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INFORMAL ECONOMY FORMALISATION IN ZIMBABWE UNDER NATIONAL POLICY FRAMEWORK THEME 5 – FINANCIAL INCLUSION

The Objective of this Theme is improvement of the level of provision of financial services to informal economy businesses.

The Reserve Bank of Zimbabwe published its National Financial Inclusion Strategy for 2016 – 2020 in 2015. Financial inclusion is defined in the document as “the effective use of a wide range of quality, affordable and accessible financial services, provided in a fair and transparent manner through formal/regulated entities, by all Zimbabweans”.

Key pillars of the Financial Inclusion Strategy are:

i. Financial innovation
ii. Financial literacy
iii. Financial consumer protection
iv. Microfinance

There is a need for informal economy businesses to receive training at all levels in financial literacy. This can include training in record keeping, inventory and business management and marketing.

The banking sector must assist in facilitating such training.

1. Financial Innovation

There is a need for new financial products which are designed specifically for the informal economy, such as insurance packages. Ecocash and similar products can be used as bank accounts instead of using the formal banking system. There must be an inclusive approach rather than an exclusive one.

The issue of collateral for the provision of loan finance to informal economy businesses remains a challenge. The commercial banking sector must adopt a more innovative approach to this problem in order to ensure financial inclusion for the informal economy.

Business groups can offer group security and their mutual goodwill can be the basis of collateral. For example informal economy vendors and traders have specific areas they sell in. They seldom change their position. Such clusters can be brought together and offered finance as a group, on the basis of reliance on the mutual good will and reputations of the members of the group.

Software applications should be created that will assist the informal economy in sound business management and that will also assist in financial inclusion. Such applications could, for example, include a stock management app, for example, with on-line templates that allow the business owner to update prices and manage his accounting system as he is transacting business.

There is a need to support income-generating activities in rural areas.

2. Micro-Finance Institutions

MFIs have a major role to play in the provision of financial services to the informal economy. However their interest rates tend to be extremely high. MFIs should be encouraged to offer lower interest rates as well as financial products and services specifically designed for the informal economy.

In addition to providing finance, MFIs can also offer financial advisory services, as well as promoting inclusive value chain and enterprise development.

3. Savings and Credit Co-Operatives (SACCOs)

SACCOs promote a culture of saving as well as providing credit. Informal businesses should be encouraged to form SACCOs. These must be legally registered in terms of relevant legislation and there are strict criminal penalties for those who divert or misuse funds. SACCOs require assistance with training for their members in financial management. In Zimbabwe there is a need for a major improvement in confidence in the economy at a macro-level for SACCOs to achieve their full potential.

Women in particular operate successful informal savings schemes and these can be formalised through SACCOs.

 

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