Back to Index

A national perspective on microfinance in Zimbabwe
Chamunorwa Rusakaniko, Zimbabwe Association of Microfinance Institutions (ZAMFI)
Extracted from Microfinance Monitor Issue No. 6
December 31, 2007

A national perspective on microfinance in Zimbabwe has been facing a number of economic and social challenges ince 2000. These challenges include hyperinflation, shortages of foreign currency, high levels of unemployment, high incidence of poverty and general decline in real incomes and standards of living, as well as a shrinking industrial base.

The apparent presence of these insurmountable challenges cast doubt on the attainability of the Millennium Development Goals (MDGs) such as reducing poverty and hunger, reducing the impact of HIV/AIDS as well as reducing gender inequalities. The later are even more glaring given the circumstance that increasingly there is feminization of poverty as the uneven distribution of resources between the sexes takes centre stage.

The unprecedented economic decline in Zimbabwe has witnessed the emergence and growth of the informal sector in leaps and bounds to the extent that it controls a sizeable chunk in the national economy. In 2005, the Reserve Bank of Zimbabwe cited formal sector employment as accounting for 16 % of the labour force, the informal economy for 40% and communal sector for 44%, small to medium enterprises sector (SMEs), informal and micro-enterprises sector accounted for an estimated 15-20% of Gross Domestic Product in 2005. By 2007, the RBZ cites this sector as accounting for more than 5% of GDP and being responsible for the livelihood of about 80% of the population following the shrinkage in the formal sector since the year 2000.

According to a study by the Central Statistical Office (CSO), the number of households living in poverty increased from 40.4 % on the eve of the Economic Structural Adjustment Programme (ESAP) in 1990 to 63.3 % by the end of the programme in 1995/1996 .It is widely believed that no less than 80% of households in Zimbabwe are below the poverty datum line.

In Zimbabwe micro, small and medium scale enterprises are increasingly playing strategic roles in national development. They have the potential of developing linkages with large-scale industries if the desired turn around of the economy occurs as is highly anticipated in the not too distant future.

Unfortunately, like in other countries, SMEs in Zimbabwe face a lot of challenges, chief among them being lack of capital and difficulties in accessing credit from the formal banking system due to lack of collateral security, among other things. SMEs are usually financed by microfinance. Microfinance is therefore central and critical to the development of SMEs and attainment of national development goals.

Microfinance simply defined refers to the provision of financial services and the management of small amounts of money through a range of products and system intermediary functions that are targeted at low-income clients. It includes loans, savings, insurance, transfer services and other financial products and services. Micro credit is one of the most important products offered by micro-financial institutions for the poor.

Globally, microfinance has emerged as a leading and effective strategy for poverty reduction with the potential for a far-reaching impact in transforming the lives of the poor people, particularly women. It can go a long way in contributing to the achievement of the Millennium Development Goals (MDGs) as well as fulfillment of the national policy objectives aimed at reducing hunger, empowering women, assisting vulnerable groups, and improving standards of living of the general populace. As pointed out by the then United Nations Secretary General, Kofi .A. Annan when launching the International Year of Micro credit, sustainable access to micro finance helps alleviate poverty by generating incomes, creating jobs, allowing children to go to school, enabling families to obtain health care and empowering people to make the choices that best serve their needs.

Although microfinance is not a panacea for poverty reduction and its related development challenges, when properly harnessed it can make sustainable contributions through financial investment leading to empowerment of the people, which in turn promotes confidence and self esteem and dignity, particularly with reference to women. Microfinance can have significant impact on cross cutting issues such as women's empowerment, reducing the spread of HIV/AIDS and environmental degradation as well as improving social indicators such as education, housing and health.

Microfinance attracts attention because it offers an alternative and increasingly popular source of finance to the marginalized and it is welfare enhancing. But its growth usually does not spring from market forces alone. It is a deliberate interventionist strategy on the part of "social investors" and sometimes the government. Some have argued that microfinance is not sustainable because it is donor centered and funded. The government of Zimbabwe recognizes the importance of this sector and in that regard established the Ministry of Small and Medium Enterprise Development that has a mandate of promoting these enterprises.

The governor of the Reserve Bank of Zimbabwe (RBZ) Dr Gideon Gono in his monetary policy statement of April 2007 pointed out that, there is great scope to rope in the rural and marginalized communities into mainstream economy through deliberate policies to develop SMEs and promote financial inclusion particularly at growth points The same monetary policy statement points out that in Zimbabwe, the extent of rural and peri-urban outreach by banks has largely remained low, to the detriment of SME promotion and growth. The per capita banking facility ratios in rural areas indicate unacceptable levels of financial exclusion of the majority of Zimbabweans. It is therefore necessary to strengthen the micro finance sector for it to play its expected role effectively.

Visit the ZAMFI fact sheet

Please credit www.kubatana.net if you make use of material from this website. This work is licensed under a Creative Commons License unless stated otherwise.

TOP