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Banks fret over livestock

Zimbabwean banks are negotiating with the Finance ministry over a Bill that proposes the use of livestock as collateral for loans.

BY TATIRA ZWINOIRA

The Movable Property Security Interests Bill would provide a framework within which movable property may be used as collateral or security for purposes of obtaining loans from financial institutions.

The movable assets include livestock, machinery, automobiles, account receivables and inventory.

Last week a banker said the banking sector wanted clarity, specifically on how livestock would be operationalised factoring in the costs and the high risk involved in having these animals as collateral.

The risk mainly has to do with health and maintenance.

He said banks wanted Treasury to introduce further guidelines which would offer them protection from potential losses.

Both the Kenyan and Zambian versions of the law have been cited as examples to indicate that the Zimbabwean Bill has to be more comprehensive to deter misinterpretation and allow certainty of the law.

Lifestyle Holdings CEO Tawanda Nyambirai said banks were concerned that the use of livestock as collateral would distract them from their core business, which is financial intermediation.

Lifestyle once owned TN Bank, which rebranded to Steward Bank following its acquisition by Econet Wireless Zimbabwe.

“The realisation of livestock is something that would seem to take them [banks] away from their core business,” Nyambirai said.

“Those are the challenges banking institutions have. If you remember, sometime back we launched the TN Livestock Trust, which is still in existence.

“The intention of the trust was to deal with those challenges financial institutions used to face.”

TN Livestock Trust was opened in 2013. Farmers seeking loans deposit their livestock with the trust. The livestock is then placed on farms managed by experts.

Once farmers deposit the livestock, they are given a “certificate of deposit” to take to a bank to use as collateral.

The loan would include fees for maintaining the livestock.

In the event that the borrower defaults, the bank would take the certificate of deposit to the livestock trust to recover their money.

Once completed, the proceeds would be sent back to the bank to recover their loan minus expenses incurred by the trust.

In 2013, TN Livestock Trust saw 600 cattle deposited into the trust.

Nyambirai proposed a system which could handle livestock as security separate from the bank, with the financial institution only handling the securitised paperwork. This, he said, would entice banks to the idea of livestock as security.

The Bankers’ Association of Zimbabwe declined to comment on the use of livestock as collateral.

In emailed responses last week, CBZ Holdings said the bank would take livestock as secondary security from farmers.

“In other words, the client should have another first class security before provision of livestock.

“For effective perfection of livestock security, the following issues are attended to; identification tags, branding, livestock insurance with cession, monitoring that cattle are dipped regularly and a livestock card,” CBZ Holdings said.

“CBZ Holdings has no objections to the efforts being put in place to have livestock submitted as collateral when one is applying for a loan.

“This initiative will enhance our business performance as we will be able to reach out and finance those of our customers who were previously excluded for lack of tangible security.”

CBZ Holdings said they understood that the Movable Property Security Interests Bill was being scrutinised in Parliament and would eagerly await the results of those deliberations.

Stanbic Bank, Standard Chartered Bank Zimbabwe and Cabs Bank did not respond to inquiries made last week.

As the Bill seeks to create a collateral registry and provide financial sector players’ guidelines in what collateral can be used, micro finance institutions (MFIs) are also expected to play a key role.

Zimbabwe Association of Microfinance Institutions (Zamfi) executive director Godfrey Chitambo said the use of livestock as collateral would unlock dead capital.

“Zamfi welcomes the widening of means which can be used as collateral to increase the number of people who do not have conventional collateral to be able to be financially included,” he said.

“The biggest issue is to limit the high people induced fluidity of livestock and their propensity to be able to cross borders/boundaries and disappear, or to be contested.

“Once the finer details are worked out and the livestock is put into a proper registry, double usage can be limited and use could be increased.

“Obviously, the word caution needs to play a pivotal role. The cattle bank which was once mooted was a feasible way of unlocking value in livestock.”

He said Zamfi did not see challenges arising over the use of livestock as the Bill had been publicised enough and both borrowers and lenders had a chance to air their views.

“Viability and feasibility for the purpose of borrowing should take pivotal stage to collateral,” he said.

“Zamfi discourages would-be borrowers who, at the first instance of wanting to borrow, are quick to indicate that they have collateral.

“Collateral yes, but it should be after the other determinants are in a satisfactory mode.”

However, responses to the Bill have so far shown a huge disconnect between banks and MFIs.

Finance minister Patrick Chinamasa presented the Bill as a way to widen the demography of citizens who can access bank loans, offer financial sector players’ additional comfort offered by security and to spur enterprise development.

The government hopes to grow productivity within the SME sector that is contributing 20% of the total tax revenue.

By offering SMEs and informal players access to loans, government is hoping that the funds would help them grow their businesses and contribute to revenue streams.

According to Commercial Farmer’s Union, Zimbabwe’s cattle herd stood at 5,5 million and was valued at $2,2 billion between 2014 and 2015.

Microfinancier, Microcred Zimbabwe, said research must be done to look at countries that successfully used livestock as security and adopted that formula.

“You need to look at the Bill in its totality,” said Microcred Zimbabwe acting CEO Lloyd Borerwe.

Financial expert Persistence Gwanyanya said prior to the Bill, banks were getting movable assets through registration of notarial general covering bonds, which was weak.

“The Bill will improve the security position of banks, which encumber livestock as security while at the same time improving farmers’ access to credit for their working capital and capital expenditure requirements,” he said.

“A number of banks have not been keen to accept movable assets as security because they are fluid and thus a weak form of security position, which increases the risk of lending to farmers.”

The Bill was introduced at a time when credit growth in the banking sector remained subdued in 2016.

Banking sector loans and advances had increased to $3,69 billion as at December 31 2016 from $3,65 billion as at September 30 2016.

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