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The Government has set the terms under which companies can apply for loans under the recently announced $18 billion Covid-19 economic recovery and stimulus package.

This is a rescue package, put in place to revive businesses that have been impacted negatively by the Covid-19 pandemic. Because of that, the conditions had to be flexible. Because of that, the fund had to be targeted at sectors where there is the greatest need and where the greatest economic and social impact will be.

Successful applicants, according to the terms announced by Finance and Economic Development Minister Mthuli Ncube on Friday, will have a three-month grace period before starting to servicing the loans.

Productive sectors will get the lion’s share at $10,6 billion, while $3,4 billion has been earmarked for budget reallocation, $2 billion set for banks liquidity support, $1,5 billion for wider relief measures, $2 billion to enable the Reserve Bank of Zimbabwe (RBZ) to perform its lender of last resort function, $500 million for tourism support and $200 million for the arts and sports sector.

In the productive sectors firms in agriculture, mining and tourism sectors will be prioritised.

“Other than capital grants, which are being disbursed through line ministries, all productive sector support will be financed by banks through normal banking channels with Government providing requisite guarantees to the financial institutions through risk sharing model,” said Minister Ncube.

Interest rates for the facilities will be capped at 20 percent. Banks will be required to conduct credit assessments and due diligence on applicants to the fund, as well as monitoring and evaluation of the borrowers’ usage of funds to ensure that the beneficiaries repay the loans and don’t abuse them.

Furthermore, borrowers must have valid tax clearance certificates from the Zimbabwe Revenue Authority, be tax compliant and have valid compliance certificates from the National Social Security Authority.

To benefit under the Tourism Sector Support Fund, applicants must be registered with Zimbabwe Tourism Authority. Companies that have a record of defaulting under previous loans are not eligible to borrow.
Conditions to borrow from the fund are clearly comfortable in a number of respects.

Borrowers must find the three-month grace period before they start repaying the loans very attractive. It gives them the room to set their businesses on sound footing before they are required to start paying the loans which is good. In some cases, loans are payable after 30 days of being availed so three months must be great for successful applicants.

At 20 percent per annum, industry must find the interest rates applicable to borrowing under the stimulus package very attractive which is why economic analyst, Mr Eddie Cross told our sister paper The Sunday Mail yesterday that the package is a “give-away.” Our industry, already in trouble after 20 years of illegal Western sanctions before Covid-19 hit them also three or four months ago, cannot afford expensive finance.

These elements are very important in ensuring that the stimulus package becomes a rescue package that it must be.

However, to ensure that the loans are used for the intended purpose and to ensure that these don’t become free funds, the Government has come up with a few requirements.

One of the key ones is that the money would be available from banks. This is a welcome departure from what was the norm a few years ago when the Government of the day took the place of financial institutions by disbursing loans to companies by itself through the RBZ. Financial institutions, being financial institutions will make it a point that they apply the rules on applicants such as barring those with bad credit records, demanding tax clearances and closely monitoring the usage of money to prevent abuse.

After rolling out the fund and coming up with the lending terms, the Government has played its part. The ball is now in industry’s court. We expect them to come forward with applications. Those that are going to be successful must use the loans for productive purposes and repay the loans as agreed.

This will help companies affected by Covid-19 to regain their footing as soon as possible, while rebooting the economy and preserving jobs.