— BULAWAYO — It’s been a tough life for Charmaine Garise. At 24, she has never had any source of income, but then this no breaking news in a country where labour unions say as many 80% of people find no employment. Garise lives in Plumtree, a small town 100km south-west of Bulawayo on the border with Botswana.Le Monde diplomatique – Exclusive – 14 October 2013
Here Zimbabweans in large numbers brave arrests and deportation, illegally crossing into Botswana and South Africa, their El Dorado. “We are always looking for money to start small projects like piggery,” said Garise. “But where do you find it? I am aware some people have received money from government, but for us, who did not get those loans, there is nowhere else where we can get support,” she said, adding that she has nothing to her name, in life, and so little to use as collateral when applying for loans. Other women described the same situation, particularly the youth. Since traditional banks do not provide loans to the ‘unbankable’ poor, microfinance should be the solution, right?
International development agencies, NGOs and governments including the US, tout microfinance institutions (MFIs) as the panacea to the socio-economic conditions of the poor. But as FAIR investigations in and around Bulawayo revealed, Zimbabwe’s growing microfinance sector could well be strangling the aspirations of women seeking to enter into small business ventures. Though conditions facilitating access to money became easier, many were attached with high interest rates, instant repayment, and fraud.
Under the “special” project for women, Nissi Finance demands collateral and charges 10 percent per month. Officials explained that a client pays a $20 ‘application fee.’ If a client applies for a $300 loan, servicing the loan would mean paying $130 per month for three months. At the end of the three months, the clients would have paid 30 per cent of the loan.
However, this is still capital accessible only to women “already in business,” an official explained. Women with no assets are unable to access loans. “We do not keep your property with us here; it is when you default on payment that we send debt collectors to attach the property,” the official said.
There is evidence across Bulawayo’s central business district that people are losing property due to various forms of debts, as evidenced by our visits to auction floors. Meanwhile, local daily papers are never without ads of defaulters’ property being auctioned off. Names of MFIs have appeared listed as plaintiffs in the adverts as they seek to recover defaulted loans. In a country where the daily bread is struggle, few women we spoke with found $130 per month ‘small change.’ “It depends on what kind business one does, but if you can afford to pay $130 per month for a loan, it means you did not need it in the first place,” says Tabeth Dube (not her real name), a cross-border trader. “For many of us doing this kind of business, you will be really lucky to be able to take that kind of money from your profits and pay off a loan. You will be broke before you know it.”
Another trader informed us the only way to beat the ‘debt trap’ was to pay off the full loan in three months, or remain indefinitely in debt. The flipside to credit, they told us, was immense debt. Dube’s sentiments exposd the difficulty faced where women are expected to start servicing the loan on the first month of approval, necessitating others sources of financing to pay off the loans, other than the project for which they applied for the loan. “If they fail to pay the loan in full after the stipulated three months, their property is attached,” the Nissi Finance official said.
Saziso Mbewe (not her real name) knows this too well. Last year, she received a loan of $1,000 to boost her flea market business where she sells clothing from South Africa. “It (the loan) was towards the end of the year where we expect business to peak during Christmas,” she said. She was told that her loan of $1,000 required 10 per cent interest rate, ultimately requiring a payment of $1,300. But the catch was a repayment divided into three months — $433 per month. She was gutted. “After three months I still hadn’t paid the loan in full. I lost my car as I had put it up as collateral.”
In 2012, Zimbabwe’s microfinance was officially valued at $20.5m, calculated on the basis of loans. Operators primarily run as for-profit. Estimates are perceived as conservative; many operators are unlicensed. To counter it, the central bank has legislated new regulations intended to flush out loan sharks. While the working models of MFIs is touted by such agencies as the US-based Consultative Group to Assist the Poor as providing basic financial services to poor and low-income groups, there has been a shift from being non-profit to for-profit.
It is in that light that Zimbabwe’s central bank has raised concerns about local MFIs charging high interests. In 2013, the Ministry of Finance moved to impose stricter regulations on the sector increasing the capital requirements for setting up an MFI from $25,000 to $5m, in an attempt to distinguish between small loan sharks and entities with solid financial base.
In August this year, the Microfinance Act came into effect, seeking closer monitoring and regulating of the sector long accused of fleecing clients desperate for loans, including illegally taking deposits from clients with the promise of super-profits. “These guys are running Ponzi schemes,” one MFI operator said.
In fact, founders behind MFIs are not even checked for past criminal records. Moreyields Microfinance Services, based in Bulawayo, provided interest rates of 40 per cent, with no demands on collateral, and instant repayment. Court records revealed that Moreyields director Dennis Shoko swindled investors and has pending criminal charges. He is alleged to be on the run. Previously he had said: “But we live in a country where even when we know so-and-so is breaking the law, you cannot report them for fear of implications. You never know which powerful individual is behind these things.”
Despite the sector also being monitored under the Moneylending and Rates of Interest Act, the Central Bank noted that some MFIs are charging interest rates of up to 50 per cent per month.
For profit means against losses
In Zimbabwe, MFIs are city-based where they operate as “for-profit” entities. For example, when Fidelity Life Assurance posted its financial results early September, it showed that profits in its insurance portfolio had declined from more than USD3 million last year to a little over $2m in 2013, but recorded profits of almost $400,000 in its microfinance unit, revealing the modelling of MFIs in Zimbabwe as largely commercial.
However, the African Development Bank (AfDB) says MFIs must strike a balance between the “social objective of reducing poverty” and profitability; complaints raised by Zimbabwe’s central bank concerning super profits being made by MFIs could point to sector failing as a platform to help women escape the cycle of poverty. “Directing a poor woman to a profit driven micro-financing may increase her poverty as private sector players require collateral,” says United Nations development expert Tapuwa Gomo. “It is important to look at how micro-financing is modelled. Increasing their (MFIs) own income can be damaging to the women trying to venture into business.”
The Zimbabwe Association of Microfinance Institutions (ZAMFI) has a little under 200 members, but despite these numbers, the provision of micro-finance loans in rural Zimbabwe has largely been left to NGOs as ZAMFI members cite risky underwriting of rural loans. As the AfDB notes, MFIs “have to remain economically viable” where “loan sizes are smaller” and “borrowers are more likely to default.”
A ZAMFI official (who asked not to be named) says Zimbabwe’s microfinance which suffered during the country’s record-breaking hyperinflation in 2008, is profit-driven, explaining that “this is why there has been a proliferation of bogus micro-lenders. Microfinance has not yet given poor women a springboard to escape poverty because not many firms are willing to underwrite what they see as bad loans.”
“Issues of economic empowerment can only succeed where a huge fund is administered by non-profits who already have mechanisms to take knocks from non-payments of these loans. Besides, what is needed is a shift from mere doling out of micro-finance to more a hands-on approach where women run self-help income generating projects,” the official said.
Organisations such as IFAD lobby for microfinance, good governance, and how poor rural creditors can access cheap loans and also be protected. But the experiences of women like Garise show that the promise of microfinance is yet to reach them: no panacea to their poverty is in sight.