Zimbabwe: Bill tightens screws on MFIs
By Bernard Mpofu: News Day
The government is crafting a new law for microfinance institutions (MFIs) which will compel the lenders to disclose trading conditions, as the number of debt-trapped Zimbabweans continues to rise due to ignorance.
As a result of the liquidity constraints and cautious lending taken by most commercial banks, many people have turned to the microlending institutions for consumer and business loans.
However, with interest rates as high as 10% per month, default rates have increased, which in turn has seen properties being attached to recover funds.
The microfinance business is generally regarded as the provision of financial services to the unbanked and under-banked households and small-to-medium enterprises.
The minimum capital requirement for the MFIs is currently set at $5 000.
According to a Bill gazetted last Friday, microfinance institutions, which previously were regulated by the Banking Act, could soon be regulated by the Microfinance Act, should the Bill sail through Parliament and signed into law.
“A microfinance institution shall not pay a dividend to its shareholders unless it has made adequate provision against losses on loans and has taken adequate steps to ensure compliance with the financial requirements specified in this Act,” reads part of the Bill.
Every microfinancier, the Bill proposed, shall display: “The monthly and annual rates of interest, which it imposes on loans and advances, and details of all charges, other than interest, which it imposes on loans and advances . . .”
The proposed new law would also compel MFIs to give would-be borrowers ample time to fully comprehend the loan terms before borrowing. In order to underwrite meaningful business and to adequately satisfy the borrowing requirements of their clients, MFIs in addition to capital and other contributions by their shareholders, often source loans from banks.
Some MFIs, according to the Reserve Bank of Zimbabwe (RBZ), are owned by non-governmental organisations, which receive grants from international development partners who pool together their financial resources and establish a fund for financing community projects.
MFIs are registered and supervised by the RBZ, which is tasked to ensure that licensed MFIs carry out money lending operations in accordance with the laws of the country. The central bank prohibits MFIs from soliciting for or mobilising deposits from any person or company inside or from outside Zimbabwe.
The apex bank contends that MFIs are not allowed to take deposits because the size of their capital is not sufficient to act as a buffer for depositors’ funds in the event of losses.
Only microfinance banks registered in terms of the Banking Act are allowed to take deposits as their minimum capital requirement of $5 million provides a sufficient capital buffer to protect depositors’ funds.
“Every deposit-taking microfinance institution shall send the Registrar (of banks) a copy of its audited accounts of the previous financial year and the auditor’s report thereon,” the Bill reads in part.
A few months ago, the RBZ cancelled operating licences for two microfinance institutions, McDowells International and All Angels Investments, that were found guilty of illegally accepting deposits.