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Loan squeeze: Time to think outside the box

FINANCE Minister Patrick Chinamasa recently blasted international banks operating in Zimbabwe for allegedly sabotaging the economy by not lending. That may or may not be true.


However, the problems in Zimbabwe’s banking industry are far more deep-seated than that and are primarily rooted in Zimbabwe’s own failure to sustain a viable indigenously-owned banking industry. The need to pursue local banking solutions vigorously is particularly pertinent given the political path that the ruling party has pursued, which is largely contrary to mainstream global economic and political thinking.

This is not to say our government should follow this conventional thinking but since it has chosen to pursue the alternate route, it therefore must come up with strategies that are outside the conventional. Thus it is misplaced to think that international banks, whose local operations are guided by the political and economic thinking of their parent countries, would act contrary to that thinking.

It’s common knowledge that the thinking of those countries, rightly or wrongly, justifiably or not, is that Zimbabwe is a high political risk. As such, it is also an economic risk. Hence investing in the country is risky, and so is extending loans or lines of credit. In terms of the banking and finance industry in particular, the risk perception is exacerbated by the fact that Zimbabwe not only owes, but has arrears of more than US$12 billion due be paid to international organisations such as the IMF and World Bank as well as the Paris Club of donor and lender nations.

The figures released by Chinamasa in his budget show that the same Paris Club nations have all, except the United Kingdom, slashed their financial support to Zimbabwe in its 2014 national budget.

Official Development Assistance (ODA) inflows for the period January to September 2013 were at US$259,1 million, nearly US$400 million short of projections. Somehow, the country has to clear those debts and get a clean slate.

Biting the bullet and setting aside other targets, say, to pay off the US$1,25 billion that the country owes the IMF could do the trick. This can be followed up by allocating a similar amount each subsequent year to the Paris Club.

In prudent financial parlance this is known as GOOD (Getting Out Of Debt). That is always the first step towards any serious financial recovery. Government therefore must shift its strategy from short term to medium and long term solutions.

Politically expensive decisions, like GOOD, have to be taken now for the long term economic good. If this means rationalising the civil service in a once-off but strenuous payment, so be it. However, one cannot discuss the current quagmire of the local banking industry without bringing up the past destructive actions of the Reserve Bank under the country’s former governor, Dr Gideon Gono.

The RBZ literally hounded all the homegrown banks out of existence. The list of epitaphs is endless; Time Bank, First National Building, Intermarket, Renaissance, Genesis, Barbican, ZABG, and recently Trust Bank etc.

The lucky survivors are CBZ, the largest surviving indigenous bank, NMB and ABC. While we don’t want to defend the indefensible misdeeds by the owners of the ill-fated banks, the RBZ’s actions added fuel to the fire. When the governor shut down many of these indigenous banks in the early part of his term of office, what he didn’t realise was the impact that had on their image. That image never recovered even after the lid was lifted.

Once indigenous banks were brought back into the fold, the governor imposed one-size-fits-all policy in terms of minimum capital requirements, pitting our Lilliputian banks against the Brobdingnagian Standard Chartered and Barclays of this world who have built their capital over centuries. When the local banks struggled with the minimum capital thresholds and this in turn affected their operations that further damaged their image.

The general banking public would not be aware of underlying nitty grities and justifiably moved their accounts away from these banks.

Therefore we got the so-called flight to quality, which benefitted the international banks who now won’t lend locally earned money to local borrowers owing to the risk perception reasons outlined earlier.

Of course, one is always wiser with hindsight, but when the governor raised the minimum banking thresholds for local banks, he should have used a two-tier system that allowed lower minimum capital requirements for locally-owned banks and higher ones for the big finance.

As for the unbanked, a policy instrument that brings them on board should be effected. We have had several comments emanating from the Reserve Bank to the effect that there is a lot of money that doesn’t go into the local banking system, mainly from the informal sector and low income bracket.

It has been argued time and again that the unbanked need banking products that address their needs and policy or legislation in support of this should be put in place. The overnight success of quasi-banking money transfer EcoCash is a case in point of a gap that existed in the local banking industry to address the needs of the low income earners and the informal sector. Econet sees this billion dollar in turnover aspect of its business outpacing its traditional core business of mobile telephony.

Another gap identified that wasn’t being fulfilled by the traditional banking sector is the trans-border money transfer system. Mukuru.com is a Johnnie-come-lately money transfer agency now competing with the Western Unions and Moneygrams of this world to command, according to one source, a US$1,3 million – a – day in turnover.

Another example of a form of banking targeting small income earners is South Africa’s Capitec Bank. The retail bank, which originally worked through retail outlets but now has small banking halls and ATMs, is estimated to on average command deposits of US$1 billion.

Supermarket Shoprite may be following suit with its own money transfer system.

So a combination of thinking outside the box by local entrepreneurs and the authorities could mobilise more financial resources than are currently locked up in the megabanks.

While there is a general argument that some of the funds are transient, this might also be linked initially to perception. Once the public are comfortable and trust the system, a significant amount could remain in the form of savings, which could then be on-lent.

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