I have recently returned from Zimbabwe where I was conducting the annual evaluation of our two microfinance partners there – Thrive Microfinance and the Microloan Foundation. We have been working in Zimbabwe since 2015 and as you will probably be aware from the note we add to all of our Zimbabwe loans (and the various posts we have added to the news and blog section of the website) things in Zimbabwe have been difficult for some time now. Mass unemployment and a seriously unstable economy, resulting on many occasions in a severe cash crisis, are just a few of the issues the Zimbabwean people have had to endure over the last few decades. And when I visited this time, I was very sad to see that the Zimbabwean people were facing yet another economic crisis.
There are undoubtedly a large number of complicated and deep-rooted issues at the heart of this most recent crisis but the announcement of a number of new fiscal and monetary policies by the new Finance Minister on the 1st of October is certainly where the fingers are currently being pointed. The new measures require all depositors to separate their US Dollars (the official currency introduced in 2009 after a period of hyperinflation) and Bond (the Zimbabwean local currency introduced in November 2016 to be used domestically at the same value as the USD). You can read more about the introduction of the various currencies in a previous blog here. At the same time as this separation of the two currencies was announced, the government also introduced a new 2% tax on all electronic transactions (80% of the country uses electronic payments to buy and sell goods). These measures sent the market into panic as people started speculating about the true value of the Bond (which has always been officially one to one with the USD) and it also saw price hikes as businesses tried to recover the cost of the additional tax. Due to this speculation and panic (compounded with an existing shortage of hard currency in the economy), suppliers stopped selling their goods for Bond notes and would instead only accept hard currency (USD), which has resulted in a shortage of goods, even less hard currency in circulation (as people started to hold onto any hard currency they had) and the value of the Bond note to decrease significantly. At its worst point the Bond was trading at 5 to 1 USD. This has slightly stabilised and is now closer to 2.8 to 1.
These new financial measures are having an impact on our partner organisations and their borrowers. The challenges they are currently facing are:
- A shortage of basic commodities to buy and sell, such as cooking oil and bottled water
- The market cost of goods has increased substantially
- USD loans (including the money we lend through Lendwithcare) may not be convertible at 1 USD to 1 Bond note and vice-versa. Our partners currently receive the loan capital from lenders like Lendwithcare and on-lend to their borrowers (digitally) in Bond. Their borrowers repay their loans in Bond too
- The value of our partners’ loan books (currently in Bond) may suddenly decrease in value if the government officially revalues the Bond note.
We have decided to continue supporting both Thrive and the Microloan Foundation (and ultimately their borrowers) through this crisis as we believe they have very strong client protection principles in place, that they continue to provide appropriate and affordable services to the communities they serve and that their services are still very much needed (and in some respects now more than ever). We will be monitoring the current situation very closely and will share any updates with you. However, please note that any loans you choose to support in Zimbabwe at this time do come with added risk and it may well be the case that the entrepreneur you choose to support may not be able to repay their loan according to their loan repayment schedule. That said, we have not seen any increase in defaulted loans over the last few months and in fact, the proportion of our partners’ Portfolio at Risk (PAR) has improved.
If you have any questions or concerns about this, please do not hesitate to get in touch with the team.
Nancy Thomas
Lendwithcare Advisor