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Thursday, December 12, 2013
- Johnson Gama knows life on the poverty line only too well. A qualified teacher, Gama has in the last few years been unable to survive on his salary despite working in a profession which two decades ago was considered middleclass in Zimbabwe.
The Zimbabwean dollar crashed due to the political crisis in the country, creating a fiscal crisis that affected civil servants’ salaries, forcing people like Gama to join the queue at microcredit operators. These businesses have sprung up everywhere in the Southern African country’s second largest city.
“I get money every month from microfinance people in the city. That’s what keeps me going, as I cannot survive on my salary,” laments Gama.
Teachers are about to go on a nation-wide strike demanding a raise to 500 U.S. dollars per month from their current salary level of 200 U.S. dollars per month.
This amount is below the official total consumption poverty line of about 502 U.S. dollars for a family of five in Bulawayo, which is the amount that a household requires for both food and non-food items per month in order not to be classified as “poor”.
Microcredit schemes, registered and unregistered, are cashing in on people’s need. Local newspapers are never without advertisements calling on civil servants, especially, to apply for loans at interest rates that can only create an unending cycle of debt.
He complains that while the local microcredit schemes are ostensibly designed to assist poorly remunerated civil servants, they have “enslaved” him.
“It is difficult to free yourself from these debts once you start. I know each month that the salary I am getting is not mine as I have to ask for another loan,” Gama explains. “Everyone I know who gets microfinance complains about this.”
Another teacher called Janice Mbewe agrees: “It’s particularly tempting for women because some of these microfinance people do not demand any collateral from women (who frequently don’t own property). But, once you start getting the money, it is difficult to break out of it.”
Microcredit institutions in Bulawayo target civil servants because they receive regular salaries, admits Nomusa Phiri, who runs a small microfinance scheme in Bulawayo’s central business district.
“We demand proof of regular income in the form of a payslip. We know civil servants are employed by government and government will never go broke,” she declares.
Her statement expresses a popular sentiment, despite the ministry of finance telling labour unions that salaries cannot be increased because the government has no money.
“If they skip their payments, we can always attach their property,” Phiri adds.
There is growing criticism of microcredit operations here. Poor regulation seems a huge problem, as some have been set up without being registered, while the registered ones allegedly go beyond their legislated remit.
“Borrowers are exposed to all kinds of exploitation by these microcredit institutions as they can attach property worth more than the loans to recover their money. Desperate civil servants have nowhere to run,” argues Khumbulani Nxumalo, an economist with a local bank.
“You just have to look at the interest rates to see how the people’s desperation is being exploited. The law must be called in to protect cash-strapped workers who seek credit,” he told IPS.
Locally, Zimbabweans still regard microfinance as different to illegal loan shark operations as the microfinance operators charge interest of up to 35 percent, while loan sharks demand up to 50 percent.
Microfinance policy is governed under the Financial Laws Amendment Act, which requires that non- banking financial institutions be registered.
However, in the past few years Zimbabwe has seen a proliferation of institutions in sectors ranging from education to banking that operate without licences, with members of the public having no legal recourse.
The informal sector has become Zimbabwe’s largest employer since the economy began to shrink more than a decade ago. The minister of small to medium enterprises (SMEs), Sithembiso Nyoni, has called for support for small entrepreneurs to create employment.
Nevertheless, there is little evidence that microfinance institutions are providing loans to SMEs. Instead, they target ordinary workers where the money does not create value.
“The problem is that this money is not used for any capital projects or anything that will generate income. It is spent on hand-to-mouth expenses, thereby guaranteeing that the borrower will be back for more,” explains Nxumalo. “Very few people escape from this debt cycle.”
Therefore, while an organisation such as the United Nations Development Programme may promote microfinance as part of a development agenda for poorer nations, little has emerged in cities such as Bulawayo along the line of microfinance that could generate income.
Phiri says she also offers “business loans” of up to 5,000 U.S. dollars to small informal outfits but not many who approach her meet the requirements.
“Many people say they want to start their own businesses but they have no business proposals and no bank accounts that show they can pay back the loans,” Phiri points out.
Unlike civil servants with regular salaries, many SME owners cannot afford the interest. Says Robert Komboni, who runs a small furniture factory in Bulawayo’s industrial area: “We do want access to microfinance, but the interest rates are prohibitive.
“The money we make is never enough to realise our ambitions, but what can we do?”