Understanding credit products

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Understanding credit products

Business herald: 11 APR, 2018 – 00:04    Dr Sanderson Abel
Financial institutions play a pivotal role in the granting of credit to the various sectors of the economy.

A bank is just like a heart in the economic structure and the capital it provides is like blood in it. As long as blood is in circulation the organs will remain sound and healthy.

If the blood is not supplied to any organ then that part would become useless, so if the finance is not provided to any economic sector, it will be destroyed.

The availability of credit is important in every economy since households and firms are not in a position to generate enough resources on their own. Credit, which is the pivot for financing of business enterprise serves as an essential, facilitating agency in the primary economic functions of production, exchange, consumption and distribution.

In its simplest sense finance refers to those activities involved in seeing that an individual or organisation has the resources with which to pay its bills promptly

In their endeavour to provide funding to the various sector of the economy, banks develop various products to suit their customer needs. It is important for bank clients to understand these various products so that they approach their various banks with the knowledge of the type of product they require for them to derive maximum value from the credit products provided.

There are different types of financing that you can choose depending with the agreement with your bankers. For example, in acquiring business equipment, fixtures and fittings, you can choose to finance the acquisitions through an industrial hire purchase, leasing or a term loan. Some of the credit products offered by the banking sector are discussed below.

Term Financing: This type of loan is availed by the borrower to acquire fixed assets (immovable properties i.e. land and buildings and vehicles for commercial use). The loan carries a predetermined length of time (tenure), with repayments done in instalments.

Lease Financing: This type of facility helps the borrowers to acquire equipment’s and machineries for their businesses on lease. This type of finance is long Term in nature and as such, the repayment is made in instalments.

Overdraft (OD): This is a short term facility which is granted to the borrower to enable him meeting his day to day funding needs; like payment of salaries, utilities and purchases of inventories etc. An agreed limit is sanctioned by the bank and the borrower is allowed to draw that amount through his current account.

Revolving Credit: This type of loan is also short-term in nature and is used to meet short-term funding requirements of the borrowers. This type of loan does not have a fixed number of payments, as in the case of instalment loan.

Cash Finance and Running Finance are types of revolving loans. Once the loan limit is approved, then the borrower is free to withdraw amounts to the extent of that limit. The borrower can withdraw and repay the amount as many times as he wishes to; but he has to pay mark-up on the amount which he has actually used.

Letter of Credit (LC) or Documentary Credit (DC): Letter of Credit is a written undertaking by a financial institution in favour of the supplier/seller to pay him the amount of imported/purchased goods, in case the actual importer/buyer fails to pay

Unsecured financing: Unsecured loans are those where the banks do not demand tangible securities such as land, building, fixed/current assets, tradeable inventory etc. as security; whereas, in secured financing, the banks demand any of the security as mentioned above. Secured financing is also called collateralised financing.

Credit provision by the banks to their clients through the various channels outlined above gives an obligation towards the borrower to dutifully service the obligation.

Failure to honour that obligation will disturb the whole credit system leading to reduced resources to other potential borrowers. In other words, the potential funding by the banking system is seriously reduced. Resultantly, the problem of credit impairment drags on the economy in the following ways: disintermediation of bank-system lending caused by the erosion of banks’ profitability; stagnation of economic resources, such as labour and capital, in fields with low productivity and cautious behaviour of corporations and consumers due to a decline in confidence in the financial system.

It is now an indisputable fact that economies are dependent on their growth and development on the provision of credit by the financial sector. Corporates, individual and other players provide credit to one another with the banks lying at the centre of the system. A cycle of credit is thus created in an economy where each economic agent is one way or the other in receipt of credit from another directly or indirectly. Any hiccup within the cycle might end up disturbing the smooth flow of resources among the economic agents.

On a broader macroeconomic level, this would translate to economic stagnation as some sectors become grappled with working capital and capital challenges as they fail to access loans and overdrafts from the banks while those who access the resources fail to repay as a consequence of the high cost of the funds.

