysis and increased use of credit references.
4.15 The level of PaR is expected to continue improving in line with the on-going supervisory
initiatives including the capacity building in the areas of credit analysis and delinquency
management and the establishment of a credit reference system by the Reserve Bank.
4.16 Net profit after tax in the sector declined from $24.84 million for the year ended 31
December 2014 to $12.88 million for the year ended 31 December 2015. The decline is
largely attributed to increases in operating costs.
4.17 Fig 8 shows the trend in net income for the sector.
4.18 Consequently return on assets and return on equity declined significantly during the
same period as shown in Fig 11.
2011 2012 2013 2014 2015
FIG 8 :NET INCOME : 2011-2015
4.19 For the year ended 31 December 2015, eight (8) institutions, recorded net profit in
excess of one million dollars with eighteen (18) institutions posting losses. The losses
recorded by twelve (12) out of the eighteen (18) institutions were largely attributed to
start-up costs while those for the remaining six (6) institutions’ losses were attributed
to increases in provisions for bad & doubtful debts during the year.
Composition of Income
4.20 Total operating income of $100.15 million largely comprised interest income for the
year ended 31 December 2015. Ten microfinance institutions recorded total operating
income of $62.22 million constituting 62.12% of total income for the sector.
4.21 A number of microfinance institutions are considered sustainable3 as reflected by the
average Operational Self Sufficiency (OSS) of 124.57% for the year ended 31 December
2015. OSS is the ratio of an MFI’s operating revenues to its operating expenses
including the financial costs and impairment losses on loans.
4.22 The average OSS ratio is above the break-even point of 100%. Fifteen (15) microfinance
institutions out of 145 recorded OSS ratios of less than 100% largely due to high
3 Sustainability refers to the ability of a microfinance institution (MFI) to cover all its costs through interest and other income paid by its clients independent of external subsidies from donors or the government.
2011 2012 2013 2014 2015
Fig 9 : Profitability Ratios:2011-2015
4.23 A total of 18 institutions posted losses amounting to $7.65 million, with one
institution’s losses of $7.01 million contributing 91.67% of the total loss figure which
significantly weighed down the sector’s average OSS ratio.
4.24 The sector’s top twenty MFIs (total loans) had operating expenses ratio of less than
70% for the year ended 31 December 2015, indicating that the larger MFIs are striving
to enhance their operational efficiency.
4.25 Microfinance institutions’ funding mix for their operations include debt and equity.
Aggregate equity infusion in MFIs increased by 25.94% from $72.49 million in
December 2014 to $95.71 million in December 2015. Microfinance institutions also
accessed a total of $127.52 in debt financing for the period ended 31 December 2015.
4.26 The trend in the sector capital levels from 2011 to 2015 is shown in Fig 10.
4.27 Although a few microfinance institutions have embraced social performance
measurement, there is still more work to be done in this area as Zimbabwe is lagging
2011 2012 2013 2014 2015
Fig 10: Total Sector Capital Levels: 2011 – 2015
behind. To accelerate this, the Zimbabwe Association of Microfinance Institutions
(ZAMFI) together with other stakeholders convened a Social Performance
Management workshop in April 2015. The workshop was facilitated by the Grameen
Foundation Southern Africa office based in Uganda.
4.28 Initiatives are underway to adopt the Progress out of Poverty Index (PPI) for
Zimbabwe. The PPI will scientifically measure progress out of poverty which all MFIs
can use going forward.
Challenges in the Microfinance Sector
4.29 The performance of the sector has been constrained by the challenges discussed
4.30 MFIs are primarily funded through equity, loans and credit lines. Since the adoption of
the multi-currency system in February 2009, these traditional sources have been
limited. The microfinance sector has operated under a constricted liquidity
environment which has manifested through constrained funding ability, limited credit
creation and high lending rates.
4.31 A number of microfinance institutions continue to struggle to build financial capacity
to underwrite meaningful business. Weak capitalisation is constraining the organic
growth of microfinance institutions.
4.32 The liquidity constraints and limited availability of wholesale funds in the economy has
adversely hampered the provision of financial services to the low income groups and
micro, small and medium enterprises.
4.33 Inadequate funding has also affected microfinance institutions’ capacity to acquire
robust ICT and risk management systems to support their operations and facilitate
impact and financial stability assessments. Weak management information systems
(MIS) have also affected institutions’ ability to submit regulatory returns therefore
hampering performance monitoring of the industry.
