BANK SUPERVISION DIVISION

Transcription

1 MICROFINANCE INDUSTRY QUARTERLY REPORT 31 DECEMBER2015 BANK SUPERVISION DIVISION

2 1. Executive Summary 1.1. The microfinance sector which by its nature targets the low income households and micro, small and medium enterprises (bottom of the pyramid) continued to exhibit improved performance in terms of outreach and performance for the quarter ended 31 December Despite the decrease in the number of licensed microfinance institutions from 155 as at 30 September 2015 to 152 as at 31 December 2015, the sector witnessed growth in the number of active clients, number of borrowers and branch network during the same period As at 31 December 2015, total loans and total assets amounted to $ million and $ million, up from $ million and $ million as at 30 September 2015, respectively. Portfolio quality as measured by the Portfolio at Risk (PaR) however, marginally worsened from 9.05% to 10.72% during the same period. 2. Architecture of the Microfinance Industry 2.1. During the quarter ended 31 December 2015, the Reserve Bank issued 6 new licences comprising one (1) microfinance, four (4) moneylending and one (1) deposit-taking microfinance licence. A total of 31 microfinanciers licences comprising eleven (11) credit-only microfinance licences and twenty (20) moneylending licences were renewed during the quarter. A total of nine (9) institutions failed to renew their operating licenses during the quarter resulting in the number of registered microfinance institutions declining from 155 to 152 as at 31 December

3 3. Outreach 3.1. The MFIs have presence across the country although Harare, Midlands, Manicaland and Bulawayo provinces dominate in terms of the highest number of branches of MFIs as shown in Fig 1. Matabeleland North province with seventeen branches has the least number of MFI branches Some of the MFIs have set up head offices in smaller towns such as Beitbridge, Kariba, Matobo, Shurugwi, Lupane, Rusape, Mashava, Zvishavane, Gwanda and Marondera and this in turn has complemented outreach initiatives by MFIs with head offices in large cities. Fig 1: Total No. of MFIs Branches By Province Mash West 57 Mash Central 31 Harare 136 Mat North 17 Midlands 81 Mash East 34 Bulawayo 63 Masvingo 47 Manicaland 72 Mat South Two MFIs with 51 representative offices each had the greatest number of branches while 100 microfinance institutions had one (1) branch each. On the other hand, two institutions with 4 and 16 branches each respectively, reached out to a greatest 3

4 number of clients compared to the rest of the MFIs, as they had 13,865 and 12,742 active clients as at 31 December Performance of the Microfinance Sector Total Loans 4.1. The sector recorded a 7.99% increase in total loans from $ million as at 30 September 2015 to $ million as at 31 December The increase is largely attributed to aggressive growth of loan portfolios particularly in the areas of asset and agricultural financing as MFIs responded to the call by the Reserve Bank for them to provide funding to the productive MSMEs and smallholder farmers The sector s credit portfolio is highly concentrated as top twenty microfinance institutions with a total loan book of $ million controlled 86.98% of the sector s total loans. The largest microfinance institution with a loan book of $32.50 million, commanded a market share of 17.37% as at 31 December A total of 22 MFIs with a loan book size of at least $1 million each disbursed total loans amounting to $ million Table 1 shows key performance indicators for the sector. Table 1: Key Performance Indicators Dec 14 Mar 15 Jun 15 Sep 15 Dec 15 Number of licensed institutions Total loans $ million $ million $ million $ million $ million Total Assets $ $ $ $ $225.13million million million million million Portfolio at Risk 11.29% 12.05% 13.31% 9.05% 10.72% (PaR>30 days)* Number of Active Clients 205, , , , ,242 Number of Outstanding Loans 257, , , , ,627 4

5 ($) Million Number of Branches Operational Self % Sufficiency Operational Expenses % ratio * Portfolio at Risk [30] days-the value of all loans outstanding that have one or more installments of principal past due more than [30] days. This includes the entire unpaid principal balance, including both the past due and future installments, but not accrued interest. It also includes loans that have been restructured or rescheduled. ** Operational Self Sufficiency which is defined as the ratio of an MFI s operating revenues to its operating expenses including the financial costs and impairment losses on loans A ratio of less than 100% indicates that the MFI may not survive or continue operations without external assistance or donor support, while a ratio of 100% indicates that the MFI is able to generate enough revenue from its clients to cover operating costs. Portfolio Quality 4.5. Portfolio quality remains a major challenge in the sector as measured by the Portfolio at Risk (PaR>30 days), a primary indicator for portfolio quality. PaR closed the year at 10.72% as at 31 December 2015 compared to a ratio of 11.29% as at 31 December The ratio remains above the internationally accepted benchmark of 5% The trend in the level of PaR is indicated in Fig 2. Fig 2:Trends of Performing & Non- Performing Loans Dec Dec Dec Mar Jun Sep Dec PaR / Non Performing Loans ($ millions) PaR Ratio (%) Performing Loans ($ millions) 4.7. Portfolio quality, as measured by the Portfolio at Risk (PaR>30 days) has been on 5

6 a downward trend since December 2012, reflecting moderate credit risk in the microfinance sector. The ratio, however, marginally increased from 9.05% as at 30 September 2015 to 10.72% as at 31 December 2015 reflecting inherent credit risk vulnerabilities in the sector in view of the current economic challenges The Reserve Bank and other stakeholders in the microfinance sector have been working on various initiatives such as training, setting up the Credit Reference System and enhanced regulatory oversight to address credit risk in the microfinance sector Microfinance institutions have also been enhancing their credit assessments, by investing in risk management systems, information technology and incorporating the Microfinance Core Client Protection Principles. Distribution of Loans As at 31 December 2015, lending was skewed towards consumption at $ million, which constituted 54.24% of the sector s total loans. A number of MFIs continue to focus on consumption lending, which is dominated by government employees, to take advantage of the government s direct deduction facility in an effort to manage default risk Table 2 shows the trend in the distribution of loans from 2013 to

