RBZ gives banks ultimatum on financial inclusion

rbz building1

Reserve Bank of Zimbabwe

THE Reserve Bank of Zimbabwe (RBZ) has instructed all banks to submit financial inclusion plans approved by their boards by the end of this month, banking sector sources have revealed.

The move will help improve the banking sector stability which will in turn help restore confidence in the banking system.

“Banks are required to submit board approved financial inclusion plans (to the RBZ) by December 31, 2015,” a bank source said this week.

Financial inclusion refers to the delivery of wide range of financial services at affordable costs to the majority of the population to improve their economic welfare.

It ensures that a wide range of financial products and services are accessible to meet the unique needs of low income groups at affordable cost.

Financial inclusion promotes efficient allocation of productive resources which can potentially reduce the overall cost of capital.

It further mitigates the exploitation of vulnerable segments by usurious lenders by facilitating easy access to formal credit.

Experience world-wide has shown that bringing more people and therefore more savings, into the financial system can lead to increased economic growth and macro-economic stability in the country.

According to the RBZ deputy governor, Kupikile Mlambo, the central bank has already put in place a financial inclusion committee to drive financial inclusion.

The latest FinScope Consumer Survey, a government commissioned study, revealed that Zimbabwe has achieved great strides in expanding financial inclusion since 2011.

It shows that 23 percent of Zimbabweans are financially excluded, a reduction from 40 percent in 2011. The survey shows that 37 percent rely only on informal products or services, also a reduction from 41 percent in 2011.

It also shows that 69 percent are formally served which a great improvement from 38 percent is formally served in 2011. For the formally served in 2014, 30 percent have access to bank products and services while 67 percent have access to formal non- bank financial products and services.

The banking sector is currently constituted by 14 commercial banks, one merchant bank, three building societies, one savings bank and more than 147 microfinance institutions that remained after several banking institutions collapsed recently due to poorly performing loan books, although the bulk of the institutions have been accused of shareholder and management delinquency, with insider loans playing a key role in their insolvencies.

The failed banks appeared to have engaged in over-trading, some failing to manage risks with the boards and management failing to put in place strong risk management systems.

Further pressure came from increased competition resulting in narrowing of margins and reduced profitability against a background of increased credit defaults.

Apart from the banking public enduring tremendous psychological and financial trauma as a result of bank failures, the failure of a single financial institution has the potential to cause widespread disruption to the country’s payments system.

Banking is based entirely on a relationship of trust to safeguard deposits placed by the banking public. The huge cost of bank failures is the loss of confidence in the entire banking system. Once this trust is lost or eroded, it is difficult to regain. FinX

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