Zimbabwe’s high interest rates, multiple borrowings and growing debts

Friday, July 11, 2014

A total of 153 registered firms, which are largely concentrated in urban areas, prefer salary-based loans to individuals or corporates ignoring the productive sector.

The productive sector only accessed $48.92m with $121.08m going towards domestic consumption where more than 180 000 people got the loans.

Economists say the closure of companies, liquidations, property attachment over debt and continued spiraling of unemployment indicates that the economy remains fragile.

A report by the Reserve Bank of Zimbabwe indicates that despite the high interests rates by the moneylenders’ people still prefer them for cash.

“High interest rates charged by the MFIs have precipitated a high level of indebtedness among the microfinance clients which has the undesirable effect of negating the financial inclusion objective of microfinance,” the central bank said.

“The sector has remained largely dominated by 10 microfinance institutions which controlled 83,76% of the market share in terms of total loans as at March 31 2014.

“The largest microfinance institution had a total loan book of $54,01 million and total assets of $52,20 million as at 31 March 2014.”

The number of operating MFIs has been gradually increasing over the years and from 213 in 2005 to 309 in 2007.

However, the sector is threatened by the high default rate as hundreds of Zimbabweans continue to lose their jobs every month.

“Delinquency levels in the microfinance sector have remained high as reflected by the level of Portfolio at Risk (PaR > 30) ratio of 27.14% as at 31 March 2014,” the RBZ said.

The high par ratio is largely attributed to multiple borrowings on the background of high interest rates.

“High interest rates charged by the MFIs have precipitated a high level of indebtedness among the microfinance clients which has the undesirable effect of negating the financial inclusion objective of microfinance” the central bank said.

Source: The Africa Report (link opens in a new window)

Categories
Uncategorized
Tags
banking, Base of the Pyramid, financial inclusion, financial services, microfinance