CONTENTS

1 CONTENTS GOVERNOR S FOREWORD .. 5 DIRECTOR S FOREWORD .. 7 CHAPTER 1 INTRODUCTION .. 9 CHAPTER 2 REGULATORY FRAMEWORK .. 13 CHAPTER 4 CONDITION AND PERFORMANCE OF THE MICROFINANCE 19 CHAPTER 5 RESPONSES TO CHALLENGES IN THE MICROFINANCE SECTOR .. 27 CHAPTER 6 ROLE OF MICROFINANCE IN financial inclusion .. 29 CHAPTER 7 OUTLOOK .. 35 APPENDICES 39 MISSION STATEMENT MIMISSION STATEMENT Vision To become a transformative and responsive Central Bank. Mission Maintaining financial stability and financial inclusion through credible policies and risk based supervision of banks, supported by a skilled human resource base and a modern integrated ICT system.

2 Values Trust Integrity Passion Transparency Accountability Efficiency Creativity PURPOSE OF THE REPORT The purpose of this microfinance annual report is to provide an analysis of the status and performance of the microfinance sector in Zimbabwe for the year ended 31 December 2015. This report presents an overview of the microfinance activities during the period under review. GOVERNOR S FOREWORD 1. This inaugural Microfinance Annual Report comes at a time when microfinance has enjoyed unprecedented growth in the past decade to become an important subsector of the global financial system.

3 Policy makers and regulators worldwide recognize the vital role of microfinance as an important tool in economic development and poverty alleviation through facilitating access to financial services. 2. In Sub-Saharan Africa microfinance has continued to register impressive growth particularly in East Africa on the backdrop of the expansion of mobile technology driven solutions. 3. Since the adoption of the multicurrency regime in 2009, the Zimbabwe microfinance sector has enjoyed steady growth as reflected by an expansion in branch outreach and number of clients accessing financial services from microfinance institutions.

4 4. Notwithstanding the noted positive growth, the microfinance sector has not been spared from the challenges affecting the domestic economy which include market illiquidity, absence of affordable wholesale funds, and non-performing credit. 5. Cognisant of the role of microfinance in channelling financial services to low income groups, and the challenges hindering the sector from reaching its full potential, the Reserve Bank spearheaded the development of the National financial inclusion Strategy (NFIS) which was launched on 11 March 2016.

5 Microfinance occupies a prominent role in the NFIS as one of the four key pillars and is expected to play a critical role in facilitating access to financial services by the unbanked particularly small to medium enterprises (SMEs) which are recognised globally as the engine for growth. 6. The Reserve Bank remains resolute in the execution of its mandate to maintain the safety and soundness of the financial sector through proactive supervision and enhancement of its supervisory tools and techniques to provide a more supportive and efficient regulatory and supervisory framework for the microfinance sector in line with international best practice.

6 7. To this end, the key stakeholders in the microfinance sector drafted a Microfinance Policy to guide the sector s development. The policy awaits requisite Government approval. 8. The provisions of the Microfinance Act [Chapter 24:29] which was gazetted in 2013, have promoted strengthened risk management and corporate governance systems and practices in microfinance institutions. The introduction of the deposit-taking microfinance licence has provided the long awaited avenue for funding through authorized deposit mobilization.

7 In the past some errant microfinance institutions (credit-only) have ventured into illegal deposit-taking resulting in members of the public losing their money. 9. The Reserve Bank and other stakeholders have since proposed amendments to the Microfinance Act to further refine the legal framework. The amendments seek to address, inter alia, tenure of the microfinance licence, the confusing categorization of the microfinance institutions and liability of directors. 10. I wish to thank all our stakeholders for their dedication and invaluable support to the Reserve Bank in its endeavours to create a strong, sustainable and inclusive financial system that is supportive of economic growth.

8 Dr. J. P. Mangudya Governor DIRECTOR S FOREWORD 1. Microfinance plays a critical role in providing access to finance by the low-income groups and micro, small and medium enterprises who cannot access the same from the formal banking system, due to the absence of collateral acceptable to banking institutions. Microfinance is used as a tool to reach out to remote areas that are shunned by banking institutions. 2. In view of its importance in economic development and poverty alleviation in Zimbabwe, the microfinance sector has assumed an important role in the National financial inclusion Strategy alongside other pillars namely financial literacy, financial innovation and financial consumer protection.

9 To promote the growth of the microfinance sector, the Reserve Bank embarked on initiatives which include establishment of the credit reference system and collateral registry, licensing of deposit-taking microfinance institutions (DTMFIs), capacity building workshops and consumer financial literacy awareness campaigns. 3. The above measures are expected to reduce information asymmetry in the sector, facilitate effective management of credit risk and promote access to microfinance products and services by segments previously excluded from formal financial services.

10 4. Further, the enactment of the Microfinance Act [Chapter 24:29] in 2013 which incorporated a Code of Conduct also enhanced the consumer protection framework for consumers of microfinance products and services. 5. The microfinance sector grew at an average of in the last five years, in spite of the constraints in the operating environment. Total loans increased from $ million as at 31 December 2011 to $ million as at 31 December 2015. The number of licensed microfinance institutions and branches increased from 95 and 106 to 152 and 571 from 2009 to 2015, respectively.