Shortage of Relevant Microfinance Skills…
4.34 The sector continues to experience shortage of critical and relevant skills in
microfinance in the areas of micro-credit analysis, risk management and
administration, largely due to funding constraints and inability to train and retain skills.
The shortage of relevant microfinance skills has negatively affected the institutions’
capacity to manage risks emanating from their activities.
Absence of a Comprehensive Credit Reference System…
4.35 The absence of a comprehensive credit reference system for use by MFIs operating in
Zimbabwe has affected the quality of MFIs’ credit risk management systems resulting
in multiple borrowings among the low income groups which leads to over-
4.36 Information asymmetry in the sector is hampering access to financial services by the
low-income groups as the microfinance institutions do not have access to credit
information for the prospect borrowers.
Illegal Deposit-Taking by Some Microfinance Institutions…
4.37 In 2012, the Reserve Bank cancelled the operating licences of a number of credit-only
microfinance institutions which were boosting their funding bases by illegally
mobilizing deposits, and quoting fictitiously high deposit rates which were meant to
entice members of the public.
4.38 The Reserve Bank has been inundated with complaints from the members of the public
regarding unsustainably high lending rates which have contributed to high levels of
indebtedness. The institutions, given the target market, have failed to aligning their
cost structures to reflect the obtaining operating environment.
4.39 In addition, the nature of complaints also reflect that some MFIs are not fully and
clearly explaining the terms and conditions of their loan facilities.
CHAPTER 5 RESPONSES TO CHALLENGES IN THE MICROFINANCE SECTOR
5.1 Cognisant of the need to create profitable and sustainable microfinance institutions
that offer affordable financial services, the Reserve Bank has taken initiatives
discussed below to eliminate the impediments to the growth of the microfinance
Capacity Building Initiatives
5.2 The Reserve Bank in conjunction with other stakeholders including ZAMFI has
facilitated a number of capacity building programs including training workshops and
attachment programs for Reserve Bank officers to share supervisory experience in the
area of regulation and supervision of deposit-taking microfinance institutions.
5.3 The Harare Institute of Technology (HIT) in collaboration with ZAMFI and the Reserve
Bank developed and introduced a professional training programme in microfinance
which leads to a Professional Certificate and Diploma in Microfinance.
Membership of Industry Association
5.4 The Reserve Bank continues to encourage microfinance institutions to be members of
a recognised industry association. Membership of an industry association enables
microfinance institutions to tap into industry best practices and standards and
facilitates access to technical assistance, information, training and tools, and funding.
Microfinance Advisory Council
5.5 In 2013 the Reserve Bank in conjunction with the Ministry of Finance & Economic
Development, ZAMFI, other financial sector regulatory authorities and other
stakeholders formed the Microfinance Advisory Council (MAC) to spearhead the
development of the microfinance industry and promoting financial inclusion.
5.6 The terms of reference of MAC include:
i. advise the government on strategies and policies for the development of the
ii. promote and facilitate capacity building in the microfinance sector;
iii. promote professionalism, integrity, accountability and dissemination of best
practices in the microfinance sector; and
iv. promote financial inclusion through encouraging and facilitating the
development of innovative microfinance products and delivery channels;
5.7 MAC has reviewed the Zimbabwe Microfinance Policy and organised workshops to
educate microfinance institutions on their duties and responsibilities in terms of the
Microfinance Act [Chapter 24:29].
Initiatives to Enhance Financial Capability Levels
5.8 The World Bank Consumer Protection and Financial Literacy Diagnostic Review and
the FinScope Consumer Survey of 2014 revealed that although Zimbabwe has a high
rate of general literacy, there is low financial literacy. As a result, consumers do not
understand some financial concepts particularly the financial language used in loan
applications and loan agreements which results in over indebtedness and high default
5.9 In this regard, the Reserve Bank issued Consumer Education and Awareness Bulletins
to educate the public on financial terminologies, financial services and responsible
5.10 Further, the Reserve Bank engaged civil organisations and associations including the
Zimbabwe Teachers Association, Progressive Teachers’ Union and Consumer Council
of Zimbabwe as important stakeholders in financial consumer education and
Establishment of Credit Information System
5.11 The Reserve Bank with the technical support of experts from the World Bank is
working towards the establishment of a credit information system which will
alleviate the information asymmetry in the financial sector.
