The Zimbabwe Association of Microfinance Institutions (Zamfi) recently published its first-quarter report which was less reflective of the negative effects of COVID-19 but pointed out that the pandemic was likely to take a huge toll on the sector. Although the sector’s loan portfolio remained stable for the period up to March 2020 as indicated by the reported portfolio at risk (PAR) (>30) of 13,93% as at March 31 against 13,38 % for December 31, 2019, Zamfi said it is important to note that the post-lockdown period put tremendous pressure on microfinance credit systems of disbursements and repayments, especially on microfinance institutions (MFIs) that had lagged behind in the implementation of information communication technology systems. Business reporter Melody Chikono (MC) this week spoke to Zamfi executive director Godfrey Chitambo (GC, pictured) on the association’s operations and the impact of the Covid-19 lockdown on the sector. Below are the excerpts of the interview:
MC: In the face of Covid-19, how do you see the sector performing in the aftermath of the pandemic?
GC: We want to acknowledge that the pandemic is still a very ongoing concern, from its negative perspective, that is, it seems it wants to be with us humans for some time to come. We cannot, therefore, talk about the aftermath because we are not sure when this will happen. We can make reference to interim, preliminary and precautionary statements.
Be that as it may, we are resolved as a sector that we are determined to and will outlive the pandemic. There will be casualties, yes, but we will survive it. All other pandemics have eventually been dealt with by mankind. That is why we are still here. The truth is that the sector will undergo drastic changes, a metamorphosis if you like.
We will take stock and inform stakeholders what our new look will be like after the pandemic has been dead and buried. In any way, we will see ourselves as a sector which can go through turbulences and survive and will be better prepared for future eventualities. People always learn from something and we will keep on learning.
MC: How have you been affected in terms of operations by this pandemic?
GC: The pandemic has wreaked havoc. I think if it was a cyclone it would have been on a gigantic scale, if equated to an earthquake it would hit something like 3,9 on the Richter scale. Firstly, it disturbed some facets of our operations. Microfinance was still transiting from high-touch low-tech to high-tech low-touch.
Some of our members were still highly dependent on a human-to-human operational interface level. The first three weeks and then other subsequent lockdown regimes meant little or no interface. The requirement of just essential services also meant that some of our clients could not do normal business — staff could not access their offices, working time was re-configured and then the unbudgeted costs of the screening machines, sanitisation, face masks etc.
Some of our members’ clientele were vendors, cross-border traders, horticulture, small-scale traders, etc. There was massive disruption of operations, collection methods, and repayment and, although we are still assessing the damage, quite a huge number of loans have gone delinquent.
We are in the process of getting statistics from our members. The questionnaire is being sent out on July 4 2020. Our April-June report will, therefore, have the Covid-19 disturbance figures contained therein.
MC: Where do you see the future of the loan portfolio given that the post-lockdown period — first phase — put tremendous pressure on microfinance credit systems?
GC: As intimated, microfinance is not the only sector affected by the pandemic. It has cut across and decimated all and sundry in its wake. In our case, it is not only the loan portfolio, which is the biggest concern. Our biggest concern is the operating environment.
The Ministry of Finance and the Reserve Bank of Zimbabwe (RBZ) are battling to steady the ship in very bad turbulence. There are issues to do with disbursing systems like EcoCash and limits to be disbursed. There is also the challenge of surging inflationary charges, which makes it very hectic and nearly impossible to lend out in local currency.
The new weighted system is something everyone is still trying to come to grips with so the loan portfolio is only one of the many issues the sector is grappling with. If the operating environment is stabilised and predictable, the sector can find means to look and deal with the micro level.
As MFIs, we have the capacity, know-how and experience to deal with the micro, but the macro must be dealt with first and very soon. No economy can be allowed to play like a yoyo. For instance, to limit face-to-face interaction, we were poised for massive digital implosion on both disbursements and collections, but maybe in their quest and desire to control money supply, the authorities have put restrictions on the ability of MNOs (mobile network operators) to allow our members to disburse at the desired levels.
Limiting disbursable amounts in an inflationary environment when the loan size should be going in tandem with events limits the mooted desire to go all out for digitisation. It could be mini suicide, but as an association we are always, and gratefully too, in contact with the relevant authorities so that, come the end of the pandemic, there is something to salvage from the sector. The sector survived 2008 and it shall survive 2020.
MC: In the interim, what measures have been put in place as a sector for your continued viability?
GC: The first thing we have done is to create a quasi-command centre in terms of communications with our members to bring challenges into real time. We have a platform where we quickly throw in pain points, they are discussed and recommendations and resolutions done.
The Zamfi board then quickly engages the relevant stakeholder and in some instances relief is granted within that same day. In some cases, no relief is given but we have benefited from peer experience and, indeed, like we have always known, one’s problems can be solved by another colleague. This is proving true and very beneficial. This platform keeps everyone up to speed and, if nothing can be solved, just sheer bravado will prop up a member who is on the point of collapsing.
MC: What are the implications of allowing the use of free funds on MFIs operations?
GC: This would have been the best option because it cuts out the risk of exchange rate volatility as well as its attendant cousin, inflation. MFIs could lend a little bit better and concentrate on just growing their portfolios than to become an octopus or a fundi on anticipating and extrapolating trends. Some of our members are quite small and would not have those skills in their operations. This could bring stability and preservation of the loan book.
MC: What other key interventions do you still need to create a level playground for MFIs in Zimbabwe?
GC: We want to applaud the state for allowing deserving MFIs to now have perpetual licences. Beginning February this year, the RBZ was meeting practitioners to disseminate and inform all about the new tenets of the amendments to the policy.
From a Zamfi point of view, this would reduce casualties and save for the pandemic, this was a welcome move. The sector found space and time to dialogue with the authorities on the major prohibitive issues and matters of concern to the sector were discussed in detail, including the request and possibility of lending in foreign currency. Reponses were scuttled by Covid-19, but we are still hopeful positive responses will still come.
MC: You indicate that the sector like any other is facing the toughest period ever since its existence. What is your comment on financial bailout for the sector?
GC: We have studied what other countries have done in response to the Covid-19 pandemic with specific reference to microfinance survival and sustainability. We have looked at Peru, Nigeria, Benin, Pakistan, India to mention, but a few and all have put in place emergency liquidity rescue plans either through the ministries of finance or under monetary authorities.
We have submitted proposals to the RBZ and the Ministry of Finance. With specific reference to the Ministry of Finance, we are aware that there is a ZW$18 billion economic bailout package. We had submitted comments on the disbursing modalities.
We are still waiting for responses from both authorities and the sector is once again very hopeful for favourable responses as everyone is aware that microfinance is one of the four pillars on the financial Inclusion strategy which should accelerate the reduction of poverty.
Whilst, therefore, we are going through very painful period, we have admitted that it is a national and global pain. We will continue to trade within the confines of the pandemic. There might be a few changes in a number of ways but we want to thank the borrowing and saving public for bearing with us and the Zamfi board assures you all that as we will rise from the ashes we will be better resolved to serve you better and try and cover up for lost time.
Poverty has no let-down and we need more aggression in our attempt to banish it to the archives, which is where we truthfully believe it belongs.