Abstract

The COVID-19 pandemic caused a global economic crisis which had a profound effect on various sectors including the microfinance sector. The microfinance sector is important in the attainment of an upper middle-income economy for Zimbabwe by 2030 as it caters for a constituency that is marginalized by the mainstream banking sector. This constituency mainly includes the poor and small to medium enterprises. This study investigated the coping mechanisms that were implemented by microfinance institutions (MFIs) in Harare in response to the pandemic and its impact on business risks. The research was underpinned by the adaptive leadership theory. It had the objectives of ascertaining the impact of the pandemic on the adaptive capacity of MFIs, the relationship between leadership style and the effectiveness of coping mechanisms. Lastly, it focused on the role that was played by the Reserve Bank of Zimbabwe in helping microfinance institutions to manage risk. The study used an exploratory sequential design with data derived via a combination of questionnaires and interviews from a sample drawn from 153 microfinance institutions in Harare. The findings revealed that MFIs faced a variety of risks but were highly adaptive, employing a mix of strategies such as downscaling, diversification, digital transformation, and activating business continuity plans. The study also established a positive relationship between leadership style and coping mechanism effectiveness, as well as a moderate effectiveness of RBZ interventions in assisting MFIs in remaining operational. The findings emphasize the importance of MFIs adopting best practices, receiving policymaker support, and collaborating with stakeholders to effectively manage pandemic-related risks.

Key Words: microfinance, risk management, Covid-19, Monetary policy, RBZ, adaptive capacity