Financial inclusion of the informal sector as an enabler to economic growth in Zimbabwe

Abstract

The macroeconomic environment in Zimbabwe transformed over the past decade with the formal business enterprises substituted by an expanding informal sector. Statistics from the Zimbabwe National Statistics Agency showed 94.5% of the employed population aged 15 years and above being employed in the informal sector. Players in the informal sector often do not use formal banking channels and transact on a cash basis. Newspaper reports in Zimbabwe estimate the amount of cash circulating outside the formal banking channels to range between United States Dollar 3 billion and United States Dollar 7 billion. This could be more than the money in the formal banking system which was reported as United States Dollar 4.7 billion by the Reserve Bank of Zimbabwe in December 2015. Financial inclusion at its basic level is about having access to a bank account and Zimbabwe has a low index of financial inclusion score. The Researcher investigated how the banking sector in Zimbabwe had adapted to the change in the macro economic environment to attract informal sector participants to use the formal banking system. The purpose of the study was also to understand from representatives of the informal sector players the reasons for not preferring the formal banking system. The Researcher also investigated whether financial inclusion impacted economic growth. Semi structured interviews were carried out with bank executives and individuals from organisations that represent informal sector players. The research results showed that the low level of financial inclusion was due to a lack of trust in the banking sector. In addition the growth of the informal sector was attributed to weak institutions in Zimbabwe. The Researcher concluded improving the role of institutions will curtail the growth of the informal sector and improve the banking public's trust of the banking sector enabling financial inclusion. This would arguably lead to economic growth in Zimbabwe as a result of improved liquidity sector and availability of credit at affordable interest rates from the banking sector.