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Microfinance sector dumps local currency

by Staff reporter
12 Jun 2024 at 01:43hrs | Views
In the first quarter of 2024, the United States dollar loan portfolio in Zimbabwe's microfinance sector surged by nearly 8% to reach US$48.63 million, up from US$45.1 million in the previous quarter. This significant increase reflects the sector's transition towards dollarization, with over 80% of transactions now conducted in foreign currency, primarily the US dollar.

The Zimbabwe Association of Microfinance Institutions (Zamfi) reported that loans and advances, the bulk of assets, amounted to ZWL1.09 trillion (US$49.67 million) as of March 31, 2024, compared to ZWL343.2 billion in December 2023. Notably, 97.9% of the loans were denominated in US dollars, indicating a fully dollarized sector.

The rise in the dollar loan portfolio could be attributed to high lending rates, particularly on US dollar loans, ranging between 15% to 20% per month. However, Zamfi cautioned about the deteriorating quality of credit-only microfinance portfolios, with the portfolio at risk ratio standing at 9.59% for ZWL loans and 10% for US dollar loans.

Despite the challenges, the sector reported aggregate profits of ZWL$204.9 billion, with interest income from loans constituting a significant portion. Operational self-sufficiency (OSS) ratio improved significantly, indicating robust financial sustainability.

Zamfi encouraged microfinance institutions to invest in digitalization, talent development, and information technology, including artificial intelligence and data analytics, to enhance productivity and efficiency. However, the sector's performance remains vulnerable to currency depreciation, with the former local currency depreciating by 256% during the review quarter, leading to the introduction of a new currency, Zimbabwe Gold (ZiG), anchored on a composite basket of foreign currency and precious metals.

Source - newsday
More on: #Currency, #ZiG, #Zamfi