A Risk assessment framework for microfinance institutions in Zimbabwe, a volatile economy

Author

Jira, Knowledge

Title

A Risk assessment framework for microfinance institutions in Zimbabwe, a volatile economy

Abstract

Microfinance Institutions to manage risks, to determine the cost effective ways to identify prospective risks faced by Microfinance Institutions and to determine the ways to successfully forecast the results of credit transactions. Microfinance`s core objective is to lessen poverty and for them to attain this goal, they have to develop very resilient in financial performance because donor reliance is not always guaranteed. The researcher used both primary and secondary bases of information. The researcher collected secondary data from the journals, newspapers and previous researches. The research findings clearly stipulate that Microfinance are being affected negatively by many risks. The Microfinance institutions can embark on diversification and offer more on the market so as to improve their cash inflows on daily basis. A population of 62 Microfinance Institutions has been used in the study. Employing descriptive research design, the study applied mixed methods which is qualitative and quantitative data collection methods, analysing responses from a sample of 248 was selected using random sampling and purposive sampling techniques. In each Microfinance Institution accountancy, auditors, finance managers and operations managers were selected and received email link of a questionnaire followed by face to face interviews which involves 48 interviews conducted successfully. Data was analysed using Microsoft Excel and SPSS version 21. The research findings reveal that credit risk, operation risk, liquidity risk and bad debts deeply affect the operations of Microfinance Institutions in Zimbabwe, a volatile economy. Most Microfinance Institutions rely on a competent audit committee, diversification lending, group guarantor-ship and financial education to minimize risks they face. Recommendations of the study are that Microfinance Institutions should embark on adaptive and modernization. This is due to the fact that, in the face of Zimbabwe`s volatile economic landscape, Microfinance Institutions should be active and innovative in their tactics, continuously exploring new products, distribution networks and risk mitigation approaches to better attend their clients and safeguard the long-term sustainability of their operations, also Microfinance Institutions should focus on improving their operational flexibility by investing in robust internal controls, business stability planning and workforce training to boost their capacity to resist and recover from disruptive occasions. The Microfinance Institutions should reinforce loan collection and recovery practices, which include establishing clear, stable and transparent loan collection policies and procedures. They should also invest in workforce training on effective collection techniques and debt restructuring skills. Lastly they should also influence legal and extrajudicial actions to recover delinquent loans.

Date

June 2024

Publisher

BUSE

Keywords

Credit risk

Loan delinquents

Risk mitigation

Volatile economy

Risk assessment framework

Microfinance institution

Supervisor

Dr Mabhungu