The Microfinance Interview is a monthly question-and-answer feature through which we engage key stakeholders of the sector such as MFIs, funders, service providers, development partners and regulators amongst others on issues of topical and mutual interest. This is in recognition of the influential role of Microfinance as one of the four pillars of the National Financial Inclusion Strategy alongside financial innovation, financial literacy and financial consumer protection. In this sixth instalment, the spotlight is onMicrohub Financial Services (Private) Limited, a microfinance institution that is slightly over a year old. Managing Director Tamirira Rusheche (TR) talks to the MFSB about the company’s mandate, its shareholding structure and business model, amongst other pertinent and topical issues such as adoption of technology in its operations, regulatory control of interest rates, client protection initiatives, the importance of external ratings as well as his company’s and the sector’s challenges and opportunities.
MFSB:Can you outline Microhub Financial Services (Private) Limited’s brief history from inception?
TR: Microhub Financial Services (Private) Limited is a young, dynamic and indigenous microfinance institution that was incorporated in November 2015 and commenced operations in January 2016. The sole mandate of this new organization is to provide access to financial services that provide rapid social and economic transformation to the informal sector and communities at large. In its first year of operation, the business has sought to establish itself as a force to reckon with in terms of credit provision to micro, small and medium enterprises in Harare and the Mashonaland provinces. Before this could be achieved, it was important to put in place the right team of experienced and professional individuals as well as robust business processes and systems for effective delivery of our value proposition. To date, the business boasts of presence in all major urban and peri-urban centres throughout the length and breadth of Mashonaland, with sights now set to expand further from that.
MFSB: Microhub is a fairly young company coming into a rather overcrowded microfinance sector. What is the unique selling proposition (USP) through which you expect to stand out and make a sustainable difference in the sector?
TR: The Company offers technology driven, innovative and competitively priced enterprise loans from as low as US$50 to US$50,000 that are appropriate to its clients’ everyday needs. This is bundled with business training and advisory services.
MFSB: Tell us about the key shareholders of the company and the story of how they came together.
TR: The Companyis made up of three key parties: Progression Eastern African Microfinance Equity Fund (PEAMEF), a category one global business company incorporated as a private limited company limited under the laws of Mauritius and represented by Progression Capital Africa Ltd, the investment manager of PEAMEF; Zilbron Investments (Private) Limited, a private company limited by shares registered in Zimbabwe and myself Tamirira Rusheche, a Zimbabwean national who is also currently serving the company in the capacity of Managing Director.What brought these parties together is the common zeal and objective to make a difference in people’s lives and communities. We saw a unique opportunity to leverage on our individual unique competences and wealth of experience to transform the microfinance landscape in Zimbabwe. It was also out of the realisation that the space to do more in the microfinance sector is clearly abundant and that the economy is nowhere near achieving full financial inclusion.
MFSB: We presume that PEAMEFis the anchor shareholder of Microhub. Apart from its “patient capital” what else is this foreign investor bringing to the table?
TR: In fact, all the 3 parties are ‘anchor’ shareholders as they are bringing unique contributions to the table but to your point, PEAMEF is an important partner whose key objective is to achieve medium and long-term capital appreciation together with a positive social impact through equity investments in financial inclusion companies, such as microfinance institutions, MSME-focused commercial banks as well as providers of specialised agri-finance, leasing, factoring and/or mortgage finance solutions. Focus is also on financial technology companies and other businesses acting as enablers of financial inclusion, such as mobile payment platform solutions, banking infrastructure solutions providers, alternative service delivery channels as well as insurance companies. As such, PEAMEF is able to support the management team on matters relating to strategy, financial planning, capital raising, risk management, corporate governance as well as strategic partnerships and international industry best practices.
MFSB: How would you describe the company’s business model?
TR: Microhub has come up with a scalable business model that focuses on enterprise lending. We have a cashflow based lending model that adequately assesses the ability and willingness to repay for microbusinesses. The company has a very healthy approach towards risk modelling and pays due attention to factors mitigating risk within the environment.Microhub business model is anchored on its highly skilled and efficient human capital. Our people are our greatest assets deployed to work on the technology, system and processes to delight the customer and exceed expectations. Once the clients are excited and start to sell Microhub to friends and family then sustainable revenues automatically follow. We are committed to serve the ordinary hustler on the Zimbabwean streets.
MFSB: In what ways is the company leveraging on technology in its operations either to increase its reach or reduce the cost of delivering microfinance products and services?
TR: There is a clear business case in shifting delivery models and particularly service delivery channels towards digital platforms. Microhub is a technology-driven business. The business has put in place an integrated digital plan and has built a digitally capable organisation as well as developing an agile culture around it. The business has come up with suitable products and services that can be delivered in this connected, non-cash socio-economic environment. This has ensured that we serve our customers with unparalleled speed and efficiency. All our service points and platforms, and our trained staff, are built for speed and efficiency. We guarantee quick turnaround time in terms of loan processing. In addition to this, the business has continuously sought innovative ways to expand delivery channels beyond the traditional setting up of brick and mortar branches. Mobile branch deployment has allowed the company to cover a wider geographical area within just the first year of operations.