Dr Sanderson Abel is an Economist. He writes in his capacity as Senior Economist for the Bankers Association of Zimbabwe. For your valuable feedback and comments related to this article, he can be contacted on abel@baz.org.zw or on numbers 04-744686 and 0772463008.

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Fostering responsible loan pricing in microfinance

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Fostering responsible loan pricing in microfinance

In this third instalment, the spotlight is on the Zimbabwe Microfinance Fund (ZMF), a financial apex body. Brian Zimunhu (BZ), the Fund’s founding managing director talks to NewsDay financial columnist Omen Nyevero Muza (ONM) about the rationale of setting up the ZMF, its evolvement over the years as well as its current challenges and opportunities.

Below are excerpts of the interview.

ONM: What was the rationale of setting up the Zimbabwe Microfinance Fund (ZMF)?

BZ: The ZMF is a financial apex body formed in 2011 with the objective of providing wholesale lending capital to financial service providers (FSPs) such as microfinance institutions (MFIs), microfinance banks, agricultural value chain actors and savings and Credit Co-operative Societies (Saccos) for retailing to micro, small and medium enterprises (MSMEs).

ONM: Which key stakeholders were instrumental in getting the fund up and running?

BZ: The key stakeholders in question include: Zimbabwe Association of Microfinance institutions (Zamfi); development partners such as DFID, Hivos, GIZ and Danida, as well as the Reserve Bank of Zimbabwe (RBZ).

ONM: Please briefly outline the evolution of the fund since inception — its brief history, so to speak.

BZ: The ZMF commenced business in 2012 lending to its partners through a third party financial institution.

ONM: Would you care to disclose the identity of the third party financial institution?

BZ: Of course, this was a “partnership for success” with CBZ Bank. Over the years, ZMF has built adequate internal capacity and all business processes have now been internalised. The fund has since grown from $2 million as of 2012 to $12 million as at end of December 2016. As a revolving fund, ZMF has been able to disburse loans upwards of $17 million from inception to December 2016. This has been achieved through 25 partner FSPs. More than 60% of these loans have gone to women borrowers while an average of 35% has gone to rural clients.

ONM: What sort of borrowers does the ZMF’s lending programmes target?

BZ: The key target audience are financial service providers and value chain actors, who are into developmental lending serving micro, small and medium enterprises that are committed to improving the socio-economic and environmental well-being of the communities they serve.

ONM: What are the ZMF’s sources of funding?

BZ: Donated equity from social/development investors and debt financing.

ONM: Please outline the interest rates and fees that the ZMF charges for its loans.

BZ: Our interest rates are in the range of 7-13% per annum and we charge establishment fees of up to 3% of loan amount.

ONM: What are your key considerations in determining this interest rate and fee structure?

BZ: The fund considers the risk profile of partner financial service providers, the cost of capital, area of funds deployment and use of funds. Benchmarking against market rates is also a key consideration.

ONM: By area of funds deployment, do you mean physical location or sector? Please explain.

BZ: I mean physical location and indeed there is need to clarify this. So, as a fund, we are very clear and alive to the fact that, while financial exclusion is most rampant in rural areas, servicing clients from those locations is both more expensive and highly risky. As a way of incentivising and cushioning FSPs extending the boundaries of financial inclusion by serving the rural and supposedly risky clients, ZMF tends to lean to the lower end of the interest rate band.

ONM: What was the fund’s exposure like in sectoral terms at the end of 2016?

BZ: As of end of 2016, the fund had a total exposure of $10m to the following sectors: distribution (62%), agriculture (29%), manufacturing (4%), services (3%) and other (2%).

ONM: What would you say have been the key impacts of your funding interventions on the target market?

BZ: Among the key impacts of our funding are growth in enterprise lending as opposed to mere consumer lending among the ZMF partners, improved operational self-sufficiency among partner financial service providers and increased rural reach and access to finance by women. We are also fostering responsible loan pricing and have sparked growing interest from offshore funders. ZMF alone may never be able to meet the ever-increasing funding needs of the sector and funding from offshore sources will help in keeping the country’s MSMEs oiled but also shoring up the levels of the much-needed foreign direct investments.

