Bulk of loans going towards consumption

US DollarsTotal loans in the micro-finance sector increased to $156,99 million in 2014 from $151,83 million in the September quarter with the bulk — 53,30 percent — still going towards consumptive lending.The loans made up 3,92 percent of aggregate banking sector loans of $4,01 billion as at December 2014.

The Reserve Bank of Zimbabwe Micro-finance Industry report for 2014 says that the sector’s loan portfolio remains skewed towards consumption although there had been an improvement on productive lending.

“Consumption lending which predominantly comprises salary-based loans constituted 53,30 percent of total industry portfolio.”

In spite of the decrease in the percentage from 70,89 percent analysts still warn of the dangers of a high ratio of consumption lending.

Far from being a social enabler that facilitates economic empowerment, consumer-facing micro-lending is a road to economic ruin. On top of the individual tragedy of immiserating debt, the reallocation of a country’s scarce resources from investment to consumption drags economic growth lower.

There has, however, been a notable shift in productive lending to 46,7 percent from 29,11 percent in 2013.

The increase in productive loans was due to the imposition by some funders of the requirement to lend.

The top ten micro-finance institutions controlled 63,20 percent while the largest MFI commanded an individual market share of 19,29 percent in terms of total loans.

Portfolio quality as measured by the Portfolio at Risk (PaR) (30 days) improved marginally during the period to 11,29 percent from 12,08 percent as at September.

“This compared favourably with the PaR ratio of 16,03 percent as at 31 December 2013.”

RBZ says the improvement in the PaR is largely due to enhanced credit analysis in the industry where some MFIs are increasingly making use of credit checks that promote rigorous analysis of borrowers to avoid over-indebtedness.

“This move is consistent with the provisions of the Micro-finance Act. The conscious bid to control the level of credit risk in micro-finance portfolios has also resulted in portfolio skewness to consumer lending.”

The level of the PaR (11,29 percent) remains above the international benchmark of 5 percent, largely reflecting the negative impact of the liquidity challenges that continue to constrain the economy.

The number of registered micro-finance institutions) increased to 147 from 135. The number of MFI branches increased to 473 at year-end from 334 in Q September with Harare having the bulk at 120, Bulawayo 37, Gweru 27 and Masvingo 24.

There was, however, an annual decrease in the branches from 482 recorded in 2013 as some closed branches in response to the economic downturn.

RBZ noted that the growth of the sector continues to be hampered by funding challenges largely attributed to the limited availability of affordable long-term finance.

Total assets in the period decreased to $202,71 million from $210,11 million as at September.

“Competition continues to increase in the sector largely stemming from banking institutions entering the sector which are also able to offer relatively lower interest rates as a result of their more favourable funding capacities. This has resulted in the downward adjustment in the lending rates by some MFIs.”

The top ten micro-finance institutions controlled 63,20 percent while the largest MFI commanded an individual market share of 19,29 percent in terms of total loans.

RBZ applauded the sector for the role it plays in promoting financial inclusion, self-sufficiency and economic development particularly among the low income groups. — Wires.