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.
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.
Only 4 per cent of Zimbabweans took loans from banks in 2014, though two-thirds had borrowed money in the previous year, according to World Bank data on financial inclusion.
Bank lending to business has stagnated over the past three years at about $3.6bn. As a share of domestic credit, private sector lending has slumped from 90 per cent to under two-thirds over the same period. The data reflects not only the lack of demand from struggling businesses, but also banks becoming increasingly cautious as they worry about the economic outlook and feel the impact of the currency shortage.
“We are bringing in millions of dollars to the country each month, but once we disburse it, it disappears into private hoarding or externalisation, and we never see it again,” said a bank executive in Harare, staring out of his office window at a long winding queue of customers waiting at an ATM. Zimbabweans have been restricted to drawing out $50 a day from ATMs because of the currency shortage and cannot take more than $1,000 in cash out of the country.