ONM: Having been operational for close to five years, what would you say have been the ZMF’s key constraints?

BZ: At inception, the challenge was slow uptake of funds as FSPs lacked immediate capacity to handle big loans from the fund; interestingly, the challenge now has become limited funding in the face of increasing demand for loans by partner FSPs. The challenging economic environment, which has significantly increased the level of inherent credit risk, is another key constraint.

ONM: And opportunities? There must be some opportunities.

BZ: There are several opportunities, including national recognition of microfinance as a key pillar of the national financial inclusion strategy. The initiatives by the RBZ and other development partners to build strong financial infrastructure such as the credit and collateral registry will go a long way in enhancing risk management and promoting financial inclusion. There are opportunities for funding climate smart technologies to help microenterprises and households cope with or mitigate the effects of climate change. We also see increasing demands for loans and increased absorption capacity amongst our existing clients.

ONM: Since the ZMF is licensed as credit-only MFI with capacity to do retail loans, have you ever considered going that route?

BZ: ZMF’s business model is to reach out and positively impact on as many Bottom of the pyramid (BoP) clients as possible working through partner FSPs and value chain actors. Direct lending to retail clients is not part of our current strategy.

RBZ licenses 10 more Microfinanciers

News And Events

RBZ licenses 10 more Microfinanciers

Business herald: 11 APR, 2018 – 00:04   

Dr Sanderson Abel
Financial institutions play a pivotal role in the granting of credit to the various sectors of the economy.

A bank is just like a heart in the economic structure and the capital it provides is like blood in it. As long as blood is in circulation the organs will remain sound and healthy.

If the blood is not supplied to any organ then that part would become useless, so if the finance is not provided to any economic sector, it will be destroyed.

The availability of credit is important in every economy since households and firms are not in a position to generate enough resources on their own. Credit, which is the pivot for financing of business enterprise serves as an essential, facilitating agency in the primary economic functions of production, exchange, consumption and distribution.

In its simplest sense finance refers to those activities involved in seeing that an individual or organisation has the resources with which to pay its bills promptly

In their endeavour to provide funding to the various sector of the economy, banks develop various products to suit their customer needs. It is important for bank clients to understand these various products so that they approach their various banks with the knowledge of the type of product they require for them to derive maximum value from the credit products provided.

There are different types of financing that you can choose depending with the agreement with your bankers. For example, in acquiring business equipment, fixtures and fittings, you can choose to finance the acquisitions through an industrial hire purchase, leasing or a term loan. Some of the credit products offered by the banking sector are discussed below.

Term Financing: This type of loan is availed by the borrower to acquire fixed assets (immovable properties i.e. land and buildings and vehicles for commercial use). The loan carries a predetermined length of time (tenure), with repayments done in instalments.

Lease Financing: This type of facility helps the borrowers to acquire equipment’s and machineries for their businesses on lease. This type of finance is long Term in nature and as such, the repayment is made in instalments.

Overdraft (OD): This is a short term facility which is granted to the borrower to enable him meeting his day to day funding needs; like payment of salaries, utilities and purchases of inventories etc. An agreed limit is sanctioned by the bank and the borrower is allowed to draw that amount through his current account.

Revolving Credit: This type of loan is also short-term in nature and is used to meet short-term funding requirements of the borrowers. This type of loan does not have a fixed number of payments, as in the case of instalment loan.

Cash Finance and Running Finance are types of revolving loans. Once the loan limit is approved, then the borrower is free to withdraw amounts to the extent of that limit. The borrower can withdraw and repay the amount as many times as he wishes to; but he has to pay mark-up on the amount which he has actually used.

