BY MELODY CHIKONO
THE European Investment Bank (EIB) last week agreed a €15 million (US$18 million) fund to support Zimbabwean businesses hit by Covid-19, the first such financing to the country by the bank in over two decades. The fund, to be channelled via Cabs, is part of the EIB’s programme to support the resilience of African businesses during the pandemic. EIB is owned directly by the 27 European Union member states. Last week, senior business reporter Melody Chikono (MC) caught up with Cabs managing director Mehluli Mpofu (MP, pictured) to discuss the facility’s rollout plan, who said top priority was going to be given to exporting businesses to ensure repayment of the facility in terms of possible policy changes in relation to currencies in use in Zimbabwe:
MC: Can you take us through the details of the ceremony you just conducted?
MP: We had a signing ceremony for Cabs and European Investment Bank loan facility. This is a facility that is being advanced to Cabs by the EIB and the value of the loan is €15 million (us$18 million) over a period of seven years. Once we receive this loan (and that process has already been started), we will then look for businesses within Zimbabwe that we can extend this funding to. Because it’s a seven-year facility, we will be able to extend facilities with a longer period, denominated in United States dollars and in the euro.
MC: Which business are you targeting?
MP: We do have sectors that we are considering already. We are looking at agriculture and tourism. In agriculture we can extend further and talk about horticulture. Primarily for us, it’s important since this is an opportunity from outside. We give the funding to companies that generate foreign currency, so that we grow the amount of foreign currency that they make. This can then help other companies because once we have more foreign currency in the country we can deploy it to other companies within the agriculture sector .
MC: In the agricultural sector, bankers have had issues with security of tenure, how will this facility work?
MP: In financing agriculture, what’s important for us is, we look at the farmer and ask if they have the experience to be able to take this money and deploy it to the crop and then take that crop to the market and bring back value. The tenure issues are aspects that we need to look at so that we give ourselves the comfort that the farmer can actually make an investment and get the harvest.
We have a very significant exposure to agriculture and we have not faced significant issues in that space and even with this facility I’m sure we will be able to do the same and make sure we get the value out of agriculture.
MC: You indicated that you will be issuing this facility in US dollars and the euro; we have had challenges in the past in relation to policy inconsistency especially in relation to currency issues. What will happen if we wake up one day and we’re no longer using the US dollar as free funds?
MP: That’s a very important question because when we pay back the loan we are paying back a US dollar-euro line and what is important is how we structure these loans. One of the things I said earlier is that we are looking at entities that are into export; this means what they generate in the normal course of business is actually foreign currency and we think this will mitigate in a significant way losses around policy. But what we will also do is that for any foreign currency denominated loan issue, we get the appropriate approvals from the Reserve Bank of Zimbabwe. For this particular facility we will have their full support in terms of the loans that we grant to the beneficiaries. That will give us a lot of protection because from where they sit, there is that acknowledgement that credit lines need to be serviced and on time too, so that it doesn’t impact on the creditworthiness of the bank and the country as well.
MC: You also mentioned that these loans are going to be long-term. What period are we looking at?
MP: Like I said it’s a seven-year facility, which means we can go up to seven years, but we want to try to make the loans revolving; so a three-to-five-year sort of timeframe will do, depending on what the business is funding at the period we will be looking at.
MC: This facility is the first from the EU toZimbabwe in a period stretching over 22 years. What does this mean for the bank?
MP: This is very significant for us at Cabs. It does underline the amount of work that we have put into this. We are very appreciative that we have got this facility from the EIB. We are also happy that it demonstrates that we are capable of dealing with international institutions such as the EIB. We have businesses that are working with us which allows us to deploy these funds. And, for Zimbabwe, more broadly, it also says we have a great country. We just need to keep doing what we are doing and do it well and we will get the support we need. This facility demonstrates that it can be done.
MC: This is not the first time you are getting facilities that you extend to the private sector, what can you say about the repayment of loans by the private sector in Zimbabwe?
MP: I would say it’s working very well. Across the banking sector there is a measure that we use that is called the non-performing ratio, which is essentially about the loans that we issue and what percentages are not repaid. Looking at the percentages form the reserve bank, non-performing loans (NPLs) at the moment are less than 1%, which means companies have been doing very well in terms of servicing their loans. Our credit granting processes become very important when we can say once we have the funds, who do you lend them to? That is something that we think as a bank we do very well.
MC: Going into the future, what do you think the facility is going to add to the banks’ profitability?
MP: Most important for us is the assistance that we are going to give to our customers. It’s of great importance. We’ve got the Covid-19 pandemic. We’ve got difficulties around access to long-term financing, which we will be able to address. Financially, of course, there is a small margin that we take off the loan. That small margin will contribute to our profitability as a business. But ultimately it’s providing that service to a customer which is absolutely critical for us. Basically, this is a great facility and we look forward to playing our part with the support of EIB.