Abstract
In assessing microfinance institutions (MFIs) and civil servants' perspectives on borrowing in Zimbabwe, we examine the purpose and rationale of MFIs establishments. Thus, in an attempt to understand the reason behind high borrowing, we also considered loan terms, the nature of loans issued, and the uses of MFIs borrowed funds among households. Driven by the exploratory approach, qualitative research involving semi-structured interviews and observation methods were applied in this study. Using, the purpose of the loan, pricing of loans, repayment terms, and loan terms, interview questions were designed and conducted. Our results show that MFIs loans are: short term loans, income (salary) based; and, these loans are mainly for immediate household consumption needs not an investment. This study also indicates that loan application requirements are more favorable for employed households, especially public sector employees. Even though civil servants have a better advantage in accessing MFIs loans, in the long run, they are likely to remain in poverty; since their purpose of borrowing is geared towards family expenses. Also, MFIs prevailing interest rates (high), evidenced with shorter repayment periods, reflect their failure to pull borrowers out of poverty; however, creating an interdependence syndrome of continuous borrowing. Since we focused on lending practices of households, our results serve as a basis of a joint policy formulation in combating poverty. Thus, understanding poverty through the borrowing of employed citizens aids in grasping the interconnectedness of sectors; which, is an essential tool for sustainable development and strategic planning.
Highlights
The introduction of microfinance has raised high expectations for poverty reduction in developing countries (UN, 2013), as it has been one amongst many efforts that are being made by governments and institutions to overcome it
In an attempt to understand the reason behind high borrowing, we considered loan terms, the nature of loans issued, and the uses of microfinance institutions (MFIs) borrowed funds among households
In an attempt to understand the reason behind high borrowing, we assessed loan terms, the nature of loans issued by MFIs, and the uses of borrowed funds among households
Summary
The introduction of microfinance has raised high expectations for poverty reduction in developing countries (UN, 2013), as it has been one amongst many efforts that are being made by governments and institutions to overcome it. Microfinance institutions provided financial services only to low-income clients, but have expanded to include financial services to individuals including small-micro enterprises who were often excluded from mainstream financial services; (Abor, 2016; Brière & Szafarz, 2015; Cull, Demirgüç-Kunt, & Morduch, 2013; UN, 2013) This unprecedented growth has increased the attractiveness of microfinance and served as a bridge to reduce poverty and reduce the financial inclusion gap in some parts of the world (Copestake, 2019; Yimga, 2018). In a report on Zimbabwe (Chakanyuka, 2019; Mhlanga, 2018), proposed that the growth of MFIs is connected to the majority of citizens who have no access to formal banking facilities, which is not the case in Zimbabwe because the majority of workers have their salaries pass through traditional banking institutions and still borrow more from MFIs
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