Letter of Credit (LC) or Documentary Credit (DC): Letter of Credit is a written undertaking by a financial institution in favour of the supplier/seller to pay him the amount of imported/purchased goods, in case the actual importer/buyer fails to pay

Unsecured financing: Unsecured loans are those where the banks do not demand tangible securities such as land, building, fixed/current assets, tradeable inventory etc. as security; whereas, in secured financing, the banks demand any of the security as mentioned above. Secured financing is also called collateralised financing.

Credit provision by the banks to their clients through the various channels outlined above gives an obligation towards the borrower to dutifully service the obligation.

Failure to honour that obligation will disturb the whole credit system leading to reduced resources to other potential borrowers. In other words, the potential funding by the banking system is seriously reduced. Resultantly, the problem of credit impairment drags on the economy in the following ways: disintermediation of bank-system lending caused by the erosion of banks’ profitability; stagnation of economic resources, such as labour and capital, in fields with low productivity and cautious behaviour of corporations and consumers due to a decline in confidence in the financial system.

It is now an indisputable fact that economies are dependent on their growth and development on the provision of credit by the financial sector. Corporates, individual and other players provide credit to one another with the banks lying at the centre of the system. A cycle of credit is thus created in an economy where each economic agent is one way or the other in receipt of credit from another directly or indirectly. Any hiccup within the cycle might end up disturbing the smooth flow of resources among the economic agents.

On a broader macroeconomic level, this would translate to economic stagnation as some sectors become grappled with working capital and capital challenges as they fail to access loans and overdrafts from the banks while those who access the resources fail to repay as a consequence of the high cost of the funds.

Dr Sanderson Abel is an Economist. He writes in his capacity as Senior Economist for the Bankers Association of Zimbabwe. For your valuable feedback and comments related to this article, he can be contacted on abel@baz.org.zw or on numbers 04-744686 and 0772463008.

Mobile Usoni: Here’s to a mobile future

News And Events

Mobile Usoni: Here’s to a mobile future

The Monthly Financial Sector Bulletin (MFSB) recently introduced “The Microfinance Interview”, a monthly question-and-answer feature through which it engages with key stakeholders of the sector such as microfinancial institutions (MFIs), funders, service providers, development partners and regulators amongst others on issues of topical and mutual interest.

In the first interview, NewsDay’s financial columnist and editor of the MFSB Omen Nyevero Muza (ONM) caught up with Cameron Goldie-Scotie (CGS), the chief executive officer of Musoni Services, a Netherlands-based provider of a core-banking system used by 17 financial organisations in Zimbabwe, and discussed their current work and plans in the country.

ONM: What’s Musoni System and who is behind it?

CGS: Musoni is a multi-award winning core-banking system used by more than 75 organisations in 14 countries around the world. The software has been consistently proven to help financial organisations improve efficiency, reduce costs, and expand outreach into the rural areas where the majority of the unbanked live. Musoni Services is a Dutch company based in Amsterdam. Before starting Musoni Services, the team founded the world’s first 100% mobile microfinance institution in the world in Kenya in 2009, now serving over 40 000 clients.

As a result, we have first-hand knowledge of what it’s like to run a microfinance organisation and challenges faced in finding the perfect core banking system.

ONM: For a system that is from the Netherlands, what’s the origin of the name Musoni, a word which also exists in the Shona language in Zimbabwe?

CGS: Musoni stands for ‘Mobile Usoni’, which means “mobile future” in Swahili. We like to think that our use of technology represents the future of microfinance, and we take our clients on a technology journey.

ONM: What types of organisations are using this service in Zimbabwe and how many are they currently? What’s the international profile of the product like?

CGS: We currently work with 17 financial organisations in Zimbabwe, ranging from young companies just starting out, to more established organisations like Microking (now Microcred), Virl, Inclusive Financial Services, First Choice and many others. Globally we work with over 75 organisations across 14 different countries, the majority in sub-Saharan Africa.

ONM: How long has the system been in Zimbabwe and have you established any partnerships yet?

