Documents
Country Feasibility Studies
Zimbabwe
UNDP Microfinance Assessment Report
Prepared as a component of the MicroStart Feasibility Mission - July,
1997
Reda Mamari, International Consultant, and
Roland Rasoamanarivo, National Consultant
Table of Contents
| AFC | Agricultural Finance Corporation |
| CBZ | Commercial Bank of Zimbabwe |
| CGAP | Consultative Group to Assist the Poorest |
| CRS | Catholic Relief Services |
| CSFS | Collective Self-Financing Scheme |
| DFID | Department for International Development |
| ENDA | Environment and Development Activities |
| ESAP | Economic Structural Adjustment Program |
| GDP | Gross Domestic Product GOZ Government of Zimbabwe |
| GTZ | German Development Cooperation |
| ILO | International Labor Organization |
| IRED | Development Innovations and Networks |
| ITSP | International Technical Service Provider |
| LTSP | Local Technical Service Provider |
| MEDA | Mennonite Economic Development Association |
| MFI | Microfinance Institution |
| MISSEP | Micro and Small Scale Enterprise Promotions Network |
| MOF | Ministry of Finance |
| MSE | Micro and Small Enterprises |
| NASCUZ | National Association of Cooperative Savings and Credit Unions of Zimbabwe |
| ORAP | Organization of Rural Associations for Progress |
| PASS | Poverty Assessment Study Survey |
| PSDP | Private Sector Development Program |
| RBZ | Reserve Bank of Zimbabwe |
| SAEDF | Southern African Enterprise Development Fund |
| SDF | Social Development Fund |
| SEDCO | Small Enterprise Development Corporation |
| SEEP | Small Enterprise Education Promotion |
| SHDF | Self-Help Development Foundation |
| USAID | United States Agency for International Development |
| ZAMFI | Zimbabwe Association of Microfinance Institutions |
| ZCTU | Zimbabwe Congress of Trade Unions |
| ZECLOF | Zimbabwe Ecumenical Church Loan Fund |
| ZPT | Zimbabwe Project Trust |
| ZUBF | Zimbabwe Unemployment Benefit Fund |
| ZWB | Zimbabwe Women's Bureau |
| ZWFT | Zimbabwe Women's' Finance Trust |
KEY COUNTRY STATISTICS (as of 31 July 1997)
US$1 = Z$11
Poverty line = Z$850 (about $77) per household of 4.6 persons per month
Annual Inflation Rate = 15% Prime Lending Rate (among major commercial
banks) = 28%
Fiscal Year: July to June (Changing to January to December as of 1 January
1998)
The demand and supply side of the environment for micro and small enterprise (MSE) development has improved markedly in Zimbabwe over the last two to three years. Government has identified MSE development as a key element in the national economic development strategy. In addition, rhetoric and policy are supportive of private sector development. A more open economy has afforded more real business opportunities and scope for real entrepreneurial activity.
Fiscal and monetary performance have improved of late. Government's debt burden as a percentage of Gross Domestic Product (GDP) has come down. In the wake of adverse shocks of Zimbabwe's Economic Structural Adjustment Program (ESAP), inflation, along with nominal and real interest rates are still high, but stabilizing.
There is substantial and growing donor involvement already in microenterprise and microfinance sectors, with nascent and promising coordination efforts at MFI and donor levels. The MFI industry is still young, but vibrant and operating in a basically friendly regulatory environment. Donors, the Government's Social Development Fund, a World Bank financed SME fund, and a couple of banks are ready to provide loanable capital to MFIs, much of it on grant terms.
Poverty alleviation is a UNDP-Zimbabwe and a national priority, with microenterprise development as a key tool in the strategy. In partnership with Government, UNDP has already begun to support the MSE sector, in particular MFIs, by providing technical assistance to the Social Development Fund, which, among other mandates, has a Microenterprise Development Program of on-lending to MFIs.
A key constraint to the growth and long term viability of the MFI sector is lack of institutional capacity at MFI level to meet market demand and effectively absorb available funds for on-lending. There are several projects underway in which an international NGO or PVO have established a relationship with one or two local intermediaries. At the other end of the spectrum there is an increasingly substantial network available for MFIs to share experiences and receive broad based assistance. There is, however, a missing niche in which newer organizations require substantial direct assistance, and where certain geographic regions and markets are not being served. (Return to top.)
Zimbabwe is emerging from some of the most profound effects of the Economic Structural Adjustment Program (ESAP) and drought in recent years. Inflation is still hovering around 15%, but the currency has stabilized, even if it continues to devalue against major hard currencies, and to a lesser extent the South African Rand. Unemployment and the increasing rate of school leavers without jobs are growing problems, particularly in the light of broad based corporate down-sizing and public sector trimming. Pronouncements of government policy on items such as privatization, the increasing role of the private sector, public sector reform, and other transformation issues have begun to be more resolute and followed by positive action; although there are some lapses.
The general environment for microenterprise finance has progressed very well over the last two to three years. The Government of Zimbabwe (GOZ) has identified micro, small and medium scale enterprise development as a top priority growth strategy. The interest rate debate continues to simmer, with the usual positions - the poor and women cannot pay full-cost recovery interest rates vs subsidization distorts the market and leads to credit rationing which ultimately does not reach the target population. (Return to top.)
D.
Political and Administrative Structure
Zimbabwe is a Republic with an Executive President as Head of State and Government. The President and Members of Parliament are elected by the whole electorate every five years. The President chooses government ministers and a Cabinet from members of Parliament, which consists of a 150 member House of Assembly. Of those 150 members, 120 are elected directly by the populace; ten are appointed by the President; and the remaining twenty are comprised of Provincial Governors and Traditional Chiefs' representatives.
President Robert Mugabe and his ZANU-PF party came to power with independence in 1980. He remains today as Executive President, and thereby head of state, as stipulated in constitutional changes implemented in 1987.
Zimbabwe has an extensive system of local government comprising city, municipal, town, and the merged rural and district councils. Councils have the power to license businesses and to levy local taxes, subject to approval by the Minister of Local Government, Urban and Rural Development. In addition, local councils are responsible for the provision of roads, primary health care, housing, primary education and other community services.
Zimbabwe covers a total area of 390,759 square kilometers. The population of about 10.5 million is predominantly rural. Slightly more than 50% of the population is under age 15. Approximately 1.2 million people live in and around the capital city of Harare. The next largest city is Bulawayo with about 650,000 inhabitants.
Support to the MSE Sector
Government has set up various support programs for micro-enterprise development and micro-finance during the 1990s. Zimbabwe´s Economic Reform Programme, which has been implemented since 1991, was meant to bring overall economic growth to Zimbabwe. Based on experience in other countries it was envisaged that the Economic Reform Programme would create temporary hardships for many people, due to the removals of subsidies on basic food items, the introduction of user fees for health and education, and retrenchments.
Therefore, Government developed a Social Dimensions of Adjustment (SDA) program in 1991, which laid down policy to cushion those adverse effects of the Economic Reform Programme. The SDA program was positioned in the Ministry of Public Service, Labor and Social Welfare. A special fund, the Social Development Fund (SDF) was created to administer resources for the SDA program, which had two components:
i) an Employment and Training Programme, providing training and loan facilities for retrenched and disabled persons wanting to start their own business, and
ii) a social Safety Nets program, to provide those earning less than Z$400 a month with support in health and education fees, and those earning less than Z$200 a month in urban areas with food money. SDF has since 1992 disbursed over Z$220 million in loans to over 2,000 businesses at a 10% interest rate, increased to 15% in 1996.
Government launched a separate Department for Employment Creation in the Ministry of National Affairs, Employment Creation and Cooperatives in 1994, with the mandate to facilitate employment creation in Zimbabwe. The Department established a loan facility at 12% interest rate for the informal sector and has disbursed Z$2 million in one year, with repayment rate of 50% to 80%.
Various loan facilities have been disbursed through Government to strengthen the small and medium enterprise sector, including Z$100, Z$400 and Z$700 million World Bank financed facilities. Most of the loans from these programs have been going to commercial banks, large parastatal finance organizations and finance houses. These institutions do not target the microenterprise sector, and therefore it is likely that a negligible amount of these funds have reached the microenterprise sector.
Poverty Alleviation Action Plan (PAAP) Strategy
The SDA program has been taken over by the expanded Poverty Alleviation Action Plan (PAAP) in 1995. Government requested UNDP in 1993 to assist in expanding the scope of the SDA program towards a Poverty Alleviation Action Plan (PAAP). The main new feature of the PAAP was a combined focus on transitional poverty (new poor) and structural poverty (old poor).
All forms of poverty are to be addressed, including those caused by: structural factors (labor markets cannot absorb labor force); historical factors (education system not responding to match skills requirements of the job market or for sustainable livelihood); environment (climatic factors, low rainfall and drought); lack of access to production resources (land, credit and technology); and the transitional effects of the ESAP (high prices and frictional unemployment).
