NewZimbabwe.com invited Mr. Vengai Madzima, the Senior Partner at Madzima Chidyausiku Museta Legal Practitioners (MCM Legal) to discuss with us legal issues that affect Zimbabweans living in the diaspora. The discussions are of a general nature and those seeking specific legal advice should contact their lawyer.
Reporter: Welcome back Mr. Madzima, this week we want to return to our series for investment opportunities for the diaspora in Zimbabwe. Is investing in microfinance institutions ideal in Zimbabwe?
VM: The question can only be answered by dispassionately analyzing the historical and prevailing climate from an access to finance background. Historically, the economy was under sanctions for over 20 years, limiting general access to international and consequently local finance for the majority of the population.
The changes in currency and financial policies over the same period as a reaction to these sanctions decimated formal companies and employment and naturally grew the unbanked population, entrepreneurs and sole traders.
The result is that there is a large population hungry to finance their small enterprises and general living expenses, like school fees, through credit. The upside is that a significant percentage of the population owns the potential collateral outright as the positive effect of having no access to credit and the downside is that a significant percentage of the potential market has no recorded history or training in repaying debts, making them risky debtors.
As the saying goes, high-risk high returns, that being said, it is lucrative to invest in microfinance to the extent that the systems are sufficiently buffered against default.
Reporter: What are the regulations or licensing requirements for microfinance institutions in Zimbabwe?
VM: Our laws have specific statutes regulating microfinance institutions, however, their establishment, supervision and regulation are carried out by the Reserve Bank of Zimbabwe. In considering an application to register microfinance, the Reserve Bank of Zimbabwe, among other things, is concerned with the financial stability of the proposed institution, the competence of its management and the adequacy of its risk management strategies.
There are minimum capital requirements depending on whether the microfinance institution will be credit-only or will be deposit-taking. Long and short, the application is evaluated on the basis of the institution’s ability to comply with legal and regulatory requirements.
Reporter: Are there any restrictions on diaspora, non-resident or foreign investors investing in microfinance institutions?
VM: The potential advantage they all have is that they have access to cheaper finance in their host or foreign country.
In terms of restrictions, the diaspora, non-resident or foreign investors are not necessarily the same person and from a procedural perspective, may be required to undertake different routes in starting out the process of establishing a micro-finance company depending on their residence status in Zimbabwe.
The foreign investor will have to start by acquiring the necessary approvals from the Zimbabwe Investment and Development Agency and all are required to adhere to foreign exchange control regulations on investing and repatriation of profits and dividends et cetera.
Reporter: What measures or steps should an investor take if they want to invest in an existing microfinance company?
VM: The first step will be a due diligence of the legal, financial, operational, commercial, environmental and social structure of the microfinance company before one can invest. Key to this due diligence is the microfinance institutions’ regulatory and tax compliance, risk management processes and responsiveness to regulatory changes.
The process will have to include thorough due diligence on its governance structure, business plan, financial reports and projections, internal policies to combat money laundering and terrorism financing et cetera.
Reporter: What steps would I take when I want to close down the microfinance company?
VM: Once the necessary board resolutions for closure are in place, the company will have to notify the regulatory authorities of its intention to close down. They may then be informed of what they are required to do before closing down. Generally, there is a need to settle obligations, notify stakeholders, cancel licenses and permits, liquidate assets and so on and so forth.
Reporter: Thank you, Mr. Madzima we have run out of time.
VM: Thank you.
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You can contact Vengai Madzima at vengai@mcmlegal.co.zw or at www.mcmlegal.co.zw
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