CGS: We first started working in Zimbabwe in early 2014 and after an extensive request for proposals process, we were selected as the first preferred and recommended software provider by Zimbabwe Association of Microfinance Institutions (Zamfi). We also work with the Reserve Bank of Zimbabwe, mainly through the Financial Inclusion Thematic Working Groups such as the Microfinance Thematic Working Group.

Aside from that, from a technical perspective, we have integrated with local players such as EcoCash and PayNet, enabling MFIs to process SMS campaign messages such as payment reminders across all the mobile networks.

ONM: What challenges have you faced trying to penetrate the Zimbabwean market to service MFIs?

CGS: The Zimbabwean market is obviously challenging, as MFIs have less access to external debt financing than we see in other markets. This, of course, makes it harder for them to grow quickly at a sustainable rate. All the same, I believe this is where technology can make a real difference.

Using mobile money, tablet apps and credit scoring makes it more affordable to grow client numbers in previously hard-to-reach areas and we believe we can help MFIs to stay competitive and expand financial inclusion.

ONM: What would you say are your opportunities in relation to Zimbabwe?

CGS: A large proportion of the population still has no access to financial services. We are a social impact company first and foremost; so, improving access to financial inclusion is a core goal for us.

This is also a huge opportunity for Zimbabwean MFIs and those using technology like Musoni system will stand the best chance of growing rapidly in the coming years. We’re also excited and privileged to work with both Zamfi and the Reserve Bank of Zimbabwe.

ONM: We understand that you have just released the latest edition of Musoni System. What makes it different from the previous version?

CGS: We continuously work on enhancing the functionality of our system through feedback from our clients, potential clients and ongoing research.

To this end, we have just released the latest version of the Musoni System. We have added a lot of really exciting new functionality, including a custom report builder, the ability to build custom document templates (like loan contracts), send emails to clients and much more.

ONM: There are several management information systems on offer in Zimbabwe for MFIs. What’s Musoni’s unique selling proposition?

CGS: We’re the only provider that offers the full suite of technology to all our MFIs, including EcoCash integration, the SMS module, the tablet application, credit scoring and more.

Most providers offer just a core banking system and force the MFI to integrate with other vendors or pay more for additional features. We include it all as standard functionality, making it easier than ever for organisations to start benefiting straight out of the box.

ONM: We understand the Musoni System is a winner of an international award? Can you tell us about this award in terms of who conferred it and what’s it for?

CGS: Yes! We recently won the BBVA Financial Inclusion Special Award in recognition for our work in improving both the quality and availability of financial services around the world. The award was judged by a panel including judges from Bill and Melinda Gates Foundation, BBVA and the IIF Conference.

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Potential Goat market: Muslims demand two million goats

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Potential Goat market: Muslims demand two million goats

This was revealed at a stakeholders workshop held last Saturday by the Farmers Economic Growth (FEG) Trust.

Muslims consume goat meat at various festivals that include the just ended Hajj, which is a five-day religious pilgrimage to Mecca and holy sites in Saudi Arabia. According to the ‘Hajj, the Islamic pilgrimage to Mecca explained for non-Muslims’, all Muslims who are physically and financially able must embark on this pilgrimage at least once in their lives.

On the last three days of the Hajj, Muslims celebrate Eid al-Adha, or the Festival of Sacrifice, to commemorate Prophet Ibrahim, who almost sacrificed his son Ismail for Allah.

Another major festival is the Eid al Fitr, a three day celebration to mark the holy month of Ramadan.

lt has been difficult to satisfy these markets as local goat breeding is mainly done on a subsistence scale.

According to a livestock officer in the Ministry of Agriculture, Mechanisation and Irrigation Development’s Department of Livestock Production and Veterinary Services, Mr Daniel Kampiyou, 95 percent of the goat population in Zimbabwe is in the rural areas where farmers breed goats for their own consumption.

Mr Kampiyou said the goat industry needs to go on an organised commercial scale to be able to supply the Muslim community.

