The subject of micro-financing is very complex, particularly when looking at the African context. On one end, we have seen how impact-investing and micro-financing has captured the world’s attention. In fact, microfinance has emerged from the periphery of finance, offering hope for financial inclusion and poverty alleviation in most emerging nations. Governments have also come to appreciate the impact of microfinance and have improved policing mechanisms. However, there has been a level of criticism on “whether micro-lending really helps the poor”. Could microfinance be another capitalist tool used to peddle unaffordable debt services just for the financiers to increase their wealth?
Identifying the Loan Sharks. In order for individuals to distinguish between “good” and “bad” money, there is need to understand the micro-finance landscape. There has indeed been a proliferation of Micro Finance Institutions (MFIs) in Zimbabwe over the past years. According to the Reserve Bank of Zimbabwe (RBZ), during the period January 2018 to 30 June 2018, the Registrar of Microfinanciers registered 19 additional institutions, bringing the number of institutions authorised to conduct business of providing loans in terms of the Microfinance Act [Chapter 24:29] to 194 as at 30 June 2018. In addition, commercial banks such as CBZ, FBC, ZB Bank, NMB and Barclays have also been pushing out micro-loan products so as to tap into small and medium sized businesses (SMEs).
The risk of sharks-attacks increases as the depth increases. It should be highlighted that microfinance is a business. Many of those who lend money borrow it as well. In some cases, loans offered may be expensive and short-term. The impact thereof could just be on basic household units, and covering household expenses such as school fees. A good example would be the neighborhood moneylenders (mostly unregulated) who typically charge exorbitant monthly interest of as high as 50%.
Borrowing from Paul to repay John. Given the variability of income levels, individuals and households that engage “loan sharks” may find themselves in a debt trap or financial black-hole whereby they remain in a vicious borrowing-cycle.
Effective Debt Management
In conclusion, households should aim to steer clear of the unregulated “loan sharks” and always work within their credit limits whenever they need to access loans.
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