We are looking at the malpractices of microfinance institutions in Zimbabwe.

 1. Predatory Lending Practices

Malpractice:

• Charging exorbitantly high interest rates (sometimes exceeding 200% per annum).
• Concealing actual costs of loans through hidden charges (e.g., “processing fees”, “administrative charges”).
• Granting loans without proper affordability assessments, leading to debt cycles.

Legal Position:

• Microfinance Act [Chapter 24:29], Section 23: Empowers the Minister to prescribe interest rate ceilings.
• Consumer Protection Act [Chapter 14:44] (2020), Section 42: Prohibits unfair, unreasonable, and unjust contract terms.
• Banking (Amendment) Act, 2015: Extends certain fair lending standards to non-bank financial institutions.

Challenges:

• Although Section 23 allows setting maximum interest rates, no consistent, enforceable cap has been maintained.
• Enforcement under the Consumer Protection Act is weak in the financial services sector, especially against non-bank MFIs. Clearly, without strict interest regulation, microfinance becomes a tool for “perpetuating financial exclusion” through exploitative rates.

2. Abusive Recovery Methods

Malpractice:

• Harassment, threats, or public shaming of borrowers.
• Seizing personal property without court orders.
• Withholding critical documents like national identity cards until repayment.

Legal Position:

• Microfinance Act, Section 25(1)(e): Prohibits any microfinance institution from engaging in “abusive or oppressive collection practices.”
• Constitution of Zimbabwe, 2013, Section 51: Guarantees the right to dignity and protection from degrading treatment.
• Criminal Law (Codification and Reform) Act [Chapter 9:23]: Criminalises intimidation and extortion.

Challenges:

• Enforcement mechanisms are reactive; borrowers must individually lodge complaints, often without legal support.
• Cultural stigma discourages formal reporting of abuse.

3. Lack of Proper Disclosure and Misrepresentation

Malpractice:

• Failure to provide clear, understandable loan terms.
• Misleading advertising promising “instant loans” without stating the conditions. •Omitting total cost of credit (TCC) calculations.

Legal Position: 

• Microfinance Act, Section 25(1)(c): Requires MFIs to “disclose to clients the full terms and conditions of any credit agreement.”
• Consumer Protection Act, Section 18: Mandates plain language contracts and disclosure of all material terms.
• Reserve Bank of Zimbabwe (RBZ) Regulations: Require MFIs to submit periodic returns indicating compliance with disclosure norms.

Challenges:

• In practice, compliance inspections by RBZ are infrequent due to resource limitations.
• Many borrowers, especially in rural areas, remain unaware of their disclosure rights. The limited financial literacy of the borrowers exacerbates the impact of poor disclosure practices, creating a “borrower’s trap.”

4. Over-Indebtedness and Reckless Lending

Malpractice:

• Lending to already over-indebted clients without assessing repayment capacity.
• Issuing multiple loans to a single borrower without due diligence.

Legal Position:

• Microfinance Act, Section 25(1)(f): Prohibits extending credit in a manner likely to cause over-indebtedness.
• Banking Regulations: Although not binding on all MFIs, prescribe “know your customer” (KYC) and creditworthiness checks for financial institutions.

Challenges:

• No centralised credit information system covering all MFIs; therefore, lenders cannot easily check a borrower’s indebtedness.
• Informal competition between MFIs incentivises reckless loan disbursement to gain market share. The failure to manage borrower over-indebtedness may replicate the microfinance crises as seen in India (2008) and Bosnia (2009).