The FEG Trust’s treasurer, Mr Albert Manhanzva said farmers failed to supply two million goats for Muslims in the Middle East.

“This time of the year, the Muslim community have agencies all over in goat producing areas where they are buying goats for their festivals and we are failing to meet that demand here in Zimbabwe.

“Countries like Iran and other Arab nations have approached us seeking two million goats. The main driving force for this trust is to improve production,” Mr Manhanzva said.

According to FAOSTAT (2008), Africa is the second largest producer of goat meat in the world after Asia.

Zimbabwe is nowhere near the top ten producers of goat meat. A Zimstats report (2012) revealed that Zimbabwe holds only 1,62 percent of the goat population in Africa.

A member of the FEG Trust who is also a farmer, Ms Mirirai Dizha said it is disturbing to note that there is a readily available market which is not being satisfied.

“The Muslims are always approaching us for the goat meat but we can’t supply. Most of the farmers who are scattered across the country’s rural areas keep the goats on a subsistence scale.

“We need to move from subsistence to commercialising the goats. The market is there, what isn’t there is the goat farmer,” she said.

By end of this year, farmers under the association are targeting to breed at least 100 female goats each.

http://www.sundaymail.co.zw/muslims-demand-two-million-goats/

A Story of Hope: Redefining Mukando for Women Empowerment

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A Story of Hope: Redefining Mukando for Women Empowerment

Virl Microfinance, Chitungwiza

‘Those who introduced the idea of Mukando started a very good idea’ said Mbuya Easter Chidzonga, a participant in a group microcredit scheme based in Chitungwiza. ‘It has really helped us as women and these are the same groups we are using to get small loans for our businesses’.

In the town of Chitungwiza, Virl Microfinance, a partner of ZMF, has redefined the concept of Mukando to help improve access to microfinance for women. Mukando, a Shona word which literally means to pool/throw in, is an Internal Savings and Lending (ISAL) initiative when individuals, typically women, come together as a group and pool an agreed amount of money regularly. Whenever any of the group members are in need of finance, small loans can be taken out at a nominal interest rate. However, for individuals requiring more capital than the group has at hand, pooled funds from Mukando can sometimes be inadequate for funding small scale business initiatives.

How it works

In November 2012, ZMF provided funds to Virl Microfinance disbursed to Mukando participants. This is in line with ZMF’s need to target women at the lowest levels who are sometimes not financially and economically recognisable. Systems such as the ISAL form good opportunities for women to group and share ideas, beyond financial activities. Each group ranges from 5-10 individuals. Whilst loans are made to individuals, all group members hold the responsibility for ensuring the loan is paid. Group members can conduct either joint or independent income generating projects. On a regular basis, these groups meet together to keep track on loans as well as to encourage accountability on funds. Mbuya Chidzonga belongs to a six member Mukando group. Of those six, half the group has accessed microloans. One member, Mai Gwaze has started a poultry project; whilst Mai Gawani has become a general merchandise dealer selling products such as mobile airtime, and vegetable produce. Mbuya Chidzonga recently started a cordial manufacturing business.

Benefits of group schemes

The group system has been relatively successful as it relies on informal social mechanisms to encourage loan repayment. Defaulters within a group give the rest of the members a bad credit record hence the pressure on each other to ensure that borrowed funds are paid back. Group members are also likely to group according to similar types hence improving the social dynamics of the groups and improving repayment rates. Group structures create supportive and encouraging environments for women to borrow and run projects either as groups or members in their individual capacity. In addition, group schemes lead to the creation of social networks that increase opportunities for inclusion of women in economic and political development.

This project has the potential to contribute to poverty reduction as it has created access to funding amongst low-income women. In addition, being groups primarily motivated and driven by the women themselves, they are able to foster sustainable economic development amongst women.

