Zimbabwe’s Finance Minister, Mthuli Ncube presented the architecture of the Zimbabwean financial sector at the 2023 Global Reputation Forum in London where he was honoured with an award for the country’s efforts in economic recovery and financial inclusion. The award however attracted criticism from some quarters in Zimbabwe.
The financial sector in Zimbabwe encompasses various institutions such as banks, insurance companies, pension funds, capital markets, and microfinance institutions. These institutions play a crucial role in implementing financial inclusion initiatives outlined in the National Financial Inclusion Strategy.
In his speech at the event, Ncube, a former Chief Economist and Vice President of the African Development Bank, and a Professor at the University of Oxford, UK said:
Since 2014, we witnessed a rise in financial inclusion, from 69% of the adult population to 83% in 2022, reducing the financial exclusion gap from 23% to 12% respectively.
This was largely driven by the increased uptake of mobile money services, sprouting with 72% of households having access to a bank, microfinance or mobile account with which to transact digitally.
Digital Financial Services
Recognising the importance of digital transformation and financial inclusion, the Zimbabwean government developed and implemented its first National Financial Inclusion Strategy (NFIS I) from 2016 to 2020. The strategy aimed to provide affordable and accessible financial services to all Zimbabweans through formal and regulated entities. Building on the success of NFIS I, the country is currently implementing the second National Financial Inclusion Strategy (NFIS II) from 2022 to 2026. NFIS II focuses on increasing financial inclusion access and usage for special groups, including women, youth, micro, small, and medium enterprises (MSMEs), rural communities, smallholder farmers, people with disabilities, and pensioners.
To bring banking and financial services to the underserved and unbanked population, Zimbabwe has embraced various financial technology initiatives. Digital financial services have been introduced to provide a wide range of financial services through digital channels, including payments, credit, savings, remittances, and insurance. This includes the use of ATMs, bank cards, electronic banking, and mobile banking applications. However, in recent years, there has been a growing appetite to use cash as the economy seems to be redollarising.
National Payment System
The national payment system in Zimbabwe has also increased the use of digital payment channels, such as Real-Time Gross Settlements (RTGs), to enhance financial inclusion. Mobile financial services offered through basic feature phones have played a pivotal role in increasing the uptake and usage of financial services, making the financial sector more inclusive. Mobile banking allows individuals and businesses to access banking services, make deposits, and withdrawals, and even access microloans using just a mobile phone. This has unlocked economic opportunities for grassroots businesses and streamlined cross-border remittances.
Interoperability
Interoperability between banks and mobile network operators has accelerated instant payments and further facilitated financial inclusion. The Central Bank introduced bank and mobile money interoperability in 2020, allowing for seamless transactions between different financial service providers. Mobile network operators have had a growing impact in the digital space, and new technologies have provided opportunities for connecting businesses globally.
Credit Registry & Credit Guarantee Scheme
To improve access to credit, Zimbabwe has implemented a credit registry system that enhances the credit referencing environment and allows credit service providers to better understand their customers. This promotes responsible lending practices, reduces over-indebtedness, and improves access to credit. Additionally, a credit guarantee scheme has been introduced to facilitate productive lending to small businesses, stimulate economic growth, and reduce the barriers faced by MSMEs, women, youth, and persons living with disabilities.
The introduction of a second foreign exchange auction system has catered to the foreign currency needs of MSMEs in Zimbabwe. However, some critics say the system is not adequately meeting the forex needs with others arguing that the artificial rate on the system is also a cause for concern. The system has largely created a more predictable foreign exchange market, enabling sustainable MSME development.
The country has also launched a collateral registry system to address challenges faced by women, youth, and MSMEs due to inadequate or lack of requisite collateral. This registry has facilitated access to credit for marginalized groups, with over 1,186 active registered security interests and a corresponding loan amount of ZW$4.2 trillion.
Gold Coins and Digital Tokens
To promote a savings culture and provide investment alternatives, Zimbabwe has introduced gold coins and gold-backed digital tokens. The gold coins have small denominations to allow targeted groups to adopt them as an alternative store of value. The gold-backed digital tokens, known as ZiG, are fully backed by physical gold and can be used for transactions in the economy, complementing the domestic currency.
Technology key driver to inclusive insurance
Technology has played a crucial role in improving the uptake of insurance in underserved communities in Zimbabwe. The microinsurance space has seen the implementation of a dedicated microinsurance framework, allowing for the licensing of microinsurance entities. These entities offer insurance products through technology-driven distribution channels, such as mobile phones, to reach a wider audience. Efforts are also being made to develop agricultural index-based insurance, leveraging technology for innovative risk assessment and pricing techniques, tailored to the specific needs of smallholder farmers.
Exchange Traded Funds (ETFs)
The Zimbabwe Stock Exchange has introduced new products, such as Exchange Traded Funds (ETFs), which provide individual investors with access to unitized and diversified portfolios at low transaction costs. This has improved financial inclusion in the equity markets. Additionally, Real Estate Investment Trusts (REITs) have been introduced to provide an avenue for retail investors to access the real estate market. These initiatives have broadened investment opportunities for individuals and increased participation in the capital markets.