Prosper Ndlovu, Business Editor
ZIMBABWE’S biggest challenge is lack of access to capital and banks should face up to this economic reality and lend to businesses or risk collapse, Finance and Economic Development Minister Patrick Chinamasa has said.
Despite widespread opportunities across economic sectors in the country, the minister said the conservative approach to lending by financial services sector — reported to be sitting on an estimated $9 billion reserves — is frustrating growth and poses long term risks to the sector’s viability. “Yes, the banking institutions are conservative, but when I talk about mindsets, I am talking not only about the mindsets of us individuals but of institutions also.
The way I see it is that — and this is what we tell the banking institutions, if they do not face up to the reality of our situation, they will be out of business sooner or later,” said Minister Chinamasa while addressing the Senate on Tuesday.
“This is because the business of a lending institution is to lend money. If you are not lending, you get broke. You make money from the interest you charge when lending to people. If you do not lend, and as it is, they may say, we only lend to established firms but the base of established firms is reduced. So, in the end you cannot avoid lending to people who are plying their trade in the informal sector.”
The minister said robust economic transformation requires a shift of mindsets by all stakeholders and recognition of a structural shift in the economy evidenced by the rapid growth of the informal sector.
“At the moment, our biggest challenge in the economy, especially with SMEs, with the informal sector, is access to capital. When I go round, I can vouch that the people now have general skills to undertake their activities. The skill is there to an extent of some managerial skills also and technology. However, the thing they lack most is access to capital and that is what we are trying to assist.”
Banking sector profitability has been on the rise in the last few years despite slow growth in overall economy, largely spurred by non-interest income from exorbitant service charges on depositors. Last week Vice President Emmerson Mnangagwa reported that the sector was holding onto $9 billion, which was not being channelled to the productive sector.
Minister Chinamasa, however, commended some financial institutions for establishing micro-financing window to address and attend needs of small scale economic players. As such, he said some institutions have sent teams to countries such as India and Bangladesh, essentially to understand how big commercial entities can lend to small businesses.
The country has around 160 micro-finance lending institutions and five of them are deposit taking.
“They can only come with their capital and lend out. I am happy to say that this is already taking place. It increases the level of liquidity in the economy,” said Minister Chinamasa.
Under the Zimbabwe Agenda for Sustainable Socio-Economic Transformation (Zim-Asset) Government had hoped to achieve average 7.3 percent growth between 2013 and 2018. External shocks and lack of capital have dealt a huge blow to most projects across the major clusters. The country has, however, scored big in the food security and nutrition cluster evidenced by the success of the Command Agriculture scheme. Notable progress has also been made in the infrastructure and utilities cluster particularly in the aviation and energy infrastructure upgrades and major roads rehabilitation. There has been consensus that more needs to be done on the value addition and beneficiation cluster as well as the social services and poverty eradication wings.
Lend or lose business, banks urged