A Story of Hope: Mbuya Easter Chidzonga, an entrepreneur re-invented

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A Story of Hope: Mbuya Easter Chidzonga, an entrepreneur re-invented

Mbuya Easter Chidzonga used to make a living as a cross border trader travelling to South Africa and bringing in goods for resell. Now she has started a business manufacturing and distributing cordials to neighbourhood shops in Chitungwiza as well as Dema growth point, Mashonaland East.

Decline

Over the last decade, as economic hardships deepened in Zimbabwe, many women such as Mbuya Chidzonga resorted to informal cross border trading (ICBT) in order to improve the welfare of their households. ‘When I was a cross-border trader, I would go to South Africa and bring back stock to resell.’ However, as the market became stiff with competition and local manufacturing began to regularise, the profitability of cross border trading declined.

According to Mbuya Chidzonga, ‘the market is now so flooded; many people are doing the same thing – everyone is going to South Africa to bring back the same things to sell. Right now I have a pile of 2 in 1’s from last year still unsold’. She points to a pile of blankets that are gathering dust in a corner of the living room.

Fig 1: Mbuya Easter Chidzonga shows off the cordial she manufactures, Chitungwiza

Diversification

‘After I stopped going to South Africa, I spent some months wondering what I should do next to earn money, then I got some advice from a relative. Sekuru Zvaremhaka showed me how to make drinks using powders from South Africa’.

In order to finance her diversification into the cordials business, Easter Chidzonga obtained a loan of $500 through Virl Microfinance, a local Financial Services Provider (FSP) receiving wholesale funding from ZMF. With these funds she purchased bottles, caps, labels and the ingredients for her product. She now sells the 2l product branded ‘Propan’ to individuals, local tuckshops and small supermarkets in Chitungwiza.

The future

Though the business is less than a year old, it is nevertheless brisk – retailing at $1 per bottle, her brand is cheaper than the average 2l cordial hence its popularity. In addition, Mbuya Chidzonga has managed to create a strong network of customers amongst local shops and tuckshops to move her stock. With the proceeds from her drinks business, she is taking care of her grandchild as well as building a house at Dema growth point. After successfully selling some cases there she saw the potential for a profitable niche market targeting rural stores. Her plan is to obtain a further loan to open a cordial manufacturing business in her rural home in preparation for her retirement.

 

Grain Mapundu, a business regenerated

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Grain Mapundu, a business regenerated

A loan obtained from one of ZMF’s partner organisations (Quest Financial Services) enabled 38 year old Grain Mapundu to revive his flagging telecommunications business. With the loan that Grain obtained, he purchased new stock thereby expanding his business.

Starting Out

Born in the rural area of Mt. Darwin in 1975, Grain Mapundu moved to the city of Harare in the 80s where he became a gardener to raise money for school fees. He eventually completed his education and became a technician with the Post and Telecommunications (PTC) parastatal. However, the 1996 PTC workers’ strike caused Grain to lose his job, motivating him to start his own telecommunications company a few years later.

Fig 1: Grain Mapundu

Economic Crisis

By 2004, Grain Mapundu had a staff complement of 8 people, providing PABX installations and servicing to companies within Harare. ‘When we started, Mapundu Investments’ performance was good. We even had 8. But things started to fall apart because of the economic meltdown – we ought to have closed but I decided to stay in Zimbabwe because a client is a king and I chose to serve my clients’.

In 2012, ZMF provided wholesale funding to Quest Financial Services to enable them to expand their microfinance services to their clientele. With the funding obtained, Quest Financial Services was able to provide a further microloan to Grain Mapundu enabling him to purchase cabling for his PABX installations.

Turnaround

To date, the company is gradually turning around assisted by the microloans Grain has obtained. With the profits he has made from his small enterprise, Grain has also managed to support his wife and three children. ‘My first born is doing Form Four, with this small business. I even support my sister and ill brother, together with their children. What I would like to say to those people who fund Quest – if only they could give more money so that in turn we as businesses can have more money to expand’.

