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Gatsha Mazithulela
MY last week’s article, proposing for Bulawayo to be declared a Special Economic Zone (SEZ) was only a couple of days old when we read in the latest edition of Sunday News Minister of Industry and Commerce, Cde Mike Bimha saying that the Investment Act of Zimbabwe will be amended to provide the regulatory framework for the SEZ. I would encourage all those that are concerned, to find ways of assisting with input on the particular type of SEZ to be established and not forget to congratulate and encourage the minister on those efforts.
On discussing the series of articles that I write, I have recognised a growing complaint about the unavailability of bank loans to businesses in Bulawayo. Of course at the moment, there is hardly a bank that can claim to have lots of money to lend to applicants and for some, this discussion may seem out of place. However, my view is that it is a discussion that must be had, the facts of the matter established and corrective measures taken in order to avoid a perpetuation of unfair lending behaviour from financial institutions, if indeed the allegations are true.
The first obstacle that an applicant for a bank loan meets is the lack of final decision makers in banks that are represented in the city. This is of course true not only for Bulawayo but probably most major cities other than Harare. Of course the project evaluation environment should be as technically unbiased as possible and in theory, it should not matter where the evaluator and decision maker is located. In practice however, we know that softer observations which include a personal knowledge of the local business environment including site visits and even a good relationship with a personal or business banker at the branch level yields better financial intelligence about the applicant or the project. This is true when compared to information on a faceless spreadsheet sent across the country for evaluation. It would be interesting to know if our banks agree with me on this issue and what their reasons are for centralising loan applications in a way that takes away all contextual issues to do with the local economy of the applicant.
I have several direct experiences on this matter and so I tend to agree very strongly with the complaints. The hypothesis that needs to be tested is that the centralisation of decision-making or even project evaluation has introduced an unintended discrimination of loan applicants the further you travel from Harare. Again, it would be interesting for banks to comment on this. Industry bodies can also dig up this data from their members and it would be even more interesting to see if the banks have such an analysis which would support their ethical lending policies. Yet again, if all things being constant [viability of project included], there were a bias for applicants in any particular place, that bank would have serious ethical questions to ask itself.
If these allegations are true, we may never know the true contribution of biased lending to uneven economic development in this country. However, there is some introspection required and the requisite embarrassment to financial houses that take depositors fees from everywhere in the countries but give loans in an unrepresentative manner.
This phenomenon is not unique to Zimbabwe and may not even be deliberate. Human nature favours that which is familiar and proximal. These debates have happened in other countries and there are different types of solutions that have been proposed. These range from communities who experience bias from a particular financial institution moving their accounts to institutions that promise to monitor and level the playing field. In other cases, scorecards have been developed and shareholders demand executives to voluntarily report the demographics of their lending decisions. It is in the interest of the shareholders to ensure that there is ethical stewardship of their banks and this self-regulation can be implemented at no great additional cost to bank operations.
Of course in some cases, there has been some recalcitrance to these types of modern expected behaviour of financial institutions and in those cases there has been a need to legislate. A now classical example in the study of banking ethics is the discrimination of Blacks, Hispanics, Native Americans and other groups in the inner cities of America from the 1930s to the 1970s.
These minorities found it nearly impossible to secure mortgages for property located in their neighbourhoods. The systematic denial of loans was a major contributor to the urban decay that plagued many American cities during this time period. Minorities who tried to buy homes continued to face direct discrimination from lending institutions into the late 1990s and these disparities were not simply due to differences in creditworthiness. With other factors in the USA held constant, rejection rates for Black and Hispanic applicants was about 1,6 times that for Whites in 1995. With such statistics during the period mentioned, there was a need to force the levelling of the lending field and it was improved by the Home Mortgage Disclosure Act, passed in 1975. It requires banks to disclose their lending practices in the communities they serve. In the 1970s, the private sector fight against mortgage discrimination began to be led by community development banks such as ShoreBank in Chicago.
Several class action mortgage discrimination claims have been filed against lenders across that country, alleging that lenders disproportionately targeted minorities for high cost, high risk subprime lending. This resulted in disproportionately higher rates of default and foreclosure for minority African American and Hispanic borrowers.
This matter persisted until the President Clinton government, in 1993, made changes to the Community Investment Act in addition to the Equal Credit Opportunity Act and in the Fair Housing Act. The wrangling is still ongoing but it shows just one example of how easy it is for unfair lending to go unnoticed if financial institutions are not asked tough questions. It also shows how entrenched the practice may be and the substantial amount of legislation and prosecution that would be required to reverse the problem if it is not controlled.
Of course the situation is very different in Zimbabwe and the factors driving unfair lending in the USA cannot be applied here. However, businesses in Bulawayo do suspect that on geographic location alone there may be a current disadvantage in getting a loan if you are based here. For avoidance of any doubt, they are saying that it does not matter what race or tribe you belong to — your business plan has a poor chance of being funded if you are not in Harare.
Should banks not have a satisfactory response to these allegations, it is perhaps time to link the renewal of banking licences to disclosure of geographic spread of approved loans.
More work for parliamentarians if they are serious about winning the race to the top. They should consider drafting such legislation.
- Dr Gatsha Mazithulela is a scientist with international experience and holds a PhD in Genetic Engineering and Molecular Virology. Among other posts, he has served as innovation manager and executive director of the Council of Scientific and Industrial Research and vice-president of the Research Infrastructure and National Research Facilities in South Africa.
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