Deciphering financing models of micro-enterprises in Ruwa, Zimbabwe: Investigating the implications of usury

Abstract

This study focuses on the different financing models employed by micro-enterprises in Ruwa, Zimbabwe, particular emphasis being on investigating implications of usury loans. Pecking Order Theory was adopted as the basis for research objective generation and for literature review on exploration of the financing preferences and sources of finance for micro-enterprises. Qualitative research design was employed wherein in-depth interviews were conducted on 30 purposively selected participants and results show that micro-enterprises in Ruwa heavily rely on informal financing due to lack of formal financial institutions to cater for micro-enterprises unique needs. Micro-enterprises normally resort to usurious loans as a last resort measure, when in emergency and needing working capital. However, these usurious lending practices pose sustainability challenges in the long-run, in the form of suppressed profitability and limited possibilities for growth. Micro-enterprises require full support from government as they provide significant contributions to the economy such as employment generation and poverty reduction, and based on findings of the study, it is concluded that government should at least craft and implement encouraging policies to support micro-enterprises, and formal financial institutions such as commercial banks and microfinance institutions should be flexible enough and reconsider their perceptions on high-risk customers such as micro entrepreneurs. Finally, the study recommends that the government continue to enhance its support on micro-enterprises through capacitation of the already available financial institutions and establishing more financial institutions targeting micro-enterprises especially those run by the youths, women and the rural poor.