The PAAP strategy emphasizes the following new features:
- targeting of
social expenditures towards most disadvantaged areas;
- decentralization
of program implementation;
- a participatory
approach to poverty alleviation;
- partnership approach to address distortion in social provisions and poverty alleviation.
The strategy takes cognizance of other national development activities and aims to complement and build upon them, but not to replace these programs. The programs are meant to be environmentally friendly and transparently governed.
The PAAP program areas in line with the strategy focus on:
1. Community Development
2. Micro-enterprise and informal sector development, though on-lending of funds through microfinance institutions to micro-enterprises, and capacity development of the sector
3. Poverty monitoring and Strategic Planning
4. Social Safety Nets in health, education, and food security (to be channeled through Department of Social welfare)
Government's role in the implementation of PAAP will be facilitator. Actual implementation will be left to the communities themselves through their local government structures, CBOs, NGOs and the private sector.
The PAAP was endorsed by the Government as national policy in February 1994 and by donors at the Consultative Group meeting in Paris, December 1993. Government, with UNDP assistance, developed the PAAP into an implementation framework and strategy document in the course of 1994. The Plan was formally launched in February 1995. (Return to top.)
Various factors affect the daily lives and social well-being of a growing part of Zimbabwe's population, resulting in poverty. At the same time, a more open economy has provided enrichment opportunities for a growing middle class. Trade competitiveness, with the emergence of a democratic South Africa, has become the key issue in managing Zimbabwe's external economy. Overall, while Zimbabwe ranks among the more developed countries in the eastern and southern African region, the majority of its population remains poor. The following statistics illustrate the predominant state of socio-economic affairs:
- population growth
above 3% per year, unmatched by economic growth and opportunities
- the average GDP
growth rate of 2.9% during 1985-1990 dropped to an average of 1.6%
during 1990-1995
- decline in real
per capita government expenditure on health and education (41% and
33%, respectively, from 1990/91 to 1992/93)
- recurrent droughts
- the rapid spread
of HIV/AIDS
- the fast growing
labor force versus little formal sector employment growth
- the slow increase
in productive activities of the poor
- the difficulty
in targeting the poor, owing to numbers and dispersion
- survival based environmental destruction and degradation.
Mainly as a result of two very severe droughts, the country has seen two recent years of negative economic growth, 1992 (-6.2%) and 1995 (-2%). GDP growth in 1996 was positive, however, at 7%, and GDP growth for 1997 is projected at 4.5%. Combined with an average population growth of 3.1%, the negative or low GDP growth has meant the lowering of living standards for a large portion of the population.
Annualized inflation between 1991 to 1995 ranged between 16% and 25%. More recent inflation estimates put the figure around 15% or slightly lower. Through 1995 the budget deficit remained steady at around 10% of GDP. For the 1996 / 97 fiscal year that figure has dropped to 7.1%. The distribution of income and wealth in Zimbabwe is skewed. The dualistic economy that existed in the pre-independence era is a key explanatory factor; even though there is casual evidence that the gap between rich and poor has continued to widen after independence. A recent UNDP study estimates a Gini coefficient of 0.72%.
Nature and Extent of Poverty
The Poverty Assessment Study Survey (PASS) shows an alarmingly high incidence of poverty in Zimbabwe. The food poverty line (FPL) was defined as the amount of income required to buy a basket of basic food needs for one person per year (Z$l,290 or US$122). The total consumption poverty line (TCPL) was determined as the amount of income needed to meet both basic food needs and non-food items in a year (Z$2132 or US$201). Those whose income is above the FPL and below the TCPL were defined as poor. Those below the FPL were described as very poor. The study showed that 62% of the population is poor, and 46% is defined as very poor.
The study showed a significantly higher share of poor in rural than in urban areas (75% compared to 39%). In communal areas, 81% of the population is poor, in resettlement areas and small-scale farming areas 70%, and in large scale commercial farms 57%. The PASS confirmed that poverty is more common in female than in male headed households. Seventy-two percent of the female headed households were classified as poor, against 58% for male headed ones. The PASS also showed considerable regional variances in poverty.
The PASS assessed the causes of poverty as perceived by the people themselves. Unemployment and retrenchment were given as the key causes for poverty by 38% of the population, followed by drought at 29%, and low pay at 12%. Urban areas ranked unemployment and retrenchment as the key causes, followed by low pay and high inflation. Rural areas reported drought as the main cause, and unemployment and retrenchment as other important reasons.
Unemployment and the Informal and Formal Sectors
The rate of unemployment in Zimbabwe is estimated at around 30% by Government and 44% by the Zimbabwe Congress of Trade Unions (ZCTU). Both ZCTU and ILO studies show a declining trend in formal sector employment growth since independence. Between 1981 and 1990, average annual employment growth was registered at 2.7%. Between 1991 and 1995, average annual employment growth stood at 1.4%. This is worrisome when one considers that the annual growth of the labor force is over 3%.
PASS data indicate that 39% of the population is without paid employment. This national average disguises that 55% of women are without paid employment as compared to 32% of men. Data from 1992 indicate that young people, aged between 15 and 24 years, account for around two-thirds of the number of unemployed. This has serious social implications and alternative livelihood opportunities need to be found, especially in the informal sector.
Government of Zimbabwe
statistics show that as at 1995, female formal sector employment stood
at only 2% of the national population, while their male counterparts
constituted 10% of the same. Unemployment rates are higher in urban
areas, due to rural-urban migration. Those self-employed in agriculture
in rural areas, mainly women, remain behind whilst men seek employment
in urban areas. The table below provides illustrative unemployment data
from two of Zimbabwe's major cities (Harare and Bulawayo) and the country's
largest urban township.
|
Table
1: Unemployment in Major Urban Centers
|
|||
| Urban Center |
Percentage
Unemployed
|
||
|
Total
|
Men
|
Women
|
|
| Harare |
20.0%
|
17.0%
|
25.5%
|
| Bulawayo |
24.0%
|
20.6%
|
32.5%
|
| Chitungwiza |
27.8%
|
22.0%
|
38.4%
|
Key participants
in the informal sector have included the following:
- majority of women,
both urban and rural based
- marginalized
men in both rural and urban areas
- youth (mostly
school leavers, but of late seemingly abandoned children or runaways)
- retrenchees (who
have been dubbed "the new poor")
- the employed but unable to meet basic needs through formal wage employment (who usually operate on a part time basis.)
Looking at informal sector differentiation on a gender basis, women generally occupy the lower stratum. Focussing on women alone, those women without a particular skill (e.g. vegetable vendors) tend to be found at the bottom stratum; while women with some skills (e.g. knitting) are at the top, relatively.
In general, women face stiff competition in the expanding informal sector, and are being marginalized. They are often not taken seriously by GOZ or institutional service providers; and they face serious constraints in access to capital and business premises. Married women face the fact that plots and premises are usually registered in the husband's name. Single women's position is even more difficult. Few women have appropriate business skills and qualifications, leaving the majority of women to operate at the bottom levels of the informal sector. Factors that have hindered the growth of the informal sector in Zimbabwe are many and varied. However these can usefully be divided into those associated with the policy environment, and those associated with the economic environment. These factors have included the following:
- Lack of entrepreneurial
culture among operators.
- Lack of capital
and access to credit due to demands by financial institutions (e.g.
collateral security question).
- Lack of stable
and adequate premises to operate from, including poorly located market
stalls
- Saturation of
markets and limited demand for goods, often due to limited market
intelligence
- Restrictive policy
environment, e.g. zoning regulations, high rentals, etc.
- Until recently,
lack of apex organizations to facilitate effective consultations among
informal sector operators and between government and the operators.
- Problems associated
with procurement of raw materials or goods for retail (e.g. shortages
or prohibitive costs)
- Lack of opportunities for skills training (e.g. in respect to productive know-how or bookkeeping).
Geographic Dimensions of Population
Population density (excluding the cities) is highest in Manicaland, followed by the Mashonaland provinces, Midlands and Masvingo, and least in Matabeleland. However, unemployment rates are highest in Matabeleland and Masvingo provinces.
Literacy Rates
According to the PASS l995, literacy rates range from 82% in rural areas to 95% in urban areas, and average 87%. Literacy is closely related to poverty, with those who received little or no education fall in the very poor categories. On a gender note, the percentages of women who have never attended school range from 20% in Masvingo to 26% in Mashonaland provinces. (Return to top.)
Linguistic Information
There are 3 national languages: English (a second language for most people), spoken throughout the country; Shona (about 75% of the population), spoken mainly in Mashonaland, Manicaland, Midlands and Masvingo; and Ndebele (about 15% of the population), spoken mainly in Matabeleland. Furthermore Tonga is spoken south of Lake Kariba in Mashonaland West, Midlands and Matabeleland North, while other minority groups in Masvingo and Manicaland speak Shangaan, Karanga or Venda.
