admincompanies are offering credit facilities and, in the absence of a credit bureau, investors must deal with a customer base which does not have the capacity to service their accounts.
This has prompted the retailers to call for the urgent establishment of a credit bureau to manage the risk associated with borrowing.
Some employees have not received a salary increase in the past year yet the demand for foodstuffs and furniture is higher than before. Banks are also offering loans at high rates averaging 25 percent a year.
A number of customers are running several accounts, which they cannot service. But retailers have also continued to increase buying power which is well ahead of what individuals are earning.
BancABC Stockbrokers says the retail business is set to continue benefiting from the introduction of credit in the market which is likely to boost stock turnover numbers and revenues.
However, given the absence of a credit bureau, investors will need to continuously assess the performance of the credit books of these businesses.
“As the market transforms from a cash-only economy, consumers are increasingly becoming over-borrowed as credit becomes easily available,” said BancABC Stockbrokers.
Retailers, among them Truworths, Pelhams and Edgars who offer such credit become susceptible to defaults.
In accepting clients for credit, retailers look at whether they have the capacity to pay the required instalments within the credit period.
This results in retailers offering high buying power. For example, if a client earns US$700 a month and makes a purchase of US$1 000, he/she must part with US$166 for the next seven months.
The problem develops if the client has several other accounts of this nature and still needs to pay for overheads such as rent, electricity and water, education and health.
One analyst said there were indications that most goods and services in Zimbabwe were now over-priced, making it very difficult for consumers to pay cash upfront.
Retailers are offering credit facilities to boost sales in an environment characterised by low disposable incomes.
South Africans use credit more than Zimbabwe does,
but the defaulting rate is higher in Zimbabwe because as the economy recovers from its decade-long recession salaries are still very low.
South Africa has a credit board.
Low salaries have been caused by low productivity in industry. Currently, production capacity across all sectors of the economy is around 55 percent.
It has also emerged that companies are taking advantage of the credit facilities to rip off customers by hiking the prices of goods sold on credit.
The sector used to give short-term credit facilities but has since introduced long-term credit facilities of up to 36 months.
The transacting public has also raised concerns over companies which delay deliveries of goods purchased, citing transport challenges, which has resulted in some customers withdrawing their transactions.
Consumer credit has developed rapidly in the past decade in countries like China particularly personal consumer loans such as home mortgages and loans financing purchases of automobiles and large durable goods.
With the deepening reform of the housing market beginning in 1998, commercial banks began to extend mortgage loans to individuals seeking to buy their own homes.
Mortgage loans are now among the best assets held by China’s commercial banks.
But China’s policymakers and regulators are still facing challenges, including a nascent economy-wide credit information system, financial institutions with varying risk management standards and, in recent years, surging house prices.
Online Reporter