Zimbabwe amends Microfinance Act

Government has rolled out the new amendments to the Microfinance Act.

This comes as government sought to create credit and collateral registries as well as encourage consolidation among small businesses in order to enhance the operation of microfinance institutions (MFIs).

Government had also been implored to address shortcomings of the previous Microfinance Act providing for perpetual licences for deposit takings for MFIs and extending the tenure of the licence for the credit-only microfinance institutions.

Following the bids by microfinanciers, government last Friday gazetted the Microfinance Amendment Bill stating that the Bill will amend the Microfinance Act (Chapter 24:30) extending the tenure of licences to a five-year period, removing perpetual registrations and renewals.

"The new Section 10A will specify a five-year period of registration by credit-only MFIs and indefinite registration for deposit-taking microfinance institutions.

"At the present all institutions are registered for one calendar year only.

"They will apply at least three months before expiry of their registration and will be obliged to disclose any material changes in the particulars they gave the Registrar when they were granted registration or when their registration was last reviewed," the Microfinance Amendment Bill read.

Meanwhile the Bill also reduces the variety of institutions that can carry on microfinance business under the Act.

At present the Act envisages four different types of institutions namely corporate financiers, credit-only microfinanciers, deposit-taking microfinanciers and money-lenders, who provide loans and credit but are not micro-financiers.

"To reduce confusion and overlapping, the Bill will amend the Act to recognise only two institutions: credit-only microfinance institutions (namely companies that provides loans and credit to small-scale borrowers); and deposit-taking microfinance institutions, (namely companies that accept deposits from small-scale businesses and members of lower-income groups)."

Prior to the Bill, government had reportedly said that it was seeking to establish lucidity within the different classes of MFIs.

The Bill also enunciated that Clause 3 paragraph (c) removed a reference to moneylenders which will no longer be covered by the Act.

"This clause will amend section 7 of the Act to remove references to registration requirements for moneylenders who will no longer be recognised as a class of microfinance under the Act."

The Microfinance Act was proliferated in 2013, in a bid for government to regulate the sector, and process the amendment of the law to deal with several weaknesses.

MFIs were being weighed down by lack of long-term funding, slow product innovation, inadequate skills due to brain drain as well as high default rates.

The sector reportedly, was said to have been traditionally bombarded by exorbitant interest rates due to lack of needed investment.

Finance companies were also accused of aggressively charging high interest loans to people, who at times have limited financial knowledge of the commitments they are making.

The Bill hence read, "…the MFI that lends money must ensure that the borrower understands his or her obligations and had a reasonable prospect of repaying the loan.

"If the MFI does not do so it cannot recover the capital sum lent unless a court permits to do so."

MFIs will also need to get the Registrar's approval for the appointment of senior staff members and alterations of institutions' memoranda and articles of association shall only be made after the Registrar's consent.