Declining income, rising unemployment see people shun formal banking system


Reserve Bank of Zimbabwe

THE contribution of banks to financial inclusion has declined and there is need for a change in the business model for the institutions to regain ground. According to a survey titled Making Access Possible declining income and rising unemployment depress the use of formal financial services.
The survey was done by FinMark Trust, the United Nations Capital Development Fund and other partners.

The results show that while adults with bank accounts had increased to 30 percent in 2014 from 24 percent in 2011, there had been an increase in none bank formal channels such as mobile money and micro-finance institutions to 39 percent from 14 percent in 2011.
However those excluded with no access to formal or informal financial services had declined to 8 percent in 2014 to 16 percent.
In terms of frequency, less banked adults had performed withdrawals more than 3+ times in 2014 at 14% from 32 percent in 2011 while deposits transactions (3+ more) had dropped to 9 percent from 25 percent in 2011. Between 61 percent-64 percent of those surveyed performed at least one or two transactions in the banks but dormant accounts increased 25 percent from four percent in 2011.
The report notes that 80  of local transactions happen in cash cementing the findings that Zimbabwean’s generally are shunning the formal banking systems.
There was a 72 percent growth in mobile money subscriptions to US$5,3 million in 2014 from US$3 million in 2013.
At least 3,3 million representing 47 percent of adults are living outside of Zimbabwe. The survey says during 2014, 931 000, which represents 31 percent of Zimbabweans received remittances. Remittances reached us$770 million in 2014 from US$300 million in 2009, with South Africa contributing 70 percent of the remittances followed by the UK at 13 percent.
In terms of borrowers, most people relied on family and friends and informal credit while few numbers were showing for mobile money credit, banks and microfinance institutions. The report notes that micro-finance institutions offered 38 400 loans to individuals last year, a figure which is significant for financial inclusion while mobile money is ahead of banks because no one has lost money yet through the systems.
Commenting on the results Finance and Economic Development minister Patrick Chinamasa said local financial institutions should be innovative and adapt to changing economic conditions to attract more long term deposits.
High bank charges and high interest rates have been blamed for continued low confidence in the local banking system which has resulted in huge amounts of money circulating outside formal banking channels.

The low uptake of banking services is despite the signing, between the Reserve Bank of Zimbabwe and the Bankers Association of Zimbabwe, of a Memorandum of Understanding in 2013 for the reduction of bank charges and interest rates.

The emergence of mobile banking services such as EcoCash, One Wallet and TeleCash on the domestic market has also created alternative platforms where people transact and save their money.

“You have confirmed my misgivings about the capacity of our commercial banks to adapt to a shifting and changing environment, clearly they are not adapting,” Chinamasa said.

“My misgivings about this sector is that they are like an ostrich, they are just sinking their heads into the sand and not realising what is going on around them. At every opportunity I have urged them to be much more versatile than they currently are mostly for their survival.”

Chinamasa added: “What worries me when I analyse their balance sheets at the end of the year is that much of their income is not coming from interests, I hope this will change, its coming from bank charges. “That also of course indicates some problem in the banks that they are relying more and more on bank charges and less and less on interests which may also suggest that they are lending less and less.”

He said to assist banks, government had created a special purpose vehicle, the Zimbabwe Asset Management Company to house bank’s non-performing loans.

But, Chinamasa said the government could only do so much and that the onus lay with the banks themselves to ensure that they become competitive in the current economic environment.

“I do not want this to become a cycle where in another few years’ time we come back to a situation where there will be new non-performing loans,” he said.
Chinamasa said when financial inclusion is improved, Zimbabweans will earn more, build assets and enhance their protection from external shocks.
“We see financial inclusion as a means to end and not an end in itself. It is an enabler that allows for progress towards our poverty reduction goals, economic and job growth in addition to increased agricultural production and food security,” he said.
CENFRI rep, Hennie Bester said Zimbabwe’s banking sector require a shift in business model to regain ground in terms of financial inclusion.
He said while payments through mobile money platforms now dominate financial inclusion landscape, there are also other channels that can further the inclusivity.
Another CENFRI rep Wadzanai Machena said the banks major market, which is corporate lending has declined as companies are struggling on competitiveness due to a strong US dollar.
She said the US dollar has acted as a double sword where it stabilised the economy at the same time killing economic competitiveness.
Bester said the country was experiencing a Dutch disease, which is referred to as the de-industrialisation of a nations’ economy that occurs when the discovery of a natural resource raises the value of the nation’s currency, making manufactured goods less competitive with other nations, therefore, increasing imports and decreasing exports.
Chinamasa said Zimbabwe should start talking about a local currency in light of the continued firming of the US$.  “Due to the loss of confidence on our local currency, talk of returning the Zim dollar is taboo, it’s a no go area, but these are the issues we should be talking about in light of the continued firming of the US dollars against currencies,” he said. FinX

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