Role of Church
The church plays an important role in society, with the vast majority of the population claiming affiliation to one of the over 15 religions. Church organizations are playing an important role mainly in the welfare sector, but during the nineties various church organizations have started supporting the microenterprise and microfinance sector. Examples are: the Zimbabwe Council of Churches (ZCC) has established the micro-finance institution ZECLOF; Phakama Trust has been initiated by church members; whilst Catholic Relief Services and Mennonite Enterprise Development Association are supporting the sector technically and financially. (Return to top.)
G.
Finance and Banking
1
GOZ regulates financial institutions through a range of statutory instruments whose provisions are monitored in part by the Registrar of Banks in the Ministry of Finance (MOF) and by the Reserve Bank of Zimbabwe (RBZ). The following are some of the relevant enabling acts:
- Banking Act (Chapter
11, Chapter 24)
- Hire Purchase
Act (Chapter 284)
- Building Society
Act
- Post Office Savings
Bank Act
- Moneylending
and Rates of Interest Act
- Reserve Bank Act
RBZ regulates discount houses (5); commercial banks (5); merchant banks (10); finance houses (6); building societies (4); and the post office savings bank (1); plus the Zimbabwe Stock Exchange (ZSE), unit trusts (i.e. mutual funds), and foreign exchange bureaux. RBZ's role is a fairly traditional one for most modern central banks: sole issuer of notes and coin; banker to government and other banks; bank of central clearing and settlements; lender of last resort; controller of money supply; and sole custodian of Zimbabwe gold and foreign reserves.
The Reserve Bank is responsible for monetary policy. There is no direct supervisory mission for them in the banking and financial services field. However, they are managing the application and disbursement process for the World Bank sponsored Z$700 million loan facility being propagated through the banks for small and medium scale enterprises.
MFIs in Zimbabwe are operating under the Moneylending and Rates of Interest Act that has been in existence since 1930. Under its provisions, there is a list of "exempted transactions", showing the difference between money lending and the "banking business". Moneylenders are not ordinarily classified as bankers. Thus only those in an "approved banking business" may lend money raised from savings.
"Approved banking business", as indicated in the Banking Act, means the business of accepting deposits of money, which is withdrawable and repayable on demand or after a fixed period, or after notice and the employment of those deposits, in whole or in part, by lending or by any other means approved from time to time by the registrar, in consultation with the Reserve Bank.
Government's approach to the MSE sector has come a long way in the last few years. MSEs and 'indigenous' businesses have become a high priority item on the national agenda, with significant rhetoric and programming being aimed at the sector.
A so-called Indigenous Action Policy was discussed at the end of December 1996 by the Minister of Industry and Commerce, who is responsible for the small and microenterprise sector. Given the cumbersome and encompassing definition of MSEs and indigenous business, this may be construed as legislation which may impact MSEs. Other existing and unchanged legislation - Companies Act, Factories Act, Road Motor Transportation Act, Labor Relations Act, building codes requirements, import and price control regulations - still contain provisions which limit or prohibit MSE entry or viability.
Focus of infrastructural investment in growth points is seen as support to the MSE sector, since many of those who may benefit from such improvements are agro-related MSEs.
The Ministry of Finance, responsible for oversight and supervision of the Moneylenders Act, has taken a very laissez-faire approach to the yearly registration of credit-providing institutions. This attitude will have to mature into one of collaborative and informed support, if the Ministry is to help in actively championing supportive legislation. If the MFI sector evolves as it has in other developing countries, the Ministry's consumer protection role should increase as more MFIs emerge.
The Moneylending Act is a step in the right direction, with a graduated interest rate regime, yielding higher rates for smaller loans, and lower rates for larger loans. However, the ceilings at the lower levels may not really be high enough to encourage achievement of operational or financial sustainability in an average MFI in a reasonable amount of time. At the same time, the Ministry is either not aware of, or willing to overlook some effective interest rates of 95%or more calculated for some MFIs in this study. Further clarity of the Act (or its total abolition, with improved supervision and consumer protection and sanctions) will help the MOF and MFIs to understand issues such as nominal, real and effective interest rates, disclosure, etc.
Registration as a moneylender is very easy and inexpensive. All MFIs interviewed, which had applied for registration had received it and found the process very simple. On a yearly basis, an organization must submit:
- A certified copy
of the memorandum of articles of association of the company, showing
the organization is allowed to engage in moneylending activity
- CVs of the two
top directors
- Bank statements
indicating performance over the previous six months
- A one-page application
form, which asks for the name, address and citizenship of the top
management, proposed trading name, postal address, and telephone
- A covering application
letter addressed to the Senior Secretary for Finance
- An application fee of Z$150.
Coverage of most programs tends to be around the urban or semi-urban centers of Harare and Bulawayo, the country's two largest cities, as well as smaller secondary towns such as Masvingo. Banks operate almost entirely in the urban centers, except for their commercial agriculture finance.
There are five commercial banks in Zimbabwe - Barclays Bank, Commercial Bank of Zimbabwe (CBZ), Stanbic, Standard Chartered, and Zimbank. Standard Chartered has publicly announced that they are not interested in supporting microenterprises, or even small business. Stanbic Bank has been silent and inactive in the MSE market. Zimbank seems to be winding up or at least restructuring their micro and small enterprise lending activities. Barclays and CBZ are active in the sector, and their involvement is further detailed later in this report. (Return to top.)
Country Strategy
Poverty reduction is the over-arching objective of the UNDP's Country Cooperation Framework (CCF) 1997-1999, and UNDP's assistance will continue to be focussed on capacity development assistance. Three concentration areas are defined: poverty reduction, development management, and environmental regeneration. Three cross-cutting themes fall within these concentration areas: governance, gender and HIV/AIDS.
The CCF proposes that UNDP's future assistance to Zimbabwe have two key directions and entry-levels:
1) support to national policy formulation in priority and leverage SHD areas and
2) funding of downstream programs supporting sustainable livelihoods.
Programme Overview
Proposed interventions in the poverty reduction area of concentration will be guided by the national Poverty Alleviation Action Plan (PAAP) and the results of the Poverty Assessment Study Survey (PASS). Deteriorating standards of living for the majority of the population caused by stagflation, high unemployment rates and recurrent droughts, require targeted programs and determined action to support job creation and sustainable livelihoods. It is the view of Government that UNDP's assistance should follow the overriding objective of capacity development and be focussed on strengthening the capacities of national institutions (governmental/non-governmental as well as central and local) and communities to take action on poverty reduction.
Five main areas of intervention are being considered in the area of poverty reduction, falling under one single program:
Intervention 1.1 Integrated community development/sustainable livelihoods programs
Intervention 1.2 Support to the informal/small entrepreneurship sector
Intervention 1.3 Support to decentralization and capacity building for community development
Intervention 1.4 Poverty reduction advocacy, policy and monitoring
Intervention 1.5 Capacity development for PAAP implementation
The interventions outlined under this concentration area are intended to impact on policy reform and poverty monitoring, as well as directly on selected poorer segments of the population through the creation of jobs and sustainable livelihoods. The use of participatory approaches such as partnership building, community assessments, and empowerment will be important both for the sustainability of interventions as well as for impact measuring. The sustainability of community level interventions will be enhanced by the emphasis on capacity building through training and empowerment of communities to manage their own development. The program will also aim at developing an entrepreneurial "job creating" culture. Measurements of impact will be facilitated by the PASS baseline, continuous poverty monitoring as well as the number of income opportunities and jobs created.
Support for policy formulation in SHD related areas is granted through assistance to GOZ on national policy formulation, advocacy, and translation of international compacts and agreements into concrete action plans and programs. UNDP funds pilot programs with a direct impact on sustainable livelihoods and poverty reduction.
UNDP supported initiatives - including agricultural production, water provision, environmental conservation and income generating activities - will be concentrated to specific areas in accordance with PASS results. Programs will be designed using participatory approaches; and the key focus will be on capacity development and sustainability. Separate community level initiatives that are supported by UNDP and UNV headquarters include: Africa 2000; GEF Small Grants; Partners in Development Program; UNDP's Participatory Development Resource Center for Africa; and UNV's Domestic Development Service. These programs will come together at country level to achieve synergy and improve impact and sustainability.
UNDP Support to the Private Sector
UNDP Harare is a pilot country office for the global UNDP PSDP program on development of a private sector guide. UNDP's Program on Employment Generation through informal sector support has as its main objective to reduce poverty through employment generation and initiation of programs targeted at the poor and vulnerable segments of the population and those adversely affected by structural changes in the economy. Other specific objectives include strengthening the associations representing informal sector workers, devising a legal framework for a national policy in the form of an Employment Creation Act, and the provision of tools and skills for entrepreneurship development and marketing. The program is expected to have a direct impact on poverty reduction in urban areas because more people will be employed.
The program will achieve the main objective by making available financial assistance to informal sector apex organizations (i.e. EMPRETEC, ZISA, and ZWMA), and selected informal sector activities (e.g. artisans) which have the potential to create jobs for greater numbers of people. Through in-depth studies, various constraints will be identified. Such studies will expand knowledge of the sector and pave the way for implementable solutions.
