Commercial Banks Venturing into Microfinance Operations. A Case of ZB Bank Limited

Abstract

The main objective of the study was to identify and explore on the reasons behind ZB Bank’s venturing into Microfinancing and to establish the challenges being faced by ZB Bank in venturing into microfinancing business. The study adopted a descriptive case study design which used both qualitative and quantitative methods of data analysis. The target population for this study was 109 respondents which comprised of ZB Bank employees and customers. The sample size consisted of 86 respondents who were drawn from the target population through purposive sampling. The study used both primary and secondary data where the primary data was collected using questionnaires and interviews while the secondary data was obtained from newspapers, journals, magazines, internet and management reports. A correlation and regression analysis was performed to test the impact of the microfinance operations and revenue. The study found out that ZB Bank ventured into microfinance business because of the growing competition in the banking markets, because of its large capital base, because of the need to diversify loan portfolios, because of the need to make use of underutilised capacity and the need to tap into the informal sector to increase its revenue base and also because of the microfinance’s business’ compatibility with bank operations. In Zimbabwe, given that the economy has gone largely informal ZB Bank moved to microfinance business to be able to tap into that market as it is difficult for the informal sector business to access credit from banks because of collateral requirements which can be tailor made to suit them by microfinance activities. The study also found out that that a significant positive relationship exists between microfinance activities and the overall revenue of ZB bank. Interest on loans, fees charged on administration of customers’ accounts, commission charged on third party products and micro insurance activities had a significant impact on the revenue of ZB Bank and were found to increase the total revenue for the bank. The study also found out that the most prevalent challenges in the bank venturing into microfinance business include factors such as high risk of micro finance business, vulnerability to economic shocks, competition with other MFIS, inability to exploit growth opportunities, lack of management know how and technical skills and high default rate. The study recommended that ZB bank should tailor make the loans to suit the informal sector upon downscaling to microfinance business. The study also recommended that commercial banks venturing into microfinance need to understand knowledge of microfinance best practices and how to serve micro-clients, develop infrastructure located conveniently for clients and put in place systems and procedures adapted to the microfinance operations to improve the collection efficiency and reduce default rate.