7 Table 2: Distribution of Loans as at 31 December 2015 Type of Lending Dec 2013 Dec 2014 Mar 2015 Jun 2015 Sep 2015 Dec 2015 Consumption (% of total lending) $116.40m (70.89%) $83.55m (53.30%) $88.10m (53.88%) $89.39m (55.36%) $80.19m (46.27%) $101.52m (54.24%) Productive (% of total lending) $47.80m (29.11%) $73.44m (46.70%) $75.41m (46.12%) $72.09m (44.64%) $93.12 m (53.73%) $85.64m (45.76%) Total $164.20m $156.99m $163.51m $162.20m $173.31m $187.16m Microfinance institution have heeded Reserve Bank calls for reorienting their lending portfolios towards productive lending as reflected by the improvement in productive lending from 29.11% in 2013 to 45.76% in The Reserve Bank, continues to urge MFIs to consider focusing their lending activities on the productive sectors of the economy such as small holder agriculture, small scale mining, resuscitation of irrigation schemes and peri-urban agriculture. Sustainability Operational self-sufficiency (OSS), averaged % for the quarter, which is above the break-even point of 100%, reflecting sustainability of a number of MFIs. Operational self-sufficiency ratio of % suggest that a number of microfinance institutions in the sector were able to generate sufficient revenues to cover operational costs A total of 18 institutions posted losses amounting to $7.65 million, with one institution s losses amounting to $7.01 million constituting 91.67% of the entire industry loss figure for the quarter, which in turn, significantly weighed down the sector s average OSS ratio. 7

8 MFIs Leveraging on Mobile Technology A number of microfinance institutions have, with the advent of technology, developed innovative ways of reaching out to their clients, particularly those in remote areas, where absence of adequate infrastructure is a barrier to access of financial services. Microfinance institutions have leveraged on the on the high mobile phone penetration rate of 92.8% to offer mobile micro financial services to the poor and low income groups Some microfinance institutions have installed ICT systems which enable their clients to perform loan transactions such as applying for a loan, disbursements and loan repayments using a mobile phone. Some microfinance institutions are now authorized to conduct agent banking activities as agents for banking institutions The Reserve Bank continues to encourage MFIs to leverage on mobile technology to deliver financial services to the low income groups and the marginalized communities in the remote areas. MFIs are urged to develop innovative financial products and services and take advantage of the country s high mobile phone penetration rate of 92.8% The Reserve Bank is in the process of implementing the National Financial Inclusion Strategy wherein MFIs are expected to play a key role in attainment financial inclusion targets in the country. The agent banking guideline is also expected to provide a framework for the participation of MFIs in branchless banking and making access to financial services possible to the marginalized and rural communities. Microfinance Products Products offered by MFIs are largely dominated by salary based loans, due to the perceived low risk of salary based loans and inadequate funding to embark on productive lending. Four (4) institutions have been focusing on some niche markets such as leasing. 8

9 4.21. The microfinance sector in Zimbabwe has largely drifted from focus on the poor and marginalised as evidenced by provision of credit to the relatively well-off and salaried groups However, the sector is witnessing a growing interest in a number of MFIs willing to expand their product offering to include SMEs financing, agricultural loans and loans to informal traders such as vendors, flea market operators and cross border traders. Funding for agriculture has largely been extended to tobacco farmers, sugar cane farmers and some cash crops. Compliance with Regulatory Requirements and Best Practices There has been a notable improvement in the level of MFIs compliance with regulatory requirements particularly submission of quarterly returns. A total of 145 microfinance institutions out of 152 licensed MFIs submitted MFI Returns for the quarter ended 31 December The level of compliance with the submission of MFI Returns improved from 75.48% as at 30 September 2015 to 95.39% as at 31 December 2015 following the levying of penalties for non-submission or delayed submission by some MFIs during the year As at 31 December 2015, only two (2) institutions had capital levels below the prescribed minimum capital of $20,000 and were in the process of regularizing their capital positions. Complaints Handling A total of five (5) complaints were received during the quarter ended 31 December Complaints from microfinance customers continue to indicate inadequate pre-lending assessments by some MFIs, as well as inadequate disclosures of terms and conditions, and low financial literacy of customers Microfinance institutions are required to embrace microfinance core client protection principles (CCPPs) in line with the provisions of the Microfinance Act 9

10 [Chapter 24:29] The Reserve Bank has also noted incidences where borrowers are signing loan agreements without fully understanding the terms and conditions of the same resulting in some borrowers lodging complaints alleging high interest rates when they realise they are unable to pay the debt. Consumer Protection Consumer protection is an important pillar of the National Financial Inclusion Strategy, as it promotes consumers confidence in the financial system. Consumer protection builds and strengthens the trust and confidence in formal financial services, particularly among the low-income households, the majority of whom are microfinance clients. In addition consumer protection also stimulates healthy competition, encourages responsible pricing and better products for the consumers The Reserve Bank is currently developing Consumer Protection Prudential Standards to promote greater transparency and minimize information asymmetry between consumers and financial service providers and to address the protection of the rights of consumers through, inter alia, effective redress mechanisms to enhance public confidence in the financial system. END OF REPORT 10