Microfinance Institutions increase forex lending

Sikhulekelani Moyo, Business Reporter
THE Zimbabwe Association of Microfinance Institutions (Zamfi), says the Government’s greenlight to lend in foreign currency has helped improve profitability and sustainability of the sector.

Foreign currency

According to the industry’s performance report as at 31 March 2022, the lending only microfinance sector said a majority of Micro-Finance Institutions (MFIs), were switching to more lending in foreign currency, with positive impact on the value of balance sheet preservation.

“The sector is appreciative of the monetary authorities’ stance to allow MFIs to lend in foreign currency, which is both a value preservation strategy and policy with capacity to improve the profitability and sustainability of the sector,” said Zamfi.

During the first quarter period ending 31 March 2022, MFIs recorded total income amounting to $2,113 billion, against total operating expenses of $1,131 billion, leading to a net profit of $639 million.

“This translated into an operational self-sufficient ratio of 147,3 percent well above the international benchmark of 120 percent,” said Zamfi.

“Nevertheless, there is still need to identify more of cost reduction initiatives, primarily aimed at reducing the cost of doing business by the MFIs.”

The credit-only microfinance sector also recorded a marginal growth in capital base, from $2,24 billion, as at 31 December 2021 to $2,49 billion as at 31 March 2022.

“The capital base shall remain under constant threat from currency depreciation, chiefly emanating from a freely floating exchange rate regime, adopted by Government,” said Zamfi.

“However, the main mitigatory strategy, available for credit only MFIs is to grow the foreign currency denominated capital and loan book, which will lead to exchange rate gains, when the local currency has depreciated.”

The association said its financial analysis for the sector indicates that the sector is still sustainable in its operations, though under threat from macro-economic policies related to monetary and fiscal policy.

“It remains to be seen, if the monetary authorities shall be able to achieve a low and stable rate of inflation in the short to medium term period, which is key to the success of business performance in the country,” said Zamfi.

“In our view, the success towards this noble economic objective, requires the input of all stakeholders in policy formulation, which is inclusive of both the Government and private sector, including the international community, which has the capacity to influence, in a positive manner, investments inflows into the country.” — @SikhulekelaniM1

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