MFSB: What myths is Microhub Financial Services determined to demystify about the microfinance sector in Zimbabwe?
TR: Business financing to micro, small and medium enterprises has largely been considered too risky and not ideal for serious business people. This has resulted in limited capital inflows into the sector with many MFIs focusing more on consumer lending to minimise on this risk. Microhub was set up to demonstrate that it is possible to strike the right balance between achieving above average financial returns and quantifiable social performance. We want to demonstrate that vendors and other microenterprises are reliable and bankable partners.
MFSB: What do you consider to be the biggest constraint in the microfinance sector at the moment?
TR: Liquidity is a major challenge at the present moment. Despite the notable welcome development in terms of the setting up of the wholesale fund, Zimbabwe Microfinance Fund (Pvt) Ltd to provide funding for on-lending, there is a great need for further sustainable funding initiatives for the sector.
MFSB: Despite this and other challenges, what opportunities do you see in the sector?
TR: The opportunities are massive. Apart from the growing market, a lot of products can be introduced into the market like microinsurance, microleasing and microhousing. With the agrarian reforms, there are also massive opportunities within the small-scale agriculture value chains.
MFSB: Can you describe Microhub’s funding model?
TR: The Microhub funding model strikes a good balance between capital markets and private equity contributions.
MFSB: What is the current size of the company in terms of loan book and number of customers? Do you have any specific targets in this regard?
TR: Microhub has given out loans amounting to about $5m since May 2016 and we are targeting to be the first MFI to reach above 30,000 enterprise clients by year 5.
MFSB: How big is your distribution network in terms of branches and agents?
TR: We currently have one branch in Harare which is serving a network of 8 agent branches throughout the 3 Mashonaland provinces.
MFSB: Part of the company’s product offering is training and advisory services. Can you tell us more about this?
TR: Microhub has realised that many small entrepreneurs may be running successful business but lack basic business training on how to sustain their business and navigate various challenges which may be thrown in their way. Part of the reason for this has been that we have had an influx of people who have found themselves as business owners by default and not necessarily skilled in business management. Training and advisory services product offering therefore seeks to equip such people with relevant skills in areas such as basic business management principles, book-keeping, marketing, business planning as well as debt counselling to increase the chances of that business doing well.
MFSB: What’s your view on the regulatory capping of interest rates for microfinance lending and its impact on the availability of microcredit?
TR: This is a welcome move that will force MFIs to be innovative and efficient. With greater innovation, the industry will eventually grow and become more sustainable. The dream is to ensure that as an industry we reach the same efficiency levels as you would find in East Africa, Latin America and East Asia.
MFSB: We note that the company intends to achieve long-term sustainability through customer centricity. Can you explain the company’s specific initiatives to ensure client protection?
TR: To us, customer centricity is not just a corporate value we have stuck on our wall, but it is a culture we have inculcated in all our staff upon the realisation that our clients are at the centre of everything we do. In line with actively living according to this value, Microhub has endorsed the Smart Campaign’s Client Protection Principles and gone a step further in designing a Client Protection Principles Implementation Guide which has ensured that these principles are streamlined into all the processes and systems of the business. This guide covers abroad range of areas detailing specific actions required from all staff and partners under each principle such as protecting clients from over-indebtedness through mandatory pre-credit checks, transparent pricing through upfront and full disclosure of all charges and clearly outlined mechanisms for redress of grievances through provision of various channels for direct communication with management.
MFSB: Is the company intending to be rated in future and if so, why is that move important for Microhub?
TR: Rating would provide us with a dipstick to measure how well we are doing and an opportunity to benchmark against international standards. Any company taking on a rating is a show of confidence of having put in place the right kind of risk management and corporate governance frameworks in the day-to-day operations. Such an exercise is a gateway to international investors as some hold this a requirement before extending any form of investment. Given our growth strategy, a rating is something we are certain will become a regular process of evaluation of our corporate performance.
MFSB: Anything else do you might want to share?
TR: We want to find a way to partner which each household in Zimbabwe to develop, sustain the entrepreneurial spirit that has become part of our culture ever since the economic challenges emerged. We believe we can play a significant part in shaping the future economic dynamics of the country in which small enterprises play a substantial part. Our promise is to ensure sustainable value creation for our clients and partners through simplicity, accessibility and responsiveness. We have fresh solutions to meet the needs of micro, small and medium enterprises. Our seemingly small loans are already transforming lives and turning big dreams into reality. My message to all emerging entrepreneurs is; don’t settle for less, dream big. Your hard work and determination to succeed deserves a caring partner. Visit Microhub today and let’s get started.