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NO matter how broke you are, just walk into a microfinance institution and all your financial problems would be solved within a very short space of time.
This is the belief that many poor Zimbabweans have about microfinance institutions and loan sharks.
Well, it sounds as easy as that.
And most of Zimbabwe’s poor, hoping to fast track their way out of poverty have fallen into this trap hoping to get rich quickly, only to learn the hard way that they are further condemning themselves into poverty.
“Getting the loan is not a problem, but the challenge is what happens immediately afterwards,” said one borrower who claimed to have been “almost cheated” by a lender.
“Wait until the day you fail or delay to pay up, and you will see their true colours.
“Within a very short space of time, the police and messenger of court would be at your doorstep demanding your valuables.
“They give you the whole amount, but before you even do any transaction with it, you are supposed to pay the interest right away.”
To get a loan for a small business, one pays a consultation fee of $20. As the deal shapes up, the charges also increase. An additional $150 is charged for “documentation”.
Currently, loans range from $5 000 to $500 000.
The emergence of “loan sharks” since the dollarisation of the economy has generated a lot of interest among ordinary Zimbabweans.
Desperate to make a quick buck, there have been reports of people giving up some of their valuables to loan sharks in exchange for instant hefty amounts of cash.
At a time when the country is said to be facing liquidity problems, almost every day there is an advert in the press from usually unnamed companies offering instant cash loans to individuals and businesses.
There have been concerns that most of these lenders just swindle prospective borrowers of their money, and then start playing games without releasing the money.
In some cases, they do release the money, and immediately demand the full interest in cash. Interests range between five and 100%, depending on the terms of the deal.
“These loan sharks thrive on people’s poverty and lack of knowledge about accessibility of bank loans.
“And whoever has the money makes sure they do not give you much information, they will continue to give the impression that it’s impossible to get loans through the banks, which is not the case,” added one borrower.
What has remained a mystery is how and where these “loan sharks” get such large amounts of money.
“We are not lenders as you seem to believe, we are just facilitators, linking the customer with the bank,” said one loan shark on condition of anonymity.
She runs a micro-finance company in the capital. Her's is one of the many companies that have advertised in the newspapers that they assist people with loans. She said they did not necessarily give cash but were just intermediaries.
“We do not give people any money. We know where the money is; so what we do is help the customer access the money.
“The banks are the ones that give people money. The relationship between us and the bank is purely to facilitate our customers to get money from the bank,” she added.
“We never promise a customer that they will get the money, as the application may be turned down.
“But we have had very few instances of applications being turned down.
“The only reason why applications do not usually succeed is the failure to provide proper paperwork.”
But the Bankers Association of Zimbabwe (BAZ) president John Mushayavanhu said there was no way banks could lend money through loan sharks.
“Why would they (banks) do that? Banks are licensed to give loans, there is no reason for a bank to lend through an unlicensed institution,” said Mushayavanhu.
“We have got all the risk assessment mechanisms in the bank.
“If a bank is not prepared to lend to a person, why risk by lending to the same person through an unlicensed institution?
“It is these loan sharks who are hiding behind banks. To me anyone who is running a lending facility without a license is a loan shark.”
Mushayavanhu said although they had heard of many incidences of people falling prey to loan sharks, the BAOZ could not do anything because the sharks were not registered.
“They flout a lot of rules. They are not licensed, so they are operating outside the law and must be arrested by the police.
“Members of the public need to be very careful when dealing with unlicensed institutions.
“The interest rates are so unbearable such that if a person fails to pay, they would want to take all your property,” he added.
But the Greencroft-based loan shark maintained that her operations were above board.
She said before facilitating a loan to a company, they look at whether or not such papers as the title deeds, fire policy, business plan documentation, financial statements and tax clearance are in order.
The enterprising businesswoman said because of growing demand for the loans, they were now considering concentrating on big amounts only.
She said the paperwork and effort for processing a $5 000 loan was the same as that for big amounts but the returns were insignificant.
She said they usually charged interest of 5%, but in most cases clients were so impressed they offered to pay more.
“If I process just one loan of say $200 000 and get my interest, it is enough to pay fees for my children abroad. But the interest for a $5 000 loan is insignificant,” Kativhu said.
