By Fidelity Mhlanga
LOCAL banks risk appetite has significantly gone down by nearly US$200 million over the past year, with Micro Finance Institutions (MFIs) battling to cover the gap in what analysts say signals growing informalisation of the economy.
Bank loans and advances decreased from US$3,87 billion in 2015 to US $3,69 billion by end of 2016, the Reserve Bank of Zimbabwe’s monetary policy statement (MPs) show.
While bank’s lending is on a downward spiral year on year, total loans and advances by MFIs almost doubled from US$87,46 million in March to US $158,01 million by end of December last year.
Economist John Robertson said the growth in loans offered by MFIs and a slump in bank loans indicates proliferation of the informal sector as more and more people now rely on MFIs than formal banks.
“This mainly shows the growth of the informal sector as people without security go to MFIs than formal banks. This is not helping the economy in terms of tax revenue, employment creation as this is mostly done by individuals with no capacity to employ others. It’s not a welcome development since more and more people are depend on the informal sector,” he said.
Economist Kipson Gundani said MFIs are now preferred by ordinary Zimbabweans as they have more flexible conditions for acquiring loans.
“The major contributing factor is that it is less stringent and perhaps faster to get a loan from a microfianance institution than a bank. More so, most microfinance institutions accept motor vehicles and other movable assets as collateral hence more convenient to the low income borrowers,” he said.
Consequently the growth of active clients serviced by MFIs considerably grew from 185,471 to 222,007, an indication that more people are now turning to MFIs for loans.
The number of licenced MFIs improved to 185 (including deposit taking) from 159 during the period March to December 2016.
Not to be outdone is the number of MFI branches to service clients which grew from 591 to 639.
According to the MPS, four deposit-taking microfinance institutions (microfinance banks) namely African Century Limited, Getbucks Microfinance Bank, Success Microfinance Bank (formerly Collarhedge Finance) and Lion Microfinance Bank over and above the 181 registered credit-only microfinance institutions.
A significant shift in the lending dynamics of microfinance institutions was noted as 69% of US$158,01 million was loaned to productive sector as at December 31 2016.
The US$158,01 million was loaned by 181 credit microfinance exclusive of the four deposit taking institutions.
While there was a surge in the loans offered by MFIs, it is noteworthy that the number of outstanding loans grew from US$209,906 to US$327,539 from March to December 2016.
“With effect from January 2017, the Reserve Bank commenced the process of registering various credit providers such as banking institutions, microfinance institutions, deposit-taking MFIs and credit shops as subscribers in the credit registry system to enable them to access the credit registry database,” the MPs said.
The MFI sector has according to the MPs witnessed an improvement in the portfolio quality, as measured by the Portfolio at Risk (PaR>30 days) since December 2012, with year on year PaR significantly improving from 25,2 % as at December 31 2012, to 8,75% as at September 30 2016.
However, the ratio increased over the quarter ended December 31 2016 to 12,06% largely due to non-performance of salary based loans.
Portfolio at Risk (PaR) is calculated by dividing the outstanding balance of all loans with arrears over 30 days, plus all refinanced (restructured) loans, by the outstanding gross portfolio as of a certain date.
Further, microfinance institutions according to the MPs are required to protect their clients from over-indebtedness through responsible lending and compliance to the industry code of conduct.
“Microfinance institutions are required to strengthen their corporate governance structures and risk management systems in order to build sustainable financial institutions that can grow and provide financial services on a permanent basis to an increasing proportion of the low income and marginalised groups,” the MPs said.
Turning to the banking sector, the MPs alludes that funding to the productive sectors of the economy, such as mining and manufacturing continues to be constrained by the short-term liability structures of banking institutions’ balance sheets.
Short term liability is a debt or current liability arising from normal business operations and recurring expenses that is expected to be satisfied within one year.
Of the US$3,69 billion loaned by banks in 2016, a huge chunk of 28,7% went to individuals, agriculture got 16,7%, distribution 15,3%, services 14,95 % and manufacturing sector got 10,4%.
The mining sector received 4,5%, construction sector 3,5%, financial firms 2,11% and communication 1,5%.
The decrease by nearly US$200 million in the bank’s appetite to lend may also be informed by the previous growth of Non-Performing Loans, which had grown by 20,45% at its peak and slumped to 7,87% by December last year, thanks to the Zimbabwe Asset Management Company (Zamco), which has absorbed NPLs amounting to US$812,52 million — comprised of proprietary portfolio US$548,66 million and managed portfolio US$263,86 million.