Finance minister Tendai Biti could overturn a Reserve Bank of Zimbabwe (RBZ) directive cancelling operating licences for microfinance institutions accepting deposits in breach of banking regulations.

Presenting the Mid-Year Fiscal Policy Statement in Parliament on Wednesday, Biti said Cabinet had agreed to amend a piece of legislation regulating micro lenders.

The changes, he said, were expected to stimulate on-lending by the institutions to underfunded small-to-medium-enterprises, which were reportedly being shunned by large banks.

Official figures show that as at mid-May, most banks had advanced $164,4 million towards SMEs, a figure representing 5% of the total loans advanced by the entire banking sector during the same period. This move highlights the policy inconsistency within the government, barely a month after the central bank cancelled operating licences for microlenders.

“The government has approved a new law. A new microfinance Act which for the first time in our law creates a deposit taking microfinance institution,” Biti said.

“We feel that smaller microfinance institutions can appreciate the SMEs, therefore, their lending levels will be more liberal and more accommodative than traditional brick and mortar banks, namely Standard Bank, Barclays Bank and other banks.”

The RBZ cancelled operating licences for two micro-finance companies within two months — McDowells International and All-Angels — after they were found to be in violation a section of the Banking Act, which prohibits microlending institutions from accepting deposits.

According to the Banking Act, a piece of legislation regulating players in the financial services sector, taking deposits is a preserve of banking institutions.

“Any person who conducts a banking activity without a banking licence contravenes Section 5(3) of the Banking Act and shall, in terms of that section, be guilty of an offence and liable to a fine or imprisonment or both,” reads part of the law.

McDowells International, which got an operating licence from the RBZ in 2005, was accepting deposits from the public at a 10% per month interest rate and lending out money at an astronomic 45% per month interest rate.

All-Angels on the other hand, reportedly accepted over $1 million in deposits for on-lending to mainly public service employees.

The public has in recent months turned to lending institutions, as most commercial banks adopted a conservative lending approach on the back of a high rate of non-performing loans.

The apex bank also ordered players to stop disposing assets pledged as security for loans without obtaining court orders and writs of execution.

The central bank further instructed every microlending or microfinance institution to submit justification for their interest rates and any other charges applicable for loans offered seven days after it issued the June 4 notice.

SOURCE: News Day