Deposit guarantee fund is yet another tax


Tawanda Hondora

THE Zimbabwe deposit insurance scheme (DIS) introduced over a month ago and referred to as the Deposit Guarantee Fund is a sham.



ana, Arial, Helvetica, sans-serif”>Commentators such as Witness Chinyama and stakeholders such as the vice-president of the Zimbabwe Bankers Association, Jerry Tsodzai, praised the introduction of the fund without considered analysis.


Zimbabwe’s long suffering public will be shocked to realise that the much-touted Deposit Guarantee Fund is nothing more than another tax on their meagre and fast-dwindling financial resources. And it is most disturbing that there has been little informed public discussion of the virtue of introducing a DIS in Zimbabwe at the present time. The compulsory DIS commenced on July 1.


But what is this DIS? Simply put, DIS is insurance of deposits. This means in the event of a participating bank being unable to reimburse depositors funds due to insolvency, the public will receive reimbursement of their bank deposits from the fund. While a DIS targets the small depositor, the primary reason for introducing the scheme is to create confidence in the financial services industry by reducing the incidence of panic withdrawals of cash from banks in the event of one or more institutions facing insolvency.


Every Zimbabwean with money in a bank is urged to buy a copy of and read Statutory Instrument No 29 of 2003 (Banking (Deposit Protection Regulations) 2003) [SI-29-2003], ie the statutory instrument which operationalises the Deposit Guarantee Fund.


The statutory instrument makes disturbing reading. A depositor will ask the question: “Should my bank face insolvency, will I be reimbursed the full amount of my deposit?” None of the stakeholders, i.e the participating banks, the Reserve Bank of Zimbabwe, or the Deposit Guarantee Fund Board (DGF board) will be able to provide an answer to this question. This is because SI – 29- 2003 does not state the maximum amount of deposit guaranteed depositors under the scheme.


In the event that a bank is declared insolvent the DGF board will decide, in its discretion, how much if any, the affected bank’s customers will be reimbursed. Most countries that introduce such insurance schemes set the deposit amount guaranteed in the event of bank insolvency. In Argentina the amount is US$30 000. It is such knowledge that reduces the incidence of bank runs in the event of insolvency, real or perceived.


Assuming two or more banks are declared insolvent at the same time, SI-29-2003 permits the DGF board to set different reimbursable amounts for the different banks as well as classes of deposits. This is highly unusual. It is possible, therefore, that current account holders may receive more or less than savings account holders. The non-stipulation of the maximum amount guaranteed betrays the absence of official policy on whether deposit coverage under the scheme will be partial or total. It is unrealistic and fatal to the scheme to expect the extent of coverage to be determined at the discretion of a politically compromised body, and on a case-by-case and ad hoc basis.


The DGF board appointed to implement the scheme is not immune from political (read Zanu PF) influence and control. The chairperson of the board is the governor of the RBZ. Two other board members will be deputy governors of the RBZ. These persons are presidential appointees. The governor of the RBZ will appoint the other three board members. It is conceivable that certain banks will receive more favourable treatment than others in relation to the Deposit Guarantee Fund.


Who funds this deposit insurance scheme? Panic withdrawals of deposits hurt affected banks, and ultimately the whole financial services system. It is usual therefore that participating banks pay premiums to the Deposit Guarantee Fund. Tsodzai was reported in the Herald of March 26 welcoming the introduction of the DIS and stating that banks should set up appropriate levies to recoup from their customers the cost of the premiums they pay to the fund. In essence, therefore, the answer to the question posed above is that depositors will pay for the deposit insurance scheme.

Put differently, the public will pay a tax for placing their money into bank accounts.


Zimbabwean banks have run out of bank notes and the maximum amount of withdrawals depositors are permitted to make is now severely restricted. The country is already in the midst of a financial crisis. Behind this backdrop, it is the policy of the present government, with the complicity of the banking industry, to introduce a scheme that taxes individuals that deposit their savings with banks.


And what is even more shocking is that banks do not seem to have objected to the nature of deposit insurance scheme created. Ordinarily, the formula for computing premiums payable by banks is stated in law.


In Zimbabwe, the DGF board in its absolute and unfettered discretion, determines premiums payable. In addition, the DGF board does not refer to scientific formulae in computing premiums payable. Premiums payable are determined after taking into account the institution’s deposit liabilities and the volume of the deposit business which the board expects the institution to conduct in the year concerned; and the estimated expenditure from the fund for the coming year, including any amounts payable by way of compensation.


The determination of formulae used is left to a politically partial board. In addition, premiums payable by any one contributory institution are determined by either or a combination or all of three criteria (listed above), as is “appropriate in the circumstances”.


Tawanda Hondora is a lawyer based in the United Kingdom

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