Supporting EMPRETEC is intended to develop a high quality, growth oriented community of Zimbabwean entrepreneurs. The program supports GOZ efforts to stimulate employment creation, investment, technology transfer and knowledge through MSE development. Program implementation focus is on provision of entrepreneurship training, targeted business extension services, and advocacy for the MSE sector. (Return to top.)
I.
Donor Interventions in Sector
Along with GOZ's increased commitment to the MSE sector, many international donors have stepped up their involvement in the sector. The following pages briefly outline key MSE program elements of most of donor interventions.
Australian Agency for International Development (AUSAID)
In January 1995, AUSAID committed $1,6 million through Opportunity International in support of technical assistance and training ($221,795), equipment ($84,615), development education ($64,000) and equity ($1,28 million) over four years to Zambuko Trust. Problems encountered to date at Zambuko, include very high staff turnover during the past 18 months, lack of uniform procedures and documentation and limited availability and use of management information systems as an effective management tool. AUSAID is not contemplating new activities over the next 6 to 12 months.
Austrian Government
The Austrian Government, through ECOTEC, has provided Zambuko with a grant for capitalising their loan fund and for operational expenses for Bulawayo and Mutare offices since 1995. The 1996/97 allocation amounted to Z$1,3 million and it is hoped that the funding for Zambuko will continue for the next two to three years.
British Department for International Development (DFID)
Through a project entitled, Credit for the Informal Sector Project (CRISP), in July 1995, DFID committed $2,232 million in support of guarantee assistance ($800,000), technical assistance ($1,062m), equipment ($70,000) and operational expenses ($300,000) over a period of four years to a community banking project operated through Commercial Bank of Zimbabwe and supported by CARE International. To date, no serious problems have been encountered, and repayment is high.
Future Projects: DFID is planning to invest about $1,5 million in rural and peri-urban based microcredit projects during the next 6 months.
Canadian International Development Agency (CIDA)
CIDA has two ongoing projects, namely the Women's Guarantee Fund and the Women's Small Projects Fund.
Women's Guarantee Fund - Pilot Project: In April 1991, CIDA committed about $1 million in support of a guarantee fund ($311,071), technical assistance ($142,929), training ($176,214), equipment ($150,857), operational expenses ($54,857) and contingency ($166,072) over 6 years to the Credit Guarantee Company of Zimbabwe (Pvt) Ltd.
Women's Small Projects Fund: In 1989, CIDA also committed $1,6 million for 8 years to provide, through a consultant contract with private sector institutions, direct program support for women's small scale economic activities. Problems to date include lack of confidence of participating bank managers in the operations of the Credit Guarantee Company, and hence the slow turnaround of projects submitted for funding.
Future Activities: CIDA is planning to increase its micro-enterprise support in 1998 by investing up to $3,6 million in the sector. Projects Director of CIDA head office is expected to visit Zimbabwe during the last quarter of 1997 to look for opportunities in the micro enterprise and private sector in general.
European Union / Government of Austria / CARE Austria
Zimbabwe Women Finance Trust (ZWFT) Institutional Strengthening Development Project: On 1 January 1996 the European Union, the Austrian Government and Care Austria committed $504,080 in support of revolving loan fund ($156,380), technical assistance ($116,110), training ($16,190), equipment ($24,450), operational expenses ($147,670) and evaluation and monitoring expenses ($43,280) over one year to ZWFT. Due to prevalence of repeat loans and an increase in the average size of loans, more loan funds are required to enable the institution to cope with funding its business activities.
German Development Co-Operation (GTZ)
GTZ has two microenterprise projects, namely the Micro and Small Scale Enterprise Promotion Program and the Informal Sector Training and Resources Network.
Micro and Small Scale Enterprise Promotion Program (MISSEP): In May 1997, GTZ committed $300,000 in support of technical assistance ($123,000), training ($123,000), equipment and materials development ($57,000) over 2 years to MISSEP, a Bulawayo based network of microenterprise organizations whose membership include Zambuko Trust, Phakama, ZWFT, Zimbabwe National Council of Churches, Evangelical Fellowship of Zimbabwe and Confederation of Zimbabwe Industry (CZI) linkage program. Problems encountered at the level of MISSEP's partners include lack of staff capacity, poor business assessments, poor handling of arrears, inadequate loan tracking systems and poor staff recruitment policies.
Informal Sector Training and Resources Network (ISTARN): In November 1995, GTZ committed about $1,2 million in support of a loan fund ($35,294), advisory and long term technical assistance ($882,353), training ($176,470) and equipment ($117,647) over 4 years to ISTARN, a network of Government and non-governmental organizations which includes the Ministry of Higher Education; Ministry of National Affairs, Employment Creation and Co-operatives; Zambuko Trust, Zimbabwe Unemployment Benefit Fund; Masvingo Technical College; Life Sowing Ministries; and the Rural Development Organization. A notable problem encountered to date is that loanable funds are limited in supply, given that the average individual loan size is high.
Future activities of GTZ are that of expanding the membership of MISSEP to include other microfinance institutions such as Organization of Rural Associations for Progress (ORAP), Dondolo Mudonzvo, Collective Self Financing Scheme and the Self Help Development Foundation.
Hivos Foundation
Hivos has committed Z$1,2 million to Zambuko Trust for capacity building and training. Hivos has also provided Barclays Bank with a guarantee of US$5 million for its Micro Credit Scheme.
Konrad Adenauer Foundation (KAF)
Self-Help Development Foundation: In June 1996, KAF committed $250,000 in support of training ($110,000), equipment ($20,000), loan fund ($20,000) and operational expenses of about ($100,000) over unspecified duration to the Self-Help Development Foundation. A major problem affecting the project is that transaction costs are fairly high as all transactions are done in the intermediate vicinity of borrowers.
Future activities of KAF include that of implementing its Women in Business microenterprise project in conjunction with Women in Business and Skills Development.
The Royal Netherlands Embassy
Zambuko Trust: In October, 1996, The Royal Netherlands Embassy committed $250,000 in support of equipment ($30,000), operational expenses ($40,000) and loan portfolio ($180,000)over 1 year to Zambuko Trust. To date, no problems have been identified relating to this project.
A future activity contemplated during 1997/98 is to provide another grant of $250,000 to go towards capitalizing the Zambuko Trust loan fund.
Social Development Fund / International Labor Organization
Project (SDF/ILO PROJECT) - a government initiative
ILO support project to the SDF is a 3 year project that was set up in 1996 with the goal of establishing an SDF apex loan window within the Poverty Alleviation Action Plan adopted by the government. The Austrian government and UNDP is funding the capacity building component of the SDF to ensure the loan window is professionally managed and financially sustainable. The ILO support team also provides technical assistance to the MFIs that are/will be partners with the SDF. Future activities include staff training workshops for participating MFIs, and national workshops in collaboration with other donors and associations.
Micro Enterprise Development Program. In April 1997, SDF ,a department in the Ministry of Public Service, Labor and Social Welfare, committed over $4.4 million as subsidized loans (at 15%) to microfinance institutions operating in Zimbabwe. Zambuko Trust became the first microfinance institution to access these loan funds when it was granted about $885,000 for on-lending at prevailing market rates to micro-entrepreneurs. Interest accrued on half of this credit line was to be used to meet training needs of Zambuko Trust. To date, problems encountered include, that of lack of capacity by existing microfinance institutions to access and fully utilize this facility.
The ILO Start Your Business (SYB) project has been on going for some time together with the phased out Improve Your Business. ILO has produced training materials for small and micro business people which have been used widely by most MFIs including ZWFT, Credit Against Poverty (CAP), Ministry of National Affairs Credit section , GTZ and others. The project is expected to continue providing services through focal institutions and internal trainers.
United Nations Development Program
A Program Support Document (PSD) (Z/97/013), Support to PAAP Implementation, for a total of US$3,951,000 was signed in June 1997. The PSD includes sub-programs on capacity building and institutional strengthening.
United States Agency for International Development (USAID)
Overall, USAID's program focus is as follows: 1) Coordination of donor information and MFI support, using CGAP model; 2) Work directly with three MFIs, namely Zambuko Trust, Phakama, and CAP; 3) Support SEEP-Zimbabwe and / or Zimbabwe Association of Microfinance Institutions (ZAMFI). In addition, the mission is planning for a review of the 1993 GEMINI base line survey by end 1997 or early 1998.
USAID is currently supporting two microfinance projects detailed briefly below:
Zambuko Trust-Women Trust Banks. In April 1997, USAID committed, through Opportunity International, US$550,000 in support of loan fund (US$400,000), training (US$31,800), equipment (US$32,000), operational expenses (US$86,200) over 1 year to Zambuko Trust to support the expansion of its pilot project on Women Trust Banks.