Microfinance trust to avail $12m for on-lending

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Microfinance trust to avail $12m for on-lending

THE Zimbabwe Microfinance Wholesale Facility Trust (ZMWWFT) targets to grow cumulative loan disbursement to microfinance institutions to about $12 million this year from $6.7 million in 2014.ZMWFFT manager Brian Zimunhu told Business Chronicle yesterday that it projects an incremental portfolio of $6 million this year.

“According to our projections, we’re looking forward to growing our loan books to cumulative disbursement around $12 million. The incremental portfolio is likely to be $6 million. This is due to the huge appetite for money as MFIs continue to re-apply for funding,” ZMWFT said Zimunhu.

“As at December 31, 2014, our outstanding loan portfolio stood at $4.72 million and this year our target now is to grow the cumulative figure. Between 2012 and December 31 last year, we had cumulative disbursement of $6.7 million against approval disbursement of $7.5 million.”

Over the years, the trust has disbursed on-lending funding to 18 MFIs dotted across different parts of the country with interest rates ranging between eight percent and 13 percent per annum.

“In terms of the defaulting rate, defaulters aren’t in the majority. Very few MFIs are struggling to repay the loan.”

At its inception in 2012, the facility disbursed $1 million and a further $1.3 million in 2013.

ZMWFT has disbursed loans from a minimum of $15,000 to a maximum of $1 million and intends to continue growing its loan limits depending on the facility’s capitalisation levels.

The fund started operations with a capital base of $3.2 million.

Meanwhile, the Reserve Bank of Zimbabwe has issued a circular to money lenders and credit-only MFIs providing clarity on permissible sources of raising funds.

“These include shareholders’ funds (paid up share capital and reserves), internal sources such as retained earnings, fees, commissions and interest income; grants or donations from government and its nominated agencies, including ministries seeking to promote microfinance, wholesale/revolving funds including funding from development partners and non-governmental organisations . . .” reads part of the circular.

RBZ has said funding from international sources should comply with relevant exchange control laws and regulations.

“Moneylenders and credit-only microfinance institutions are prohibited from issuing any negotiable or non-negotiable instruments except ordinary shares.
“Moneylenders and credit-only microfinance institutions may, however, issue debentures, only to the extent permitted in terms of section 33 (1) (c) of the Companies’ Act [Chapter 24:03], that is, to members only. Regulatory approval will be required prior to issuing debentures,” said the Central Bank.

Micro-finance facility disburses US$2,5m

News And Events

Micro-finance facility disburses US$2,5m

The Zimbabwe Micro-finance Wholesale Facility has disbursed loans worth at least US$2,5 million to micro-finance institutions for on-lending to small businesses and economically active poor since last year.The facility is an apex fund set up to provide wholesale funding to individuals and businesses. It aims to reduce poverty and create employment by increasing access to financial services for women and poor people, while fostering sustainability.

It is supported by various development partners including Hivos of the Netherlands, the UK Department for International Development and German Agency for International Co-operation.

ZMWF Trust chairperson Dr Leonard Tsumba told participants at a stakeholder meeting that at least 11 MFIs had benefited from the fund so far.
“Since operations began in January 2012, loans worth US$2 469 100 have been approved. About 66 percent of the end beneficiaries of those funds are women. This is clearly in line with the ZMWF goal of reaching out to the economically active poor, especially women” he said.

Dr Tsumba, however, said there was need to strengthen the financial and technical capacity of MFIs in the country to effectively serve their target market. He said it was also crucial that MFIs spread their services to marginalised areas of the country.

“I urge our MFIs to take advantage of the wholesale facility, which is meant to assist you, in your efforts to offer inclusive financial services to the economically active members of our society,” he said.

The ZMFW has four lending windows namely rescue capital, stabilisation capital, as well as growth and innovation capital loans which eligible registered MFIs can borrow.

Apart from loan capital, the fund has small grants to build the capacity and expertise of MFIs in credit management, operational and financial management skills. Other non-financial services that the fund offers include women empowerment as well as gender and HIV and Aids programmes aimed at alleviating poverty. – New Ziana.