Establishment of a Collateral Registry
5.12 The Reserve Bank has also accessed financial and technical support of the World Bank
to establish a collateral registry which will enhance access to finance for lower income
groups on the back of movable assets as collateral.
CHAPTER 6 ROLE OF MICROFINANCE IN FINANCIAL INCLUSION
6.1 The FinScope Survey of 2014, revealed that only 23% of the rural population is formally
banked compared to 46% of the urban population, and only 14% of MSMEs owners
are banked. In addition there are low levels of financial literacy and capability, and a
decline in the actual usage of banking services between 2011 and 2014.
6.2 Empirical evidence has demonstrated that microfinance can be a catalyst in economic
development and eradication of poverty through engagement of previously excluded
sections of the community, particularly the youth and women. The scope of
microfinance emerged from humble beginnings of provision of micro-credit to the low
income groups to become a key pillar of financial inclusion through provision of a
wider range of financial products and services including insurance, savings and
Access to Financial Services…
6.3 The role of microfinance in financial inclusion manifests itself through the creation of
facilities that enable the low income groups and MSMEs, which are affected by
comparatively higher levels of financial exclusion, to access a variety of financial
services including microcredit, micro-savings, remittances, payments, micro-
insurance and pensions, delivered through an extensive branch network in
partnership with banking institutions and mobile network operators.
6.4 Microfinance institutions are undoubtedly best-placed to address some of the
demand-side barriers to access to finance by MSMEs as, among other attributes, they
possess vast experience in MSME financing. In this respect, the microfinance sector
is expected to be instrumental in the implementation of the SME Financing Policy.
6.5 With adequate and appropriate funding, microfinance institutions can be the main
source of funding for the MSMEs that cannot access funding from the banking
institutions due to lack of collateral usually demanded by the banks.
A young businesswoman running a wire meshing business at Hauna Growth Point, Manicaland
6.6 Notwithstanding the fact that 57% of the
business owners in Zimbabwe are women
(Finscope Survey, 2012), and that women
constitute the majority of the Zimbabwean
population, women remain highly
excluded from the formal financial services
6.7 The microfinance institutions have
recognised this opportunity and have in
the past year increased their lending to women owned enterprises from 32.90% in
2014 to 42.10% in 2015 of the aggregate loan portfolio of the sector.
Small-Scale Agriculture Financing
6.8 In recognition of the fact that Zimbabwe is an agro-economy with agriculture
contributing about 12% of the country’s GDP in 2014 and more than 60% of inputs to
the manufacturing sector, the microfinance institutions have made inroads in
broadening of access to financial services particularly by smallholder farmers. A
number of microfinance institutions have provided financial support to smallholder
farmers for the production of groundnuts, paprika, bananas and livestock.
A General Dealer Store run by a woman at Siphambi Businesss Centre, Masvingo
6.9 The role of microfinance institutions in the financing of agriculture is expected to be
bolstered by the implementation of an Agricultural & Rural Finance Policy which is
being developed as part of the implementation of the NFIS.
6.10 Youth in Zimbabwe are excluded from formal financial services largely due to high
levels of unemployment, negative stereotypes about youth who are considered high
risk-takers, lack of collateral, limited business and life experience, and lack of track
record or credit history. This is in addition to the other demand side constraints
affecting all consumers of financial services.
Small Scale Banana Planation owned by a woman in Honde Valley, Manicaland
6.11 Microfinance Institutions are expected to be instrumental in implementing financial
inclusion strategies for the participation of the youth in some or all of the following
measures proposed in the National Financial Inclusion Strategy:
i. Design and implementation of financial literacy programs for the youth;
ii. Establishment of a youth empowerment window by all financial institutions;
iii. Development of appropriate collateral substitutes in order to address the
challenge of security among youth borrowers;
iv. Capacitation of vocational training centres across the country to ensure well
trained graduates are in a position to apply their knowledge on start-ups; and
v. Ensuring that regulatory frameworks and policies are youth friendly and
protective of youth rights in order to increase youth financial inclusion.
6.12 The registration of deposit-taking microfinance institutions will go a long way in
mobilisation of deposits from the historically marginalised segments of the
population, through the development and introduction of innovative and tailor-made
savings accounts which suite the size and level of their cashflows. By providing
savings opportunities for households and MSMEs, deposit-taking microfinance
institutions reduce the vulnerability of their clients to natural disasters, and
A young farmer attending to a Horticulture project .