Phakama Economic Development Company. In June 1996, USAID/Washington, through its Innovation Grants Program, committed US$959,000 through the Mennonite Economic Development Associates, in support of loan funds at commercial rates (US$220,000), technical assistance (US$525,000), consulting (US$56,000), equipment (US$69,000) and operational expenses (US$89,000) over 4 years to Phakama Economic Development Company. High arrears rate and lack of institutional capacity are the main problems affecting Phakama.
USAID contemplates supporting four microfinance initiatives during the next 6 to 12 months. Under consideration are the following:
Funding SEEP/Zimbabwe's secretariat over a period of three years for $100,000. The secretariat's training needs are expected to require $50,000, equipment $20,000 and operational expenses will require $30,000. Providing $100,000 in support of technical assistance ($65,000), equipment ($10,000) and operational expenses ($25,000) over 3 years to the Zimbabwe Association of Micro Finance Institutions (ZAMFI).
Providing grant funds of approximately US$30,000 to finance Zambuko Trust's first phase of developing its country wide computer network and approximately $100,000 to Masvingo based Credit Against Poverty, a microcredit initiative being sponsored jointly by Grameen Trust, Catholic Relief Services, and Zimbabwe Unemployment Benefit Fund.
Official sources within USAID have indicated that all of its programs must wind-down by September 2000.
Other Donors
Norwegian People's Aid has been providing ZWFT and Zimbabwe Project Trust with loan funds/technical assistance. Future activities will mainly involve capitalising ZWFT's loan fund.
African Development Foundation (ADF) has funded some ZWFT activities; and
Catholic Relief Services (CRS) is working with Credit Against Poverty in resource mobilization and technical assistance.
J.
Local NGO and Bank Interventions in Sector
The government has provided a significant supply side and policy push to emphasize MSE development. Retrenchments, down-sizing and new economic opportunities have stimulated demand for MSE sector growth. Under these circumstances, the number of MFIs in Zimbabwe has burgeoned over the last few years. It is still a very young industry, and one still beset with an array of problems - deriving from the transitional and fragile macroeconomic and socio-political environment, as well as internal institutional development issues. Nonetheless, there is promise and potential among some existing organizations; and a relatively open market for new MFI entrants.
The scope of this Assessment mission allows only for broad overview and cursory analysis of individual players in the market. The organizations mentioned below do not comprise an exhaustive list of every MFI in Zimbabwe; nor are the presentations meant to be taken for detailed evaluations. However, this section does provide basic descriptions of the major players in the market. Generally speaking, the consulting team followed the outline provided in Annexes 1 and 2 - Small and Microenterprise Finance: Guiding Principles for Selecting and Supporting Intermediaries, and Effective Microfinance Implementation and Management Characteristics.
There were questions asked about institutional strength; quality of services and outreach; financial performance; and uses of grants and loans. The consulting team looked for MFIs that were or showed credible potential to be client responsive; mutually accountable; financially sustainable; and operationally efficient.
Each of the organizations mentioned below were interviewed by at least one and usually two consulting team members for one to two hours. In many cases, sources of background information are noted. The consulting team attempted to corroborate or refute available data, the quality and quantity of which varied significantly amongst the various MFIs. Most figures quoted are unaudited and gathered from interviews with management and executives of the different organizations. To the extent that the information provided seemed reasonable and consistent with independently confirmed data, we have included it here.
The subsection on each organization below attempts to provide the most salient and up to date information available. Generally, there is a basic description of the organization's structure, mission and market. The important features of the finance program are recorded, i.e. group or individual loans, basic eligibility criteria, range of geographic coverage, interest rate charged, average loan periods, etc. When reliable and available, the report presents key performance data such as repayment rates, number of loans outstanding, and average loan size. Lastly, significant current issues facing the MFI and basic analysis of major strengths and weaknesses provides some insight into whether the MFI is a worthwhile organization or not. The MFIs are presented in alphabetical order.
Barclays Bank
Barclays has one of the longest standing small and medium enterprise support and finance operations among Zimbabwe's formal commercial banks. It was the first commercial bank to enter the sector in 1988, when it established its small business unit (SBU). The program operates from a hub in the Harare commercial district and a newer one in Bulawayo, with 46 centers nationwide. All SBU coordination and loan approvals are done at the hubs.
Barclays is a participant in the World Bank funded, government operated MSE finance scheme. It enjoys the benefits of a small business credit guarantee scheme with SWEDECORP, which provides 40% coverage in the event of default on loan made to graduates of the Zimbabwe Women's Finance Trust. With Hivos, Barclays has a matching US$5 million credit line, which acts as a guarantee. They have negotiated a Z$500,000 line of credit with Zambuko Trust.
The average outstanding loan portfolio per branch is Z$6 million. The loan range is Z$2,000 to Z$1 million, with the average size loan at Z$400,000. Barclays does expect the SBU to show a profit in 1997, and expects continued good financial performance.
Collective Self-Financing Scheme (CSFS)
The Collective Self-Financing Scheme (CSFS) was founded in 1989 to function as a technical assistance and financing institution facilitating the growth of small cooperatives, primarily in the agricultural sector . The institution is structured as a cooperative membership organization where members pay minimum annual dues of Z$400, and must place a minimum share purchase of 10 shares equaling Z$2,000. Currently, CSFS supports 53 cooperatives (with approximately 25 members each) for a total membership base of just under 1250. CSFS has recently ventured into lending to individuals, but this constitutes only a small percentage of their total portfolio. The management of CSFS also plans to venture into lending to 200 hawkers in late 1997 should the Board of Directors approve at the July 1997 annual general meeting.
The board of CSFS reflects its membership, as seven of the ten members of the board of directors are cooperative members. On the other hand, there is potential for a conflict of interest when dealing with loan applications. The institutional structure is relatively flat with only 3 out of 9 staff members serving in an administrative capacity. The staff numbers have reduced by 50% since January 1996 . The institution has offices in Harare and in Bulawayo . Despite only having urban offices, most of CSFS's clients are located in rural areas. Over 50 percent of the cooperatives are agricultural based, with the rest primarily engaged in the transport, construction and mining sectors.
CSFS provides three different types of financial products to its clients:
i) Commercial bank guarantees;
ii) working capital loans; and
iii) capital leasing arrangements.
Working through both Zimbank and the Agricultural Finance Corporation (AFC) the loan guarantee fund currently guarantees formal sector credit to 15 member cooperatives. When the program first started, the average loan size was Z$300,000 and CSFS agreed to guarantee 100 percent of the loan. However, CSFS soon discovered that the loan sizes were too large and were not necessarily reflective of working capital demands. Moreover, CSFS discovered that a 100 percent guarantee removed any incentives for the formal financial institutions to monitor loan performance, as all of the risk was transferred to CSFS. As a result, in 1996 CSFS revamped their guarantee fund as the average loan size was reduced to Z$150 000, and the guarantee was reduced to 50 percent for AFC loans and 75 percent for Zimbank loans.
To date performance of the guarantee scheme has been quite disappointing. The default rate is estimated at 45 percent, presumably suffering from the initial structure of the guarantee arrangement where CSFS assumed full liability for their loans, without developing the administrative capacity to effectively monitor its clients. CSFS has been forced to liquidate Z$1.4 million in guarantees, but the institution continued to carry these loan on their books until the end of the 1996 financial year end .
(Source: CSFS evaluation Facet Southern Africa Feb. 1996 , Application to SDF 1997 and World Bank Report 1996 unpublished)
Commercial Bank of Zimbabwe (CBZ)
Of all of Zimbabwe's commercial banks, CBZ is probably making the most serious attempt at serving microenterprises, as opposed to small and medium enterprises. The maximum size of any first loan under their Community Banking scheme is Z$8,000, and most are around Z$3,000. No loan can exceed Z$35,000.
In approximately 11 months of operations, CBZ has disbursed 420 loans for a total value of Z$2 million. The current loan book stands at Z$1 million and 300 borrowers. Interest is charged at 38% on reducing balances. Potential borrowers are asked to open a savings account with a minimum initial deposit of Z$400. Orientation in loan application procedures and savings culture, as well as some rudimentary business management skills are delivered over six weeks. Applicants are encouraged to self-select themselves into groups of five to ten individuals. However, loans are disbursed to individuals. Savings accounts attract locally competitive rates for pass book savings accounts of 14.5%
Aside from the head office manager, the program is currently staffed by six loan officers and three loan clerks. Each branch with a program outlet has two loan officers and one clerk. The Community Banking program currently works out of the Bulawayo and Highfield (an industrial area just outside of Harare) branches; and plans are underway to open a window at the branch in Chitungwiza (Zimbabwe's largest peri-urban township) and perhaps Mutare.
CBZ is working under a plan which calls for financial self-sufficiency (adjusted for net of head office overhead and management contribution) within 18 months of project start-up. Almost a year into that plan, they have achieved 77% self-sufficiency, and expect to reach 100% by December 1997. The manager has a very good sense of the income and expenses of the scheme, and has estimated that at an outstanding portfolio of Z$3 million, self-sufficiency will be achieved. To keep down costs, staff are specially recruited from the microfinance sector, not typical B Comm or other graduates. Loan officers use motorbikes to visit clients.
