Editorial Comment: RBZ move meant to cushion depositors

dumb loans to major shareholders, it appears that making money as a banker in Zimbabwe is dead simple: employers tend to pay salaries through banks, so charging good fees to both employer, to distribute the money to the individual accounts, and then charging the worker to “maintain” an account many do not want plus a hefty fee to take their money out as cash, ensures that there is a regular monthly income.
Then banks make loans, usually using their own capital, rather than depositors’ funds, although a tiny minority with large sums of liquid cash can join in. Many loans are effectively high-interest small loans for consumer credit.
The collateral is the regular monthly salary; a pretty good collateral so long as the borrower has his salary paid into an account with the lending bank. Having first grab at the pay cheque, without the borrower able to object or nullify a payment order, means that whoever goes short that month, it is not the banker.
The other major outlet for loans are fairly decent sums lent to established businesses with adequate collateral, again a fairly safe punt and one sufficiently safe not to justify high rates of interest for safety.
And finally there are the investment loans, lending money to those who wish to buy shares on the stock exchange, even shares in banks, and those who reckon they can on-lend the money at a profit.
Not all banks are guilty of this one, although most banks that run into trouble are.
There are underlying problems in the banking sector: a small savings pool, a lack of liquidity (which means a lack of ready cash, although this cash can be digital rather than currency), a demand for credit that grossly exceeds the supply, and perhaps too many banks operating in too small a pool, so driving up the costs of administration for every account and every loan.
On top of these fundamental problems is the general wariness of the average Zimbabwean to keeping money in a bank. Some have been stung by bank failures, but too many listen to the wildest nightmares.
So what can be done?
The Reserve Bank of Zimbabwe, backed by the Government through the Ministry of Finance, is insisting that all banks become big banks. This will make banks safer and will cut administrative costs on each account and loan.
But more is needed.
Rationing loan funds through price is not the best way of growing an economy. What is needed is more savings within the banking system, so there is more to lend, and preference given in loans to those who produce, rather than consume, especially imported goods and services, or who just want to shove bits of paper around to make money.
So for a start more account holders need to be encouraged to use plastic money, keep the bulk of their cash in a bank and save for consumer goods rather than borrow. Many banks charge a whopping 45c for a single “swipe”, dwarfing the extra 5c that the Government takes as a tax. With the shortage of change, cutting the total swipe charge from 50c to, say, 20c would encourage far more people to swipe; the only ones to suffer would be importers and producers of cheap sweets. At the moment the swipe charge is so high that it only makes sense for large transactions.
In the same programme, consumer credit could be cut. Sure people may need urgent credit for medical bills, school fees and worthwhile things like that, but a smart bank can separate the wheat from the chaff.
But why should they have credit to buy clothes, usually imports, booze for a party or even furniture? Let them save for that sort of thing and let the bank give them some interest while they do so.
Zimbabwean banks do not like small savers; they need to think again quickly. Even car loans, where there is at least an asset that can be seized in the event of default, can be limited. Borrowing to buy basic transport might be a necessity; borrowing to buy a luxury car is not in the same category.
So smart limits on consumer credit, and we stress the word “smart”, backed by interest on small deposits and on minimum monthly balances in current accounts, plus more modest “swipe” charges could boost the pool of savings significantly while releasing more loan funds to producers.
Loans for financial dealings need to be either banned or limited to exceptional circumstances defined by the Reserve Bank and Government.
This would all make more funds available for proper business loans, allowing interest rates to fall; at least when there was adequate collateral. And that, as our Asian friends will tell us, is what grows economies.