CARE’s Lendwithcare programme has been operational in Zimbabwe since 2015 and it has never been a stable environment for us, our partners, or their microfinance clients to operate in. In fact all of the small business loans that are funded in Zimbabwe through Lendwithcare come with an additional warning about the risk of lending there and over the years there have been a handful of defaults on the loans that Lendwithcare lenders have funded (39 out of 1,124 loans).
However, throughout all of this uncertainty and instability, Lendwithcare (thanks to our lenders) and our partners have continued to provide basic financial services to low-income women entrepreneurs in Zimbabwe. And arriving when I did allowed me to see first-hand how the women we support through Lendwithcare and our local partners, manage to operate in such a challenging macro-economic and political environment and why the type of funding we provide through Lendwithcare is so critical.
The most recent 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 1 October 2018 is certainly being seen as the catalyst for the recent troubles. These measures sent an understandably mistrusting market into panic as people started speculating about the true value of the local currency (the Bond which had always been pegged as 1 Bond to 1 USD).
Due to this speculation and panic (compounded with an existing shortage of hard currency in the economy), the Zimbabwean people were suddenly facing an acute shortage of goods and a sharp devaluation of the Bond note in the informal market. At its worst point the Bond note was trading at 5 to 1 USD. Recently the Zimbabwean government has floated the exchange rate and the Bond (now formally known as the RTGS Dollar) has been pegged at 2.5 to 1 USD.
Managing microfinance during economic uncertainty
Soaring inflation, goods shortages and political instability are not typically conducive to delivering effective social microfinance. However, with approximately 80% of the Zimbabwean population unemployed and reliant on the informal sector to make a living (whether it be in the creation of a Small-Medium Enterprise or being employed by one) and just under half of the population considered financially excluded, the need for appropriate and affordable microfinance services is huge. So how do our partners and their microfinance clients manage in this difficult environment?
1. Being clear about your values and purpose and ensuring staff at all levels are bought into these
For both of our partners in Zimbabwe, the driving force behind what they do is reducing poverty. Through access to finance and training, both organisations hope that their female clients will be able to create a sustainable income for their households and over time become less vulnerable to the external shocks that often keep families living in poverty.
This social mission is deeply integrated into their operations and ground staff are as much rewarded for meeting their social KPIs as financial ones. Staff understand that responsible and appropriate lending is not only at the heart of their mission but also makes good business sense. Pushing loans on clients and communities that cannot use these effectively leads to poor repayment and default.
When I visited late last year, the disbursal rates were about half of what had been expected and the staff explained to me that some of their clients were making the right decision not to take on debt during this period of instability.
2. Being flexible with your microfinance model
Alongside a well-integrated organisational vision and mission, being flexible and adaptable is essential for operating in Zimbabwe. Our partner Thrive, who serves both peri-urban and rural women entrepreneurs, explained that while their urban borrowers had been more badly affected by the most recent crisis because they tend to exist more in the money economy and have higher costs of living generally, many of their rural borrowers were less affected. They had, for example, experienced a plentiful rainy season and a good-looking maize crop was giving them a lot of confidence.
Since their needs are quite different, the organisation had chosen to offer flexible repayments to those who were in difficulty whilst providing extra funding for those who were pushing forward. And you can see the same flexible approach being applied by the women entrepreneurs they serve.
It is rare for a Zimbabwean entrepreneur to be engaged in just one income-generating activity and when driving costs and economic/political instability impact on one of their income sources, they simply focus and invest in the activity that is able to survive and sometimes even thrive in the uncertainty.
Generally speaking, the entrepreneurs who access microfinance services from our partners, are providing the basics to other poor people and regardless of how bad the macro-economy is, their customers continue to need the same things so even when they are battered and bruised, these entrepreneurs simply pick themselves up and carry on.
3. Building resilience
Which leads to this final coping strategy of building resilience. In the face of such external instability, having the tools to protect yourself, your organisation, your family against external shocks is key.
For the borrowers, this can be quite challenging in an environment where your savings are not safe. Recent history has taught Zimbabweans that savings can be wiped out and money become valueless overnight, so instead of putting money aside in a bank account, what many Zimbabwean entrepreneurs do is invest their profits into assets – both business and personal assets.
For the organisations, resilience comes from maintaining operational self-sustainability and making sure the services they provide continue to be appropriate and affordable for the communities they serve. The former point is where Lendwithcare comes in.
Why LWC funding is so critical
Peer-to-peer funders like Lendwithcare and Kiva are critical in unstable environments like Zimbabwe for several reasons – firstly, they leverage the funds of thousands of individual lenders who invest for social reasons and do not expect a return on their investment; secondly when the borrowers repay, the organisations repay, so the risk of lending is borne by the Lendwithcare lenders (allowing the organisations to be more flexible and adaptable during particularly difficult times); and finally because investment from Lendwithcare is interest free and so can help organisations meet their capital needs without burdening them with heavy costs.
In addition to the capital that is provided through Lendwithcare – and continues to be provided when other investors are pulling out – Lendwithcare has been working with our Zimbabwean partners to build and strengthen their capacity around social performance monitoring. Strong social performance management is key to operating effectively in tough environments and using any learning gathered to adapt products and services. You can read more about what we have been doing with the University of Portsmouth and Inclusion Social Ratings in this blog on the Lendwithcare website.