CBZ is getting help in its efforts from two able partners. CARE has been underwriting operating costs and providing technical assistance to CBZ's loan officers and clerks in microenterprise lending. DfID provides a 75% portfolio guarantee on the funds lent. So far, the repayment record is perfect, even though there are occasional late payments within a given month.
There are several keys to expanding the outreach and improving the viability of the Community Banking scheme:
- Convincing others
within CBZ that Community Banking scheme clients are viable, so that
clients who graduate out of the scheme are properly attended to
- Recruiting, training
and retaining qualified staff
- Arranging for
totally separate premises for Community Banking scheme clients, who
otherwise can be intimidated by the formal regular CBZ branches
- Forming linkages with growing subsectors, such as construction
The Community Banking scheme has the explicit support and attention of the Managing Director. Management and staff are committed to the sector. The methodology is sound, and good technical assistance is available to steadily improve the service. The guarantee is entirely transparent, as neither loan officers nor clients know of its existence. This is a very promising venture.
Credit Against Poverty-Masvingo (CAP)
The goal of the Masvingo based Credit Against Poverty program (CAP) is to provide loans to micro-enterprises, especially women, in Masvingo. The CAP program was inaugurated in September 1996 with assistance in the form of seed money and training from the Grameen Trust of Bangladesh.
The Zimbabwe Unemployment Benefit Fund (ZUBF) had been established to provide a series of social welfare assistance to those negatively affected by ESAP. In response to clear demand for financial services, and in particular credit, ZUBF formed CAP under its organizational umbrella. However, the demand for loans has thus far outstripped ZUBF's available resources. The total number of ZUBF's clients in Masvingo urban currently stands at 260, which represents 4% of the estimated 6,000 micro enterprises in Masvingo. Even though there is another micro-lending institution in Masvingo, the market is big enough for both organizations to develop healthy client portfolios.
Although ZUBF / CAP staff have a good grasp of the program's methodology, are committed and meet the minimum job requirements, there is still room for improvement especially in the areas of accounting and management information systems, both of which underpin the success of the program. Expansion of the current program would be unimaginable given the constrains that ZUBF is facing in terms of inadequate office space, transport, the revolving loan fund and remuneration.
The program's client mobilization activities and Field Officers' site visits are relatively thorough, as is evidenced by the clients' grasp of how the program functions. This , plus the peer pressure mechanism which seems to be working, in part explain the currently high repayment rate.
For a program that is only a year old, CAP has made meaningful progress with meager resources. With support in the form of funding and technical assistance, there is a real possibility that the CAP Program could within the next five years become an increasingly self-financing national program.
(Source: Adapted from Catholic Relief Services evaluation; May 1997)
Dondolo Mudonzvo
Dondolo Mudonzvo, which means "walking stick" in both Ndebele and Shona, began operating as a small credit scheme targeted to assist income generating women's groups in rural areas in 1986. Dondolo is mainly an umbrella body for a network of women's development organizations. One administrator was asked to oversee entire operation of loan program country wide, while secretarial and other services were to be subcontracted on an as needed basis from the general business community. Since 1996, Dondolo has worked through Provincial Committees, who work as Dondolo provincial staff for member organizations, who work with individual member organizations and groups.
The organization primarily uses existing women's groups to carry out its credit operations relying on Zimbabwe Women's Bureau, the Association of Women's Clubs, ORAP, Zimbabwe Council of Churches, Manicaland Development Association and the Young Women's Christian Association extensively. Currently, Dondolo has an office in the Midlands region and in Harare, however, it only has 3 full-time staff members, and its biggest weakness is that the staff resources obtained from women's networks are trained in disbursing grants and not in appraising or monitoring loans. Skills among Dondolo staff mainly include women's development and social work backgrounds, with a spattering of training in bookkeeping. In addition to staffing constraints, Dondolo's ability to expand its operations and improve its efficiency is greatly constrained by the fact that it does not have an office and operates from a garden apartment. The primary donors of Dondolo are NORAD and Oxfam America.
Loans are given to groups who are or are not affiliated with Dondolo member organizations, as well as individuals. Dondolo currently has outstanding loans with 200 groups around Zimbabwe with 80 percent of these loans going to groups in rural areas. The current portfolio stands at Z$700,000 to 500 women, including 26 individuals (the rest are part of groups of up to 30 women). All of Dondolo's clients are women. The average loan size of Dondolo's loans is approximately Z$15,000 and the minimum loan granted is for Z$10,000. Loans are issued on fairly concessionary terms as the simple interest rate is 22% (e.g. Z$10,000 x 1.22 / 12). Loans terms are fairly flexible, however, they may not exceed one year. A three-month grace period is granted upon disbursement of the loan. Repayments are made through deposit into Dondolo's central bank account, which has proven to be an ineffective way of encouraging and tracking loan repayments.
Repayment performance on Dondolo's loans has been mixed. In Midlands where Dondolo has a full-time loan officer monitoring its projects the repayment rate is around 85 percent. However, in Matabeleland Dondolo is forced to rely on local women's groups who do not have the institutional capacity to properly monitor loans and as a result, the repayment rate in the region is around 55 percent. Overall the self-reported repayment rate on an institutional level is around 68 percent.
Early experience yielded two important lessons. First, Dondolo could not rely upon various and disparate groups with their own missions and agendas to pay proper attention to Dondolo's credit management requirements. Second, most member organizations had neither the staff nor the skills to manage and collect credit.
Dondolo's concept of self-sufficiency is limited and very undeveloped in its rationale. Sustainability seems to be tied to donation of land, buildings and fixed capital items, as well as un-named income generating schemes - as opposed to strengthening the operation, institutional and financial viability of its main activity, namely the credit program.
(Source : Application to SDF and World Bank report 1996, unpublished )
Environment and Development Activities (ENDA)
ENDA has been operating as a non-governmental, registered welfare, non-profit, organization since 1983. During this time they have worked with thousands of small scale farmers in Zimbabwe's semi-arid communal lands. These soils are unfit for intensive farming, a historic legacy which has often been compounded by natural resource degradation and depletion. In urban areas ENDA has also worked with small scale enterprises in the informal sector, cooperating to solve materials and equipment supply problems, training in production and business methods, quality control and marketing.
ENDA is committed to working with marginalized people in Zimbabwe. The main focus is on sustainable natural resources management through wealth generation. The emphasis is on participation by the people, many of them rural women.
Major work has been conducted with peasant farmers selecting indigenous small grains germ plasm, improving, replicating and bulking it for wider use as a strategy against droughts and for improving household food security in semi-arid areas. Appropriate processing technology has been commercialized; and new products for the flours from the drought- tolerant grains are being tested. Farmers are setting up their own seed production companies.
ENDA is considering becoming a MFI; and a recent planning meeting adopted this as a strategic objective. In fact, ENDA had recruited a person from the Small Enterprise Development Corporation (SEDCO) in 1995 to start an MSE finance program for ENDA. Instead, he has been working on various business support projects (i.e. seed production, marketing, etc.), and administering several donor-funded rural support programs, which are scheduled to end in 1999. In addition, it is not clear that the SEDCO recruit is capable or knowledgeable enough to ignite the MSE program; and ENDA has no resources to currently apply to this intervention. Furthermore, they have not had any commitment from a donor organization to support MSE finance.
(Source: Adapted from ENDA promotional Brochure, 1996)
National Association of Cooperative Savings and Credit Unions of Zimbabwe (NASCUZ)
NASCUZ is the national apex body to 75 individual employer and community based credit unions (Savings and Credit Cooperatives, or SACCOs) with a total of about 35,000 members. NASCUZ provides training, auditing, and general advisory services to its member SACCOs.
Although registered in 1986 and operationally begun in 1989, the organization has endured several major changes in the last two years. In 1995 - when there were approximately 200 SACCOs and 40,000 members - there was a decision taken to winnow out unproductive and unviable SACCOs, which reduced membership to 70 SACCOs.
In March 1996 another restructuring was completed, which further emphasized concentrating on more promising SACCOs and introduced a new management team and structure, which is now in place. There are 10 full-time staff at NASCUZ, including the Manager and Field Services Officer, two people each in training and audit, 2 people on a special capacity building project for selected SACCOs, and one person in central finance.
As of 31 May 1997, NASCUZ's total SACCO system officially had Z$70 million in loans outstanding (Z$100 million unofficial estimate, given late and incomplete reporting from some SACCOs). Total savings were Z$65.5 million; total shares were Z$7.8 million; total reserves were Z$5 million; and total assets were Z$21 million.
Loans carry interest rates on reducing balances between 24% and 30%. Savings accrue interest at 14% to 18% per annum. NASCUZ's goal is to have 80% of loans disbursed for productive / business related purposes, while the remaining 20% may be disbursed for provident purposes (e.g. school fees, acquisition of home appliances, etc.)
