RBZ says high rate of defaults threaten micro-financiers

RBZ says high rate of defaults threaten micro-financiers

HARARE, April 6 (The Source) – The Reserve Bank of Zimbabwe (RBZ) says the rising rate of defaults recorded by microfinance institutions (MFI’s) in the country poses a threat to the sector which has witnessed growth in terms of outreach and performance.

The non-performing loans in the MFIs dropped to nearly 11 percent last year, but remains above the internationally accepted benchmark of five percent.

The increase is largely attributed to aggressive growth of loan portfolios, particularly in the areas of asset and agricultural financing, as MFIs responded to the call by the central bank to provide finance small to medium enterprises (SMEs) and smallholder farmers.

“Portfolio quality remains a major challenge in the sector as measured by the Portfolio at Risk which closed the year at 10.72 percent compared to a ratio of 11.29 percent as at 31 December 2014,” said the RBZ in its latest quarterly update.

The central bank said MFIs had increased the number of active clients, number of borrowers and branch network in the quarter ended 31 December 2015 as more people leaving formal employment turned to the informal sector.

Total loans and total assets amounted to $187,16 million and $225,13 million as at 31 December 2015, up from $173,31 million and $207,74 million as at September, 30, 2015  respectively.

MFI portfolio quality has been on a downward trend since December 2012, reflecting inherent credit risk vulnerabilities in the sector in view of the current economic challenges.