They scrutinise their applicants’ banking records to tell whether or not they have the capacity to pay back whatever they would have borrowed.
“The problem with most of the people who approach us is, they expect fast cash, but we always tell them that the bank process requires time, it takes time. Most of them are not patient enough to wait for the banks to complete their process.
“This is why they end up going to some of these unscrupulous lenders, and the next thing you would hear they have reported their matter to the police.”
Attempts to get a comment from the Zimbabwe Association of Microfinance Institutions (ZAMFI) were fruitless.
SMEs Minister Sithembiso Nyoni was also said to be out of the country and would only be available tomorrow.
Small-to-medium businesses are understood to be the most affected.
BY VUSUMUZI SIFILE
And Banks
BY OUR STAFF
WHAT is driving Zimbabweans to seek solace in loan sharks at a time when reputable financial institutions claim the dollarisation of the economy has given them a new lease of life?
This question has been begging an answer ever since banks started tightening the screws on lending in the multi currencies era.
The answer could lie in the extortionist behaviour banks have developed by charging interest rates which are out of this world with zero interest on deposits.
Banks argue that the risk is high and any default in loan repayments will be severely felt by an institution.
Yet this over-cautious approach has left people, in need of cash at the mercy of loan sharks.
Since the use of the multiple currencies began last year, banks have been offering loans on a short-term basis.
A survey carried out by The Standard shows that it costs an arm and a leg to get a personal loan from the bank.
One has to receive their salary through the respective bank for at least three months which means that from the outset, the unemployed are out of the net.
Asked why they insisted on the employed, one loan officer said: “If you are unemployed what do you want that money for?”
Those who are employed who can access the loans have not found life much easier either.
If they get a US$1 000 personal loan at MicroKing, an arm of Kingdom Financial Holdings for example, they will have to pay the bank US$1 200.
This would be after an administration cost of 5% is charged and monthly payments averaging US$200 have been paid over six months.
To get a loan from FBC, the salary should be US$250 or more thus disfranchising the majority of the civil service.
The maximum the bank can give is 40% of the net salary multiplied by six and the loan repayment has to be done in six months.
Interest rate is a staggering 16% on the amount which means one pays an extra US$160 on top of the loan.
For the first payment, FBC takes the interest from the loan. This means that if an individual takes out a loan for US$1 000, the bank in effect gives US$840 after getting its interest.
To get a loan of US$1 000 one will repay US$1 160 after factoring in the interest.
The Standard also heard that banks were charging administration costs on loans ranging from 3,5 % to 5% depending on the bank.
In times of hyperinflation, 5% is nothing but in an environment of multiple currencies, it is a huge amount.
For instance a 5% cost on a US$1 000 loan is US$50.
Inquiries at the Zimbabwe Allied Banking Group (ZABG) and Barclays revealed that the two institutions were not offering personal loans.
ZABG said it was extending loans to manufacturing companies with an interest rate of 8% per month.
Barclays said it is neither offering personal loans nor loans for small-to-medium enterprises. Asked whether they have a facility for corporates, an officer said: “We have run out of money.”
The excuse has been the liquidity crunch and banks are making a killing on the little money available.
Yet despite the high rates on borrowing, little is given on deposits and this has killed the savings culture amongst the population.
The use of multiple currencies has built the confidence in the financial sector with deposits increasing to US$1,4 billion in April from as low as US$376 million in March last year.
The banking sector has been extending loans to the productive sector and as at December 31 2009, it had availed above US$600 million which was more than half of the US$1,3 billion in deposits during the same period.
John Mushayavanhu, the Bankers Association of Zimbabwe (Baz) president said banks’ discretion was based on the ability of the people to repay the loans.
“The key issue is the ability of the people to repay and how committed those people are,” he said.
“The money that we are lending is not our money but it belongs to depositors.”
Mushayavanhu said banks were offering interest on deposits that stay in the bank for specific periods with the minimum being seven days.
The majority of deposits into the banking sector have been demand deposits where salaries are deposited into the accounts and withdrawn in less than a day.
The BAZ boss conceded that the interest rates on loans were too high and discussions with the Ministry of Finance have resolved that the rate should be reasonable “bearing in mind the relationship between demand and supply”.
ENDS///
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