The greatest current mass of membership is in the urban work-based SACCOs, with two of them, "Public Service" and "ZCCU" (the teachers' credit union), having 11,687 and 12,395 members respectively (69% of total membership, 97% of total savings balances, 96% of total reported loans outstanding). Nonetheless, membership growth is strongest amongst community based SACCOs; since many employers are retrenching workers and the credit union concept seems to be gaining acceptance in several high density suburbs and communal areas.
NASCUZ's main donor relationship has been with the Canadian Credit Union Association (CCA), through which they have received substantial grant-based support to cover operating expenses, as well as technical assistance. Under ACOSCA, WOCCU's (World Council of Credit Unions) affiliate in Africa, NASCUZ had been part of the African Revitalization Program until funds were cut by USAID in 1996. This specific program - offering technical assistance in volunteer / staff training, management information systems, board development and other areas - had been focused on a few high potential SACCOs. Even without USAID's funds, NASCUZ continues to try to provide a higher intensity of assistance to some of its larger and more viable SACCOs.
Moving from 1% operational self-sufficiency three years ago, NASCUZ is now at 30%, and expects to be fully self-sufficient within the next 5 years. Indeed, sustainability at the apex and SACCO level has become a guiding principle in their operations and strategic focus.
The organization is in the midst of a comprehensive strategic planning exercise. Already, it has identified priorities at SACCO and apex levels. At SACCO level they want to:
1) computerize information capture and reporting, including establishment of a nation-wide network;
2) train members in business and financial skills to better manage their SACCO affairs;
3) have 80% of SACCO staff be on a full-time, non-volunteer basis;
4) improve marketing approach and materials through publication of brochures, posters, newsletters, etc.
At apex level, NASCUZ wants to:
1) establish an accounting bureau service for small members and for better consolidation of information from larger SACCOs;
2) conduct training of trainers and training of auditors courses;
3) acquire additional transportation; and
4) publish educational materials of a higher quality content and presentation.
Aside from these specific aims, NASCUZ wants to establish a minimum membership level for a new SACCO. Membership and demand driven philosophy and approach will be inculcated throughout the credit union system. No new SACCOs will receive capitalization grants or loans; rather initial loanable capital must come from member savings. Audit services are being charged out at full-cost recovery, while training and general advisory services will maintain a reducing level of subsidy over time.
Computer systems for loan and savings information management have been very problematic. Currently, NASCUZ and its two largest SACCOs are using the locally produced InfoQuest program, which seems to have some serious deficiencies. There is a serious calculation error in the program, which leads to inaccurate data. Service and support are slow and of questionable quality. The system itself is not at all user-friendly. In its search for an alternative system, NASCUZ will be evaluating Credit Union 2000 (a Solace Systems product out of Australia) very soon.
Organization of Rural Associations for Progress (ORAP)
ORAP, located outside Bulawayo, is better known for its social welfare and community development programs in the rural areas surrounding Bulawayo. Since inception, ORAP's focus has been on community and rural development, and social safety net types of assistance (e.g. water projects, literacy, health education, etc.)
However, since 1996 ORAP also has a credit program which provides small-scale financial services for some rural community projects, but more so for hawkers and informal traders in an close to Bulawayo. ORAP originally used Z$618,000 of its own money, borrowed from another division, to start microfinance operations. There are currently 16 centers borrowing a total of Z$245,000. Generally, there are five people per group, and six groups comprise a center. Loan size varies from Z$300 to Z$6,000 per person. The total number of borrowers is 404 but there are in excess of 300 individuals on a waiting list for funds. Interest charged is set a 8% per month on flat balances, and this rate changes from time to time, depending upon the commercial bank market rates. The current arrears rate is approximately 3%. Given the short time during which the program has been operational, there are no real default statistics, as yet.
The credit program is staffed by one manager and two field officers. Credit program staff have all attained their O levels, and have basic accounting skills. There is no automated debtor management system at present, and the credit program uses the accounting system of the mother organization to enter its loan and accounting records.
ORAP has adapted the Kenya - Rural Enterprise Program's (K-REP) Juhudi scheme for the Zimbabwean context. ORAP staff visited K-REP and a K-REP consultant visited ORAP to jointly devise a complete credit program policies and procedures manual, as well as to train staff. ORAP uses a very innovative incentive scheme for its credit program staff, in that they are paid solely on the basis of loan collections. While this policy seems to have engendered a serious attitude and, so far, full repayment, the mechanism also decreases the program's capacity to grow, since loanable capital is limited to slowly returning capital and the small amount of interest earnings on the small portfolio remaining after salaries have been deducted.
ORAP is actively seeking a funding partner to finance the expansion of its loan book and continuing technical assistance to its staff. Proposals have been submitted to NOVIB and SWEDECORP.
Phakama Savings and Credit Cooperative Society
Phakama Savings and Credit Cooperative Society is a savings and credit union that was supported and administered by the Mennonite Economic Development Association (MEDA), until late 1996 when the relationship appears to have broken down. The institution is dually registered both as a moneylender with the Ministry of Finance and as a credit union with the Ministry of National Affairs Employment Creation and Cooperatives. The dual-registry allows the institution to both mobilize deposits and raise share capital. For capacity reasons the organization has not entered the savings arena. Phakama operates exclusively in Matabeleland (around Bulawayo) and targets the most marginalized elements of Zimbabwe society, especially urban and peri-urban hawkers.
Phakama began its lending operations in July 1995. Between October and December 1995 the portfolio grew from about Z$40,000 to about Z$1 million. Currently, there are 232 groups in the program with about Z$900,000 outstanding. In April 1997 there were 158 groups (about 790 people) awaiting loans. USAID, through MEDA, provided a bridging facility of Z$250,000, of which Z$188,000 helped to clear the backlog.
Loans are made to groups of five; each group member then pledges to guarantee the loan. Before a loan can be obtained, group members must deposit 20 percent of the loan principal with Phakama. Loans are only made on a 16 week repayment basis. First time loans are pegged at Z$800, and then clients can graduate up seven levels. A ceiling is set at Z$3,600, after which Phakama will refer its clients to other NGOs or sources of finance. Loans are made at market rates (32%) in order to prepare micro enterprises for the realities of the formal financial sector.
Since April 1996, Phakama has offered an individual loan product, as well. The size ranges from Z$4,000 to Z$10,000. Clients are given one month repayment grace, and the term is between 6 and 12 months. The organization experienced reasonable performance until late 1995 when a number of the groups started to experience problems. In addition to the group loans, there are 42 individuals receiving loans in their own capacity, which is a recent development. The arrears rate in May 1997 was, with arrears among groups at 21%, and individual loans are faring worse at 34%. As of June 1997 the overall arrears rate was at 13%. If Phakama can push the 30-days arrears rate to under 5%, they will receive the next tranche from their USAID / MEDA contract.
(Source: Phakama Annual Report 1996, Application to SDF and World Bank report 1996, unpublished )
Self-Help Development Foundation (SHDF)
The self help Development Foundation (SHDF), sponsored by the Konrad Adenauer Foundation in Germany, is a NGO that facilitates the organization of savings groups throughout the country. The institution first began operating in 1963, but was primarily confined to rural areas until it expanded and developed a national network in 1985.
Savings groups usually are concentrated around an income-generating activity, and are comprised of 20 to 30 members from the same village. Currently, it is estimated the SHDF coordinates savings in approximately 11,000 groups that service around 300,000 members throughout the country. The savings amounts are quite small as the average group deposits only Z$ 400 per month. These savings groups differ from traditional Rotational Savings and Credit Associations (ROSCAs) common in West Africa in that there is no credit component. Savings are simply collected and then immediately deposited in a bank by group leaders. The savings groups serve two primary purposes: i) they help satisfy group members "illiquidity preference" by imposing a measure of financial discipline on the entrepreneur; and more importantly ii) they provide income protection- rather than income promotion- service that is better suited to the needs of poor entrepreneurs.
CARE also helped to capitalize the loan book with US$20,000 over two years to start-up, and has added about US$10,000 in technical assistance and capital expenditure support. Salient facts about SHDF's loan book are as follows: 300 loans outstanding; 99.9% repayment rate; Z$200,000 outstanding portfolio; good and improving operational efficiency; and Z$1,000 average loan size.
(Source : World Bank report 1996, unpublished )
Zambuko Trust
Zambuko began in 1990 when a group of Zimbabwean business, community and church leaders decided to form a micro enterprise lending organization with the goal of obtaining financial viability. The institution is registered as two legal entities: i) as a social welfare organization, which allows Zambuko to receive grants without paying taxes; and ii) as a moneylender, which allows Zambuko to charge interest on its loans.
Not yet seven years old, Zambuko has exhibited impressive rates of growth. In its first year of operations the institution only made 269 loans worth Z$448,961. Since then the number of Zambuko loans has increased by ten-fold and the value of the institution's portfolio has jumped an equivalent amount. In FY'95, Zambuko disbursed almost 2,800 loans at a total value of Z$4.3 million, in four of Zimbabwe's eight provinces.
Zambuko defines its clients as the economically active poor (i.e. those who are not formally employed) and of all the small-scale lending programs has one of the deepest outreaches in all of Zimbabwe. Its average loan size is Z$1,528 and 70 percent of its loans are to women, only 2 percent of its loans are over Z$5,000.
All of Zambuko's loans are structured on a six to twelve month basis, with Zambuko's clients being given the opportunity to determine the necessary repayment period for their particular business. The nominal annual interest rate charged on loans is 32 percent. However, interest is calculated on a flat rather than on a declining basis and therefore the effective rate is much higher. Moreover, Zambuko charges a processing fee of between 3.5 and 4.5 percent of the loan principal, a Z$30 application fee; and requires 10 percent of the loan principal as an insurance guarantee up front. As a result, the institution's effective annual interest rate turns out to be between 55 and 65 percent.
Due to the valued service it provides, the impressive performance of its loan officers, and the non-traditional means of providing repayment incentives, Zambuko claims a 95% repayment rate. However , its arrears rate is much higher as many clients do not pay on time. After 7 years of operation the organization recovers approximately 60% of it's operating costs through interest and fee income.
Zambuko is at an important stage of internal change to shift operations to branch and field officer level. The new Executive Director and his board envision rapid and significant expansion of Zambuko over the next three to five years; and decentralization of operations will be a key strategy to achieve the growth. Plans to transform into a bank have been delayed perhaps by a year or two, as the organization concentrates on improving the quality of its loan book; moving to a more robust debtor and accounting system; improving staff orientation and training; and raising more donor funds to help build an adequate equity base.
(Source : Annual reports 1995 &1996, World Bank report 1996, unpublished )
Zimbabwe Association of Microfinance Institutions (ZAMFI)
ZAMFI is a proposed representative body for the microfinance institutions in Zimbabwe. Zambuko Trust has been leading and coordinating formation meetings and drafting a constitution and legal structure for the organization. The impetus for the initiative comes from two sides. On one hand, GOZ has requested that the microfinance industry organize itself, so that GOZ can more efficiently establish communication and liaison with the industry for policy and other industry issues. On the other hand, microfinance institutions, particularly locally based ones, feel they need to bolster their voice and work together, to support each other and promote a more conducive environment for microfinance.
Most likely, ZAMFI will concentrate on policy development, advocacy, lobbying for members, sectoral representation, and inter-sectoral communication and coordination. ZAMFI may propose a self-regulatory code of conduct for the microfinance industry, for approval by the Ministry of Finance.
Zimbabwe Ecumenical Church Loan Fund (ZECLOF)
The Zimbabwe Ecumenical Church Loan Fund (ZECLOF) is a non-profit organization initiated in 1995 by Zimbabwe Council of Churches to facilitate a revolving loan fund for use by churches, affiliated solidarity groups and community grass roots organizations. Approximately one third of ZECLOF's capital is lent out for general social service projects such as church building, education and training and housing, while two-thirds is allocated as loan capital and is lent to a variety of income generating projects, predominantly in rural communities where access to formal commercial banks is limited.
ZECLOF is a local NGO that was a department of Zimbabwe Council of Churches and only became autonomous in 1995. It currently has a board council of 12 members, which includes on accountant, two directors of local NGOs, and a number of church leaders and social workers.
ZECLOF is embarking on micro enterprise credit after experimenting, without much success, with church groups and churches on capital loans mainly for infrastructure. Repayments have been very low. The current portfolio is at Z$3.7 million distributed over 44 groups.
In summary, some key observations about ZECLOF are:
- It has a wide
network through churches and affiliated NGOs
- A basic process
to communicate with clients is in place
- Staff capacity
is low both in numbers and skills
- They are working through the design of the microcredit section, although ability to translate that into operations is doubtful.
Zimbabwe Project Trust (ZPT)
ZPT has a long refugee and social welfare history, which evolved from 1978 to the current structure, with two district units. The revolving loan fund deals with large seasonal (mainly) agricultural loans to farming cooperatives. The grant component gives small provident grants on small (micro) loans to individuals.
Key observations about ZPT are:
- It is an administratively
weak organization, with low skill and part time help predominating
- There are no
manual or computerized systems in place to monitor the Z$8 million
outstanding loans in the cooperatives.
- Geographical
coverage is wide, but there is no clear monitoring strategy or capacity.
- The loan repayment and collection rates are low and "not tracked", by admission of ZPT management and staff.
Zimbabwe Women's Bureau (ZWB)
The Zimbabwe Women's Bureau (ZWB) began providing both grants and loans to groups of women seeking to develop small-scale cooperatives in 1986. The organization is registered as a social welfare institution rather than as a moneylender under the Ministry of Finance. The program is divided into three phases. Phase one (which can last up to two years) is devoted to training clients in general business and money management. After the client graduates from the training phase, grants are available during phase two. Once clients demonstrate that the grant has been put to productive use, they are eligible for larger loan sizes. Officially, ZWB's legal status prohibits it from charging interest on its loan funds, so the institution considers the interest it charges on its loans to be a reimbursement for training acquired during phase one.
ZWB initially started its lending operations by offering loan sizes of Z$2,000 to its various member groups who had graduated to phase three. The institution soon discovered that the size was too small, and has since raised the average loan size to Z$5,000. The maximum loan size is Z$20,000. The credit is offered at highly favorable and subsidized rates, as the interest rate was just recently raised from 5 percent to 10 percent per annum. ZWB receives a steady supply of donor funding from Oxfam America, Norwegian People's Aid, as well as other North American NGOs and has no immediate plans to attempt to structure its credit operations on more financially viable terms.
The training programs used are the popular ILO , Improve Your Business and Start Your Business. The organization has the capacity to train approximately 1,000 entrepreneurs per year.
(Source : World Bank report 1996, unpublished )
Zimbabwe Women's Finance Trust (ZWFT)
ZWFT, founded in 1989, is an affiliate of Women's World Banking and began providing credit and savings services to micro entrepreneurs in 1992. Its mission is to empower women economically by promoting the development of MSEs through market based financial services.
The board is composed of 6 people - 2 social workers; 1 lawyer; 1 accountant; 1 writer; 1 venture capitalist. The board meets once per month. Five technical staff form the core of the operations (i.e. Executive Director, Operations Manager, Credit Manager, 2 in the accounts and data capture department) and 5 support staff in Harare area; 2 in Bulawayo (Tsholotsho); 1 in Gwanda.
ZWFT targets its financial products towards some of the most marginalized elements of Zimbabwe society. All of ZWFT's clients are women, and only about one percent of the clients have ever received a loan from the formal financial sector. Approximately 75 percent of ZWFT's clients are literate, however, the majority do not have any education beyond the primary level. ZWFT's clients are largely concentrated in labor-intensive manufacturing activities (55%) and trading (44%). Only a handful of clients are engaged in service types of activities. ZWFT does not provide finance for agricultural projects. The institution currently has three branches offices set up in Harare, Tsholotsho (Matabeleland North region) and Gokwe (Midlands region).
ZWFT is a membership organization, and all those who seek to join are required to pay a Z$20 joining fee and a Z$30 annual subscription fee. Anyone who wishes to become a member may, but members are warned that membership does not automatically translate into credit, and that access to credit is entirely dependent on the financial viability of the particular project. After becoming members clients are encouraged to open savings accounts with ZWFT. A loan will not be granted unless the ZWFT member has accumulated 15 percent of the loan principal in savings. This mandatory savings requirement acts as an insurance guarantee on a portion of the loan, but it also means that three months elapse from client identification to loan disbursement.
A simple 22% interest rate is charged over 6 to 12 months. Loans range from Z$3,000 to Z$20,000. Group size can be no less than 7 and no more than 10.
About 30 former clients have accessed Barclays Bank MSE scheme over about one year, but ZWFT is negotiating with Barclays to ease criteria. Loans made under these referrals are guaranteed by a Swedish donor.
Training is viewed as a core element of ZWFT's operations and for the first four years of operations ZWFT's operating philosophy was that training was considered a pre-requisite for the establishment of an efficient and profitable business. However, recently ZWFT management has started to call that philosophy into question. In FY'95 training was made optional for loan clients, as there has been an increased emphasis placed on ZWFT's income-generating activities. While ZWFT does receive some income for its training programs (members pay Z$50 per session and non-members pay Z$150), the overall costs of administering the training program are about 4 times the income received. ZWFT management estimates that approximately Z$570 is expended on each client trained. In FY'95 2,474 women attended training sessions.
ZWFT's major goal is to have 10,000 clients by the year 2000, while the current client base is about 2,500. The key to reaching that goal is to recruit and train well qualified personnel, for which ZWFT is actively seeking assistance from donors and other funding partners.