Of RBZ Bond Coins......& my views and other people's in context

Well, Christmas is coming twice this year. Thanks to the RBZ Governer Dr. Mangudya for presenting earlier on the onset of this month that on the 18th of December the nation should brace to grace a solution to liquidity woes that had already mounted to the summit.

I understand the bond coins have been received with mixed feelings, and I also understand people subscribe to different opinions to every subject matter the above included. If there is something which I hate with passion is to encounter someone who critic things by taking sides. I do hate such conspiracies because I understand individuals who always do that are guided by dogmatism and whichever seems to be diverging from what they believe they then rule out as a fallacy. I love people who are analytical and they are those who approach every situation with indifference till they establish all facts for them to make a conclusion or thereof to make an assertion.
Before, I give my own view on the above matter let me share with you what Amelia Johnson had to gather on the same by quoting her full text.

Government Plans to Raid U.S. Dollars in Banks

By Amelia Johnson|
Now Daily|

The bankrupt Zimbabwean government of president Robert Mugabe has hatched a secret plan to raid the U.S. dollar accounts of citizens and give the owners worthless coins.

Central bank governor John Mangudya announced Friday that the ‘special bond coins’ would go into circulation on December 18.

What the governor did not tell the public, government insiders told Now Daily, is that on the same day, Mangudya will also announce that account holders will no longer be permitted to withdraw more than $200 at a time.

Mangudya claimed the coins would be a “good store for value”, a claim dismissed by economists as false.

“These coins will only be accepted as currency in Zimbabwe. Why would that be if the coins are at par with U.S. currency?” queried economist Phillip Maregere of FMG Capital in Johannesburg. “There is no law which says banks are under obligation to exchange the coins for U.S. dollars, or that the RBZ will immediately compensate the banks for their trouble. Mangudya may have sugar-coated bringing in the coins with good intentions, it may even look good on paper, but implementation will be problematic.”

Government sources said the Reserve Bank will create artificial shortages of U.S. dollars to make businesses accept the so-called ‘bond coins’ or centavos as some now call them.

“If you have any foreign currency in the bank, now is the time to take it all out, before the withdrawal limits are imposed. A lot of people are going to lose money in the banks when the accounts are frozen. This has happened before, when Gono slashed the zeroes and when Zimdollars were rendered worthless upon adoption of the multi-currency regime,” said a senior government source.

(c) 2014 Now Daily. All Rights Reserved.

 Allow me then to express my opinion on the ascertained views as substantially wrong mainly on the basis that, the coins as they are presented are not worthless as been said in the analysis. For such a long time it has been a norm here in Zimbabwe that due to shortage of coins we had an option that we can be issued with credit notes which I do equate to the same bond coins as not different in functionality.

Therefore, if it is tried and tested that the system works on a micro basis then it will also function the same on a macro basis and the coins will be able to carry the same value compared to the paper note we used to carry and somehow it had the potential to wear and deteriorate before you even used it. Let's take as an example that we have 500 supermarkets in Zimbabwe and each of them issues 50 credit notes a day on an average price of 15 cents, then it means monthly they are borrowing $112 500 without our knowledge. Now that our government through the RBZ is thinking of doing the same we then open eyes and say it's bad because we lack trust on it i bet.
Yeah,,, in terms of trust I sympathize and bear with you the people of Zimbabwe that yes the money has to be used on good, progressive and building oriented  platforms.
We should be busy now trying to advise our government on the best way to use the money in a way that the situation ever changes we should not be found in a precarious position. One thing I am very much against myself is to be told that the money was raised to pay salaries or to pay up government debt. Let me take this time again to share with you If I was part of the team propelling the programme, what I would suggest the money be used for. Firstly, maybe for the establishment of the State Sovereign Fund starting with the $10 000 000 would make some sense and invest in some of the risk proof investments in Zimbabwe and abroad. This will only keep the fund growing and more other ways of raising more capital will come. The other option is to restore the lender of last resort functionality of the RBZ and this would go a long way in solving liquidity challenges and I believe that's the major reason you issued the coins. Then my last shared opinion is to invest in startups by working hand in hand with incubators and accelerators or investing in some of the informal business that have a future and potential.
Let me also hail whoever who is behind the idea for taking the decision to start with only $10 000 000 I am sure this will give room to appraise the project as we go on.
Liquidity is a real issue we are facing as a nation and without finding new ways to inject fresh capital and at the same time managing currency risk we can not expand the economy...

Real Estate: The next big thing in Zim’s economy

If the glimmers of improvement in once depressed real estate markets suggest something larger, then a long-term rebound may be getting underway mainly supported by the expected growth in real estate markets for the next 10-15 years. Though it’s quite early to make bold predictions about the rebound, positive developments have been noted in the sector fully supporting the notion. However, the growth largely depends on the successful commencement of the lined up projects, a stable macroeconomic and political environment together with the will of investors to continuously invest in the sector. Onus remