Citizens, Financial Institutions Reel From Government Crackdown

By Shingirai Vambe

In a bid to restore order and cleanliness in the streets of Zimbabwe’s 10 provinces and towns, the government issued a directive to remove vendors selling their wares in undesignated areas. While the intention behind the move may have been noble, the consequences of this decision have been far-reaching and devastating, particularly for citizens and microfinance institutions (MFIs) that had been providing vital financial services to these vendors.

For years, MFIs had been lending money to vendors, who would use the funds to purchase goods to sell on the streets. These loans were typically small, with repayment terms that were tailored to the vendors’ daily earnings. In a country where millions of Zimbabweans survive on less than a dollar a day, these loans were a lifeline, enabling vendors to eke out a meager living.

The repayment model was simple yet effective. Vendors would borrow money from MFIs, which they would then use to purchase goods to sell on the streets. At the end of each day, they would repay a portion of the loan, using the dollar or so they had earned from selling their wares. This dollar, multiplied by the number of borrowers, provided MFIs with a steady stream of income, which in turn enabled them to sustain their operations and provide financial services to millions of people in Zimbabwe’s informal sector.

the Informal sector gave life to both financial institutions and local authorities who would collect money as fines for selling or doing business in undesignated places. Small towns and cities would collect a minimum of USD $1500 to USD $5000 a day, while MFIs would come every day end and collect as well.

This arrangement helped including the government which already facing financial and liquidity crunch. Local Authorities due to anti-people budges have been facing challenges in collecting revenue from residents, to the extend of failing to pay workers’ salaries, their survival now hangs in the balance with no other option but rely on their business mandate. the fear of many is facing another increment from authorities to cushion unbudgeted expenses.

However, when the government crackdown on vendors began, the entire edifice came crashing down. With vendors no longer able to sell their wares on the streets, they were suddenly unable to repay their loans. The daily repayments that had been the lifeblood of MFIs began to dry up, leaving these institutions facing a financial crisis of unprecedented proportions.

“The impact on MFIs is immediate and devastating with the central bank also feeling the pinch. Zimbabwe’s financial and economic crisis is worsening by day through inconsistency in policies and government overreach,” said economic analyst, Gift Mugano.

He told the Post on Sunday that there is need to fix the politics first, as every sector face myriads of challenges and poor growth rate.

The consequences of this crisis extended far beyond the MFIs themselves. Without access to credit, vendors are unable to purchase the goods they needed to sell on the streets. This, in turn, has a ripple effect throughout the entire economy, as the demand for goods and services will plummet.

As the situation continued to deteriorate, it is clear that the government’s crackdown on vendors unleashed a perfect storm of economic chaos. The very people who are struggling to survive on less than a dollar a day are now facing an even more uncertain future, as the financial lifeline that had sustained them for so long is severed.

Government has for years been urging citizens, traders to formalize and contribute to the fiscus, the majority of informal traders, including vendors, operate outside the formal economy. They are unregistered, without bank accounts, and have managed to survive despite the odds. However, the government’s push for formalization has thrown their livelihoods into uncertainty.

VISET Director, Samuel Wadzai told this publication that the cost of formalization is high and due to high taxes majority are not earning enough to fit into the tax bracket, however, the government has been trying to find its way to tax the informal sector, which they have done and the amount and level of taxation is unbearable.

“The reality is that the cost of formalization is prohibitively expensive for these vendors. Opening and maintaining a bank account, registering their businesses, and complying with tax regulations would require a significant investment of time and money. For vendors who operate on razor-thin profit margins, these costs are simply unsustainable,” added Wadzai.

“Furthermore, the informal economy is often characterized by a lack of access to traditional financial services. Banks are hesitant to provide loans or other financial products to vendors who lack collateral, credit history, or formal business structures. This leaves vendors reliant on informal financial networks, such as loan sharks or rotating savings clubs, which can be expensive and unpredictable,” noted Wadzai.

The answer to this question is far from certain. What is clear, however, is that the government must take a more nuanced approach to formalization, one that recognizes the complexities and vulnerabilities of the informal economy. By doing so, the government can help create an environment that supports the growth and development of informal traders, rather than threatening their very survival.