The unchecked growth in non-bank credit in the economy may trigger a credit crunch and a wave of company insolvencies and bankruptcies stemming from defaults, economists have warned.
Report by Clive Mphambela
In an interview with businessdigest this week, Bulawayo-based economic analyst Eric Bloch said the currently unregulated informal credit market was causing people to spend far more than they could afford, leading to excessive indebtedness. Businesses would soon suffer major losses, with some going into bankruptcy, once consumers started defaulting, he said.
The absence of a functional credit reference mechanism in the economy made the situation worse, Bloch added.
“A functional credit bureau would enable businesses to effectively assess counterparty risks and hence improve the efficiency of their credit processes. It also allows for the accurate pricing of risk and therefore will allow for the wider availability of credit and a greater volume of sales in the credit retail industries.” he said.
Bloch’s comments come at a time when bankers and other lenders have been calling for the establishment of a credit bureau framework for assessing credit risk of borrowers in the economy.
Recent discussions between Transunion and the Bankers Association of Zimbabwe broke down after parties failed to agree on an operating model. However, in an interview with businessdigest, Bankers Association President, George Guvamatanga confirmed the banking sector was back on the market in search of a technical partner to operate a credit bureau.
Chairman of the Zimbabwe Association of micro finance Institutions, Clive Msipha, told businessdigest this week significant progress had been made towards setting up a credit reference checking system in the microfinance industry.
Analysts say Zimbabwe needs a moral code of conduct to combat reckless lending. Whilst there is no evidence of a systemic crisis in the banking sector as a result of the growing unsecured lending, government and banks and other stakeholders must act soon to protect consumers from abuse by credit providers and intensify efforts to educate consumers on financial literacy.
Unsecured credit differs from home loans or motor vehicle loans which are asset-based. These types of loans are better-yielding in terms of interest than (home) mortgage loans.