Old Mutual’s forays into informal economy
… Micro finance bank in pipeline
DIVERSIFIED financial services group, Old Mutual Zimbabwe, is to set up a micro financial bank to cater for Zimbabwe’s growing informal sector, the Financial Gazette’s Companies & Markets can report.
Group chief executive officer, Jonas Mushosho, said the board had approved the proposal and an application would be made to the Reserve Bank of Zimbabwe.
This business unit, Mushosho said, would use a group lending model for its business.
“We want to focus very strongly on the huge informalisation that has taken place in our economy,” said Mushosho.
“This means we are entering the informal space to make sure that we grow the economy in the informal space. We are already working on a strategy which has been approved by our board of directors. We are now in the process of implementing the plan. We believe it extends our business into new markets given the fact that the formal space is shrinking,” he said.
Zimbabwe’s economy is now highly informalised. Statistics show that at least 94,5 percent of Zimbabweans are informally employed.
The country’s formal economy crumbled following a controversial land reform programme that expropriated former white-owned farms for redistribution to landless blacks, most of whom were peasants crammed on infertile land in rural areas.
The exercise, which was fraught with corruption and abuse, resulted in political elites and their cronies benefitting the most, with many now allegedly holding multiple farms.
The effect of this was the demise of the agricultural sector — many of the new farmers held the land for speculative purposes, while the majority of them did not have the skills and commitment for large-scale, commercial farming business.
As a result, the agro-based industrial sector suffered, with many companies closing.
The situation worsened when the country adopted a hard currency regime in 2009 to escape a hyperinflationary scourge that ravaged the domestic currency.
Now, the bulk of the economy is largely informal, and dependent on imports for food and other agro-related products and raw materials.
The informal sector was said to account for over US$7 billion some three years ago, and its growth may mean it may now account for much more.
But the sector has largely remained unbanked due to the inflexible conditions in the banking sector.
Commenting on cut-throat competition in the banking sector, Mushosho said: “Some of the players in the local market have found the going very tough to the extent that a number of them are just giving some form of personal loans to the players, just reflecting how difficult it is. Our model is going to be what we call group lending model.”
Group lending is a type of micro credit that was pioneered in Bangladesh by Grameen Bank and ACCION International in Latin America.
Instead of lending directly to individual borrowers like what is happening in the local market, banks lend to groups of borrowers, who are jointly liable for a single loan.
Two years ago, Old Mutual Group bought a microfinance operation in Kenya called Faulu Microfince Bank.
It has become one of Kenya’s fastest growing banks with a network of over 80 outlets and 900 employees.
Mushosho said Faulu and Grameen are two key success stories in the group lending model. Inevitably, Old Mutual Zimbabwe’s new entity would learn from the experiences of these two institutions.
“The approach we are going to use is quite different from what is generally used in the local market.
“Our model is what we will call group lending model based on the Grameen group model in Bangladesh which is fairly successful. And Faulu, outside Bangladesh, is one of the key success stories in group lending. Banks in Kenya couldn’t crack that group lending model. We will base our approach on this,” he said.
Old Mutual Zimbabwe has started recruiting staff for the new entity.
“We are recruiting people who are going to spend time attached to our operations in Faulu and once our licence and registration process is completed, these people will come back together with people from Faulu to set up our operation here. I tell you, we have competences to get us far,” he said, confidently.
To highlight its commitment to the informal sector, Old Mutual will be turning its property along Robert Mugabe Road in Harare’s central business district into a small scale enterprises (SMEs) hub.
Mushosho said the group would provide stands to the SMEs on the property.
“We want to vigorously grow that market. We want to provide a place for small to medium enterprises (SMEs) to operate from. To achieve that, we already have a place along Robert Mugabe Way in Harare at the National Centre where we are going to provide 500 stands to SMEs to operate from. We are very excited about what we are doing because we believe it expands our business into new markets because the formal space is shrinking,” said Mushosho.
Old Mutual Zimbabwe reported a very strong set of results for the year to December 31, 2015.
The group’s revenue grew by six percent to US$203,8 million compared with US$192,3 million posted during the same period the previous year, largely due to growth in interest income.
The company’s adjusted operating profit during the period under review increased by five percent to US$76 million, from US$71,8 million recorded during the same period in the previous year, driven by strong performance by the group’s banking and life business. The group reported a 19 percent growth in net client cash flow to US$117,5 million.
What this indicator means is that Old Mutual was able to pay out benefits claims made by their customers from the income and still remained with surplus.
However, the group’s operations and other administration expenses grew by 13 percent to US$109,9 million during the review period.
“That was very deliberate. We see opportunities in this economy, so we are investing in the future. We are refurbishing the CABS branch network and we are also working on systems that we use for serving our customers,” he said.
The group’s funds under management dropped by four percent to US$1,6 billion, from US$1,7 billion recorded during the same period the previous year. This was affected by the depressed market performance and naturally reflected the current decline on the Zimbabwe Stock Exchange (ZSE).
Last year alone, the ZSE shed US$1,3 billion or 29,5 percent of its market capitalisation as the country’s economy continued to suffer from a liquidity crunch. Company closures and job losses had worsened during the year.
In 2014, the ZSE lost about 19,46 percent of its market capitalisation.
The property market also remained depressed by compromised income quality and tight market liquidity conditions.
The group’s mortgage unit, the Central African Building Society (CABS), which is Zimbabwe’s largest mortgage lender by assets, surpassed the US$1 billion mark in balance sheet size, from US$852 million the year before.
CABS’ strong performance was driven by a 27 percent growth in loans and advances.
While most banks have been struggling to find “quality borrowers”, resulting in them curtailing lending, CABS’ loans and advances grew to US$563,1 million during the period under review from US$443,5 million recorded in the previous comparable period.
Mushosho said: “This is because we have been able to find quality clients to lend to.”
The building society’s non-performing loans went down to 7,5 percent during the period under review, from 7,7 percent recorded the previous year.
Life business grew by 45 percent to US$28,6 million, largely driven by corporate sales and the growing retail business which was previously shut but reopened when the country ditched its own currency in favour of a hard currency regime in 2009.
Old Mutual Zimbabwe is part of a diversified international financial services group listed on the stock exchanges in London, South Africa, Malawi, Namibia and Zimbabwe.
The group says it takes pride in its reputation for integrity, financial strength and value-for-money and says it is “dedicated to satisfying client needs for wealth creation and protection — in profitable ways”.
The Zimbabwean subsidiary offers services to Zimbabwe-based clients via a focused range of products including life assurance, asset management, unit trusts, property development and management, short-term insurance and banking services.
The group’s life business is conducted principally by Old Mutual Life Assurance Company Zimbabwe Limited. Old Mutual Life Assurance Company (OMLAC) is the largest life assurer in Zimbabwe on a gross premium income basis and provides life, retirement, savings and funeral products to individuals and groups. OMLAC also provides secretarial, administration, group life assurance and actuarial services to pension funds.
Old Mutual Investment Group Zimbabwe (Private) Limited offers investment management services to wholesale and retirement funds.
The product range includes core equity investments, select equity investments, interest bearing investments, alternative investments and property investments.
The group’s banking business is conducted principally through CABS, Zimbabwe’s largest building society offering a diverse range of financial products and services delivered through the largest branch network in the country linked to the CABS online real time computer system.
Old Mutual Zimbabwe also provides an exciting range of funds for investors seeking minimised risks and long-term capital appreciation through Old Mutual Trust.
Old Mutual has conducted business in Zimbabwe for over 110 years.
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