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introduce an SME banking institution as espoused by the Ministry of SMEs is quite commendable.
In Zimbabwe SMEs as classified as businesses that employ between five and 20 people, have an asset base of US$10 000 to US$2 million and an annual turnover of US$30 000 to US$5 million.
From such matrices it is easy to gauge and conclude that more than 90 percent of businesses operating in Zimbabwe are SMEs.
There is need to protect and promote this sector as its contribution to economic growth and development cannot be overemphasised.
The architecture of the banking sector in Zimbabwe shows a wider banking sector with the economy of US$5,5 billion supporting 22 active banks to date, and 150 micro-finance institutions which could prove why the appetite for savings is depressed.
The high unemployment rates and emphasis on traditional requirements such as pay-cheques and proof of residence has alienated the banking public as most are unemployment as our jobs data has taken a dip since the turn of the new millennium.
SMEs certainly need a bank tailor-made to cater for their business model as established companies had been crowding out the potential of such small businesses in accessing loans and advances.
The high concentration of risk as most corporate are on the verge of failing to service their loans, has been a result of an obsessed financial sector which could have overlooked the importance of business condition
and over-relied on collateral in making advances.
In the process, the small businesses which are derided as indigenous were relegated to micro-finance funding where the interest rates were exorbitant while the principal amount lent was not only insignificant but also very short term.
It is high time an SME bank is set to cater for potential and growing businesses. They are not trusted by traditional banks simply because they do not have a lengthy operating record.
It is high time bankers rely on present performance considering the dollarised environment calls for a completely different approach in relation to pre-2009.
It is so amazing to realise the knowledge base and skills which exists in most of these SMEs. Before the decimation of the industry in Zimbabwe these are the people who were at the helm of most strategic corporates.
The day they crossed the Rubicon to start their own business marked the disintegration of relations with bankers which
will leave us with the question on whether banks do evaluate the skills behind an organisation or rather they look at the name of organisation regardless of weak management skills.
The move by the central bank in its last monetary policy to compel banks to allocate at 30 percent of its loan portfolio to SME businesses was commendable.
With the current aggregate deposit base of US$4,5 billion it means an average of US$3,5 billion will go towards supporting SME enterprises thus creating an average of 50 000 jobs annually. Whether the 22 active banks in the country will comply with the new regulation is yet to be seen.
It is also imperative to start educating small businesses on the importance of saving their funds in bank accounts not in pillowcases or under the pillow.
The risk associated with stashing savings in such places far exceeds the unjustifiable bank charges which banks had been levying on transactions before the Memorandum of Understanding was signed between the bankers and the Reserve Bank of Zimbabwe.
The benefits of having a bank account are that it promotes a sustainable and strong relationship between businesses and the bankers.
It is very possible for the small businesses to pull their funds together in order to raise minimum capital as envisaged by the RBZ of US$100 million.
The introduction of an SME bank indeed is the most convenient way to demystify the myth surrounding public perception towards these so-called “indigenous” businesses.
It is that tag which diminishes its appeal towards different stakeholders and banks in particular. Of the unofficial 13,1 percent non-performing loans in the economy, only less than 3 percent of that weight is biased towards SMEs.
Large established companies access loans in order to maintain operations while small businesses have an inclination to create jobs once they access such loans. This will leave a case for a bank tailor made to serve this community a justifiable cause.
If the idea to establish an SME bank is to see an effective banking institution that will change the face of small businesses in Zimbabwe, it is significant to adhere to corporate governance standards by the concerned SMEs.
One of the immediate threats to growth and survival of such business models has been the disregard for strong management practices where “a bull in the china shop” was the relationship between managers and directors.
In fact, the practice of running a business without checks and balances from the board of directors is a recipe for disaster.
The SME bank can only be safe if advances and loans it will extend are put to good use and this can only happen when decision- making is not centralised.
The time is nigh for a new banking model to be introduced, for the conventional banking models has to a greater extent failed to appreciate what it takes to redefine the financial culture of small enterprises.
Thank You and God bless you.
Christopher Takunda Mugaga is an economist. He is the Head of Research at Econometer Global Capital, a regional finance and economics research firm. He can be contacted on +263 772 340 353 / +263 776 266 062 or [email protected]
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