NATIONAL UNIVERSITY OF SCIENCE AND TECHNOLOGY

FACULTY OF COMMERCE

DEPARTMENT OF FINANCE (CONVENTIONAL)

COURSE: MICROFINANCING

COURSE CODE: CFI 4207

INDIVIDUAL ASSIGNMENT

STUDENT NAME: BABOKE MALABA-NCUBE

STUDENT NUMBER: N0165815F

LECTURER: MR Z. CHIKAZA

DUE DATE: 23 MARCH 2020

Questions:

a) Assess the performance of any registered microfinance institution in Zimbabwe of your

choice. Base your analysis on the following: [40 Marks]
 Financial Analysis

 Social Performance

 Governance Analysis

Listed Microfinance Institution: GetBucks Microfinance Bank

Introduction: About the MicroFinance.

GetBucks Microfinance Bank is deposit taking Microfinance institution whose purpose is to

offer financial services through technology with a focus on the underprivileged and previously
financial excluded population. The Company was incorporated on 17 January 2012 and started
trading from August 2012 as a Micro Lending institution. The company was listed on the
Zimbabwe Stock Exchange as a public company in January 2016 following an Initial Public
Offer. On 21 June 2017 shareholders approved the change of name to GetBucks Microfinance
Bank to better reflect the nature of the company’s operations of deposit taking.

i. Financial Analysis.

a) Liquidity Ratios:

Current Ratio

This ratio establishes the relationship between current assets and current liabilities and measures
the ability of a firm to meet its current obligations. The formula is as follows:

Current Assets
Current Ratio =
Current Liabilities
 2019 2018
8034745+37192379+2032176+732147 =
=
6671156+1157078 +2854200+22328313
3127535+ 21630971+ 1921499+ 3502379+ 311487
830619+1996538+5000000
= 1.45:1 = 3.90:1

The current ratio of 1.45:1 and 3.90 in 2018 and 2019 respectively indicate that the microfinance
is able to pay its current liabilities when they fall due as the current assets are greater than the
liabilities which is considered satisfactory.

Acid Test Ratio

This ratio tests the firm’s ability to pay its short term obligations as and when it becomes due. It
establishes a relationship between the quick assets and its current liabilities. The formula is as
follows:

Current Assets−(Inventory + Prepaid Expenses)

Acid Test Ratio =
Current Liabilities

2019 2018
= =

8034745+37192379+2032176+732147−1766713
3127535+ 21630971+ 1921499+ 3502379+ 311487−371480
6671156+ 1157078+2854200+22328313 830619+1996538+5000000
= 1.40:1 = 3.85:1

The acid test ratio of the microfinance in 2019 and 2018 are both above 1 which indicates that
the firm can meet its short term obligations using its quick assets. Therefore, GetBucks is a liquid
MicroFinance which means that it can meet its short term obligations as seen by the liquidity
ratios all above 1, implying a good liquidity position.

b) Profitability Ratios:

Return on Investment (ROI) Ratio.

This ratio measures the return on shareholder’s investment. It establishes a relationship between
Net Profit after interest and taxes and owner’s investment. The ratio can be calculated as:
 Net Profit after interest ∧tax
ROI = * 100
Shareholders Funds

2019 2018
11394033 4548675
= *100 = *100
27601324 17021955
= 41.28% = 26.72%

From the figures, it means the investors of GetBucks are getting a return of 41.28% per
investment they make with the company. The ROI increased by 14.56% from 2018 to 2019 thus
showing a positive return on investments.

Earnings per Share (EPS)

This ratio measures the earning capacity of the firm per share invested and it determines the price
of the equity share in the market. This ratio helps to highlight the capacity of the firm to pay its
dividends to shareholders. The ratio can be calculated as follows:

Net Profit after tax∧Preference dividend

EPS =
Number of Equity Shares

2019 2018
11394033 4548675
= = *100
1093567251 1093567251
= 1.042 cents = 0.416 cents

From the EPS OF 1.042c and 0.416c in 2018 and 2019 respectively shows that the shareholders
earn 1.042c per share invested in GetBucks in 2019. The EPS increased from 2018 to 2019
which reflects the rise in the net profit which resulted in increased earnings to the shareholders.
Therefore, from the profitability ratios above, there is evidence that GetBucks is profitable as it
has high return on investments and capital employed and it also has a favorable EPS which
translates to the effective dividend policy of the firm.

c) Solvency Ratios:

Debt to Equity Ratio

This ratio seeks to ascertain a firm’s obligation to creditors in relation to funds invested by the
shareholders. It is calculated as:

Total Long Term Debt

Debt to Equity =
Shareholders Fund

2019 2018
2068219 6573929
= =
27601324 17021955
= 0.07:1 = 0.39:1

Proprietary Ratio

This ratio is also known as the net worth to total assets ratio. It shows the relationship between
shareholders fund and total assets. It also shows the financial stability of the firm. It indicates the
share of owners in the total assets of the company. It serves as an indicator to the creditors who
can find out the proportion of shareholders fund in the total assets employed. A lower ratio of
less than 0.5 imposes a greater risk than creditors. It can be calculated as:

Shareholders Fund
Proprietary Ratio =
Total Assets

2019 2018
27601324 17021955
= =
62680290 31423041
= 0.44 = 0.54

Since the ratio is less than 0.5 in 2019, it means that the total assets of the firm are a smaller
portion of the shareholders fund and may pose an alarm to the creditors. However, in 2018 the
ratio was desirable as it was above 0.5.

Gearing Ratio:

The ratio describes the relationship between fixed interest securities and the total shareholder’s
fund. A higher gearing ratio indicates a company is having large funds bearing fixed interest as
compared to equity share capital. A lower gearing ratio implies that fixed interest bearing funds
are less than equity capital. The gearing ratios is calculated as Net Debt divided by Total Capital.
Net debt is the total borrowings (including current and non-current borrowings) less cash and
cash equivalents. Total capital is equity plus net debt. It can be calculated as follows:

Net Debt
Gearing Ratio =
Total Capital

2019 2018
16361787 8446394
= =
43963111 25466349
= 37% = 33%

From the above gearing ratios of 37% and 33% in 2018 and 2019 respectively, it shows that
GetBucks has a lower gearing ratio as the fixed interest bearing funds are less than equity share
capital therefore it is desirable.

The financial analysis of GetBucks is favorable as shown by the liquidity ratios and profitability
and solvency ratios which all point out that the firm has enough assets to pay liabilities when due
and it has positive earnings which create value to the shareholders. Therefore, the performance of
GetBucks according to the financial analysis is very good and stable as it has positive earnings
and is a solvent firm as shown by the profitability and liquidity ratios.

ii. Social Performance.

Social Performance of GetBucks relates to its outreach, that is their social role. We can measure
the social performance of GetBucks using the width, depth, scope of outreach, length and cost of
users.

Width

This measures social performance of GetBucks in relation to how many clients GetBucks is
serving. GetBucks has a nationwide footprint with 14 branches in major towns and cities of
Zimbabwe. As per Financial Year 2018, GetBucks managed to increase their loans by 38% from
33 860 loans in 2017 to 47 000 loans in 2018. Its loan book increased by $6.6 million from $15
million in 2017 to $21.6 million in 2018. It has a capital adequacy ratio of 35% against a
minimum regulation of 15%, by the Reserve Bank of Zimbabwe (RBZ), the bank is well poised
to continue a growth trajectory. The Bank managed to access additional lines of credit and $5
million was raised in the end financial period 2018. Therefore all these factors clearly state that
the MFI has a wide width as it manages to serve a number of clients as seen by the increase in
their loan bank. It offers its services to agriculture farmers, SMEs and individual or personal
loans.

Depth

Depth can be used to measure social performance as it reveals how GetBucks is penetrating to
different segments of the society. It can be further divided into: illiterate society, women, rural
borrowers, young borrowers.

a) Illiterate Population of the Society.

These are the underprivileged section of the society who are deemed less educated and they
don’t have any access to lending. However, GetBucks Vision is to break the paradigm of clients
having to visit a location to access services and achieve financial inclusion in all its markets.
Therefore with financial inclusion in mind, they have managed to give out loans to SMEs and
underprivileged societies in the community. According to the Executive Chairman of GetBucks,
the MFI offers financial products, transforms them into opportunities, and helps to create
financial inclusion.

b) Women.

GetBucks has anchored in projects on helping women become more independent and have used
group membership and group pressure to ensure repayment. For example it provides ROSCAs in
which they term then “MaRounds” which is a service they provide primarily for women in the
society at low interest rates of 8% per annum and a tenor which varies from 3-12 months.

c) Rural Borrowers.

GetBucks provides finance to rural borrowers in Zimbabwe as seen by its commemoration of

international day of rural women and providing loans for rural women. They also set aside funds
for small scale farmers in the rural years on a yearly basis. This therefore shows their concern to
cover the gap of financial exclusion in rural areas. GetBucks has a Zimbabwe Agricultural
Development Trust which is a loan facility specifically to finance the agricultural sector which
was issued on 26 January 2018 and is repayable on 31 January 2020. Interest is charged at 9.29%
and is payable on maturity of the loan. The Company accessed an additional ZWL$500 000
during the financial year of 2019 and the credit line has a limit of ZWL$2 million.

d) Young Borrowers.

GetBucks has a mandate to provide finance to young entrepreneurs with the view of facilitating
entrepreneurship among youths. As at 2018, their percentage of SMEs in their loan book was
38% which is a significant number and they provide the loans to youths at low interest rates.

Scope of Outreach.

This relates to different services the MicroFinance Institution (MFI) offers to its clients for
example credit, micro insurance products, group lending, and individual lending. GetBucks
offers a variety of products and services to its clients. It is a registered lender listed on the ZSE
and it provides services like school fees loans where the tenor is from 1-6 months, consumer
loans mainly to the salaried people which is open to both public and private sector employees,
SME banking provides where it issues loans at low rates and home plan loans where it offers the
purchase of land, renovations. It is also a deposit taking institution whereby it offers services like
opening savings account at no monthly service fees, RTGS Payment, POS Terminals and
investments in Money Market securities like Treasury Bills and Promissory Notes.

Length.

This measures the MFI’s ability to sustain its operations. If sustainability is compromised, it may
imply that they might not get capital for the day to day operations of the MFI. As per the
profitability and liquidity ratios calculated for GetBucks, they are profitable and liquid and are
more sustainable as a going concern as they can meet their daily operations. The Company’s
policy is to maintain a strong capital base so as to maintain investor, creditor and market
confidence and to sustain future development of the business. The impact of the level of capital
on shareholders’ return is also important in ensuring sustainability, therefore the MFI recognizes
the need to maintain a balance between the higher returns that might be possible with greater
gearing and the advantages and security afforded by a sound capital position. The MFI’s capital
resources should therefore be adequate to absorb losses such as operating losses, and capital
losses on investments and as seen by the current ratio, GetBucks has sufficient assets to cover its
liabilities.

Cost of Users.

This relates to interest rates, hidden costs charged on users. High interest rates for example, may
not be desirable for small companies such as SME who make little profit which would be
difficult to pay them back due to their lower margins. In 2018, GetBucks was charging interest
rates of 8% to their services ‘Rounds’ per annum, a rate of 9.29% towards the Zimbabwe
Agricultural Development Trust. However, in 2019 interest rates rose to 24% in Promissory
Notes, 11% in Bonds which was due to a rapid inflation in Zimbabwe from 2018 which
increased cost of funding, thereby resulting the MFI to also increase their interest rates.

Therefore, the social performance of GetBucks is optimal as it provides funding to the

underprivileged members of the society including women and rural borrowers’ thereby closing
the gap of financial exclusion in the society.

iii. Governance Analysis.

Governance of MFI relates to board independence, skills, diversity, gender diversity and
commitment as well as the social responsibility of the MFI.

Board Independence

GetBucks has Board of Directors which is comprised of nine members. The board consists of 2
executive and 7 non-executive members; of the 7 non-executive members 3 are independent non-
executive directors. The chairpersons of the board and all board committees are independent
non-executive directors. GetBucks Microfinance Bank adheres to governance practices as
stipulated by the Reserve Bank of Zimbabwe Corporate Governance Guideline. The Board has
set up the Audit and Risk Committee, Remuneration Committee, Credit Committee and Loans
Review Committee to assist in the discharge of its duties and responsibilities. The Board has also
appointed management committees to assist in the execution of its mandate namely, the Asset
and Liability Committee (ALCO) and the Executive Committee. Since only 43% of the board is
independent, therefore the board is generally not independent as the majority of the Board are
dependent and have a direct interest in the company for example W Kabwanji a Non-Executive
Director who is a founder of Brainworks, a majority shareholder of GetBucks holding 17% of the
total shares after the parent company, GetBucks Limited in Mauritius.

Skills of the Board

GetBucks has board members with various skills in the field of Accounting, with one Non-
Executive Director being a Chartered Accountant and holds a Masters in Business Leadership
with the University of South Africa; other Directors have vast skills in the Microfinance Sector
with skills of more than 25 years banking experience; another board member with a Law Degree
and a partner at Dube, Manikai & Hwacha Legal Practitioners, in the commercial and financial
services group. Therefore with various skills in different areas such as finance, accounting, legal,
directorship, the board is very skilled.

Diversity of the Board

The Board consists of 2 women out of 7 board members representing roughly 29% of the board
being women. This shows that the board is diverse as it incorporated women ion the board. The
Board is also diverse in terms of skills of the members and experience in their respective fields.

Commitment of the Board.

Commitment of the Board can be measured by their attendance of meetings. In this case, almost
90% of the board members of GetBucks attended Board meetings which shows their good level
of commitment. Their commitment is also seen by their attendance in respective committees
such as audit and risk committee, remuneration committee and loans review committee where
their attendance to meetings was satisfactory.

Corporate Social Responsibility.

The Board and Management of GetBucks are committed to improving the social wellbeing of the
communities that they serve. The MFI is involved in corporate social responsibility initiatives in
education, sports and culture across provinces in the country. One of the initiatives taken by the
Company was to identify vulnerable groups across the country and outreach to the child headed
families in the rural areas. GetBucks donated foodstuffs, blankets and educational materials to
the beneficiaries. The MFI also partnered with Lions Club particular during the year the country
experienced devastation from the effects of Cyclone Idai through collecting and donating clothes
and foodstuff to relieve those in need. Therefore, the Corporate Governance of GetBucks is very
good as seen by their diverse, skilled, gender balanced and socially responsible Board of
Directors.

b) Suggest what can be done to improve the performance of MFIs in Zimbabwe. [10
Marks]

Good Corporate Governance Techniques.

Boards are important in microfinance because of the relatively limited role of external market
forces. The board is a governance mechanism that helps to resolve the agency problems between
owners and managers. The board of directors monitors and acts as advisors to management.
Empirical studies have found a relationship between the proportion of the board and firm value
(Hermalin and Weishball, 2003). There is evidence that women directors spend more time on
mentoring activities (Oster and O’Reagan, 2003). Corporate performance is affected by board
diversity as corporations with high proportion of women and ethnic minorities perform better,
according to a study of the largest fortune 1000 companies (Carter, Simmons and Simpsons,
2003).

Therefore, good corporate governance techniques are essential in improving the performance of
MFIs in Zimbabwe, because if the MFI has an independent and diverse board with skills in
different fields, it can lead to a positive performance of the MFI since the Board monitors the
management who are involved in the day to day operations of the firm.

Excellent Management Information Systems

Information systems technology play a vital role in microfinance as it helps the MFI to track,
analyze and report on their operations and various performance objectives such as outreach and
profitability. Such reports are useful to management, donors and regulators (CGAP, 2005).
Growth and expansion or advancement of microfinance institutions often poses various
challenges of monitoring, financial management of incomes and expenses. Okeeffe and Fredrick,
(2002) assert that a management information system facilitates the fundamental changes in the
institution through information availability without interfering with the microfinance activities.

Management Information Systems have enabled growth and transformation of operations of

Microfinance Institutions (Water and Ramsing, 1998). As customer numbers grow to several
thousands and beyond, microfinance managers lose their ability to maintain personal contact for
information with what is happening at the field level which in turn affects their portfolio and
financial performance (Omasaja, 2007).

Excellent Information systems go hand in hand with the level of innovation of the MFI.
Therefore, MFIs in Zimbabwe should ensure that they embrace innovation as a driver for
innovative products which meet the needs of the society and this can only be done through use of
technology so as to deliver services which are tailored to meet every need of the society. For
example, technology is a core strategy of GetBucks which has enabled it to successfully launch
its retail offerings including Point of Sale machines, ZimSwitch enabled debit cards and ZIPIT
for its individual and corporate clients. These channels has allowed it to deliver additional
innovative products to clients using efficient and low-cost platforms resulting in an increased
net profit from 2017 to 2018.

Funding

Khachatyran (2010) notes that microfinance institutions have a need for financial sources in
order to fulfill their commitment in the long term which makes the role of funding institutions to
microfinance very important. The capital accounts play several roles in supporting the daily
operations and ensuring the long run viability of financial firms. It provides a cushion against the
risk of failure by absorbing financial and operating losses until management can address the
institution’s problems and restore profitability (Rose and Hudgins, 2010).

Smith and Rupp (2002) explain that a firm may reach a sustainable competitive advantage
through the financial resources it holds since they are scarce. Rose and Hudgins, (2010) add that
availability of funds enables the financial institution to develop new services and facilities. An
infusion of additional capital or funds will permit a financial firm to expand into large quarters or
build additional outreach offices in order to keep pace with its expanding market and follow its
customers.
This therefore points out the importance of funding to MFIs as they ensure the sustainability of
the MFI. In Zimbabwe, funding is really vital, therefore government institutions and preferably
donors should be able to fund the MFI to improve the performance of MFI, because if an MFI is
not funded, it therefore means that their outreach is compromised as it can’t lend to different
people in the society due to limited capital.

Prudent Risk Management

There is therefore a need for effective risk management measures given the high exposure of
MFIs to risk especially default. Most MFIs in Zimbabwe lack in risk management from risk
identification, measurement, control and monitoring (Bounoula & Rihane, 2014; RBZ, 2015).
There is need for proper screening of loan applicants to reduce default as default will
compromise the profit and may result in a reduction of MFIs performance. Subprime loans
always result in unsustainable levels of non-performing loans hence the need to constantly
reexamine the lending process. MFIs should therefore ensure that their selection process is
thoroughly managed so as to review and issue out loans to people who are able to pay it back.

Regulatory Framework.

Boating & Agyel (2013) present that effective financial intermediation from MFIs requires a
favorable and effective regulatory framework. There is need for government to eliminate unfair
competition so as to encourage the growth of MFIs as well as ensuring sustainability and
maturity in the sector). The regulation of lending rates should consider the sustainability of the
MFIs who in most cases cannot survive under a low interest rate regime because they cannot
sustain their cost and business model in an environment where the regulators have put a rate cap.
It must be the prime focus of regulators to put in place policies and regulations that ensure
prudence in the operation of MFIs.

Key policy issues should enhance depositor protection through maintaining the safety and
soundness of financial institutions and borrower protection through ensuring affordable interest
rates). The control of MFIs in Zimbabwe should thus be in a manner that does not exclude small
and innovative forms of micro financing. Regulation should also enhance resource mobilization
sources for micro credit institutions.
Therefore, good corporate governance techniques, excellent management information systems,
funding, prudent risk management and regulatory framework are all essential in ensuring an
improved performance of MFIs in Zimbabwe.

REFERENCES

Boateng, I.A & Agyei, A. (2013), “Microfinance in Ghana: Development, Success Factors and
Challenges”, International Journal of Academic Research in Accounting, Finance and
Management Sciences, 3(4) pp153–160.

Bounouala, R. & Rihane, C. (2014), “Commercial Banks in Microfinance: Entry Strategies and
Keys of Success”, Journal of Investment Management and Financial Innovations, 11(1).

Carter, D. A., Simkins B. J, & Simpson W. G. (2003), “Corporate Governance, Board

Diversity, and Firm Value, The Financial Review” pp 33-63.

GetBucks Annual Report 2019 and 2018.

Hermalin, B. E. & Weisbach M. S. (2003), “Board of Directors as an Endogenously Determined

Institution: A Survey of the Economic Literature, Economic Policy Review”, pp 7-20.

Khachatryan, K. (2010), “Funding microfinance institutions”, Skema Business Schoool

OKeeffe. G and Fredrick, L. (2002), “Transforming MFIs, Management Information Systems”

Published by SPEED-USAID.

Oster S, & O’Regan K. (2003), “Does the Structure and Composition of the Board Matter? The
Case of Non-profit Organizations”, Working paper, Yale School of Management.

Reserve Bank of Zimbabwe, (2015), “Status of The Microfinance Sector as at 30 June 2015”
Rose, P.C, & Hudgins, S.C. (2010), “Bank management & financial services”, 8th Edition, New
York: The McGraw-Hill Companies.

Waterfield, C. and Ramsing, R. (1998), “Management Information Systems for Microfinance

Institutions”, Handbook. Pact Publications.