Zimbabwe to allow goats, cows and sheep as bank collateral

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Zimbabwe is hoping to enlist cows, goats and sheep in an attempt to revive its credit-starved economy after President Robert Mugabe’s ruling party proposed a law to make livestock eligible for backing bank loans.

Under legislation introduced in parliament this week, borrowers would be allowed to register “moveable” assets as collateral at a central bank registrar. The bill would require commercial banks to accept them as security for credit.

Patrick Chinamasa, the finance minister, told MPs that the assets would “include any type such as machinery, motor vehicles, livestock, and accounts receivable”.

Mr Chinamasa added that the reform would “promote financial inclusion to small and medium enterprises, women, youths and other under-banked groups”, and “increase access to credit”.

But bankers said they were concerned about the definition of assets, most of which are susceptible to rapid depreciation in value. Farmers who seized commercial farms after Mr Mugabe introduced controversial land reforms nearly two decades ago still face difficulties using the land as collateral because the title deeds remain with the original owners.

Lenders accept livestock and moveable assets to back loans in other African countries, including Nigeria, Ghana and Malawi. But the ruling Zanu-PF party’s proposed legislation comes as the country’s banks are buckling under a shortage of US dollars, which have become the primary currency since the Zimbabwean dollar was ditched in 2009.

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That followed a period of economic collapse characterised by a period of hyperinflation during which the central bank issued Z$100,000bn notes that lost value almost as soon as they were printed.

The southern African nation’s economy stabilised after dollarisation in 2009 and enjoyed a brief period of healthy growth. But it has since ground to a halt as Zimbabwe grapples with a severe dollar shortage, political uncertainty over who will succeed the 93-year-old president, who has been in power since 1980, and government policies deemed hostile to investment.

Mr Mugabe’s government introduced bond notes, a parallel currency, in an attempt to restore liquidity last year. About $110m worth of bond notes are now in circulation, but cash continues to flow out of the country because of so-called “externalisation” as Zimbabwe has de-industrialised and become reliant on imports.

Bank lending has also suffered with demand for loans outside the public sector becoming increasingly sluggish as the economic crisis has deepened.

Opinion

February 2017: A decade on from hyperinflation, signs grow of another economic meltdown

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