An assessment of the impact of microfinance in promoting financial inclusion in Harare

Abstract

Microfinance was stated as one of the key pillars to promote financial inclusion in the Zimbabwe National Financial Inclusion Strategy. Hence, the aim of this study was to ascertain the impact of microfinance on financial inclusion, with a view to proffer recommendation for adoption to ensure maximum impact to the micro, small and medium enterprises. The review of literature revealed similar studies in other jurisdictions on the subject area, but not directly tackling the impact of credit only microfinance institutions in the Zimbabwean context. The study sought to ascertain the impact of selected variables, that is, microfinance funding, products and delivery channels, objectives ad regulation of financial inclusion. A quantitative approach was used and a survey was carried out where data was collected using a self administered, online structured questionnaire. A sample of 234 credit-only microfinance branches located in Harare was selected using the simple random sampling method and inferential statistics were used to establish relationships ad magnitudes. The findings of the study revealed that microfinance has a positive impact on financial inclusion, with microfinance funding, microfinance objectives, microfinance products and delivery channels all having a positive impact on financial inclusion. However, regulation was found to have a weak negative but significant impact on financial inclusion. Based on the findings, it is recommended for microfinance institutions to increase their funding base and explore other modes beyond equity, incorporate financial inclusion in their objectives to ensure a deliberate focus on the agenda. Delivery channels were found to be mainly physical branches and agents with mobile ad online channels underutilized. Therefore, adoption and use of technology in delivery channels is encouraged as this would enable a wider outreach. The study revealed that certain regulatory parameters like interest rate caps, licensing requirements and limited scope had a negative impact on financial inclusion. It is suggested that regulation of institutions be focused on ensuring prudent practices that enhance rather than deter outreach. Microfinance practitioners are encouraged to observe core client protection principles so that regulation is not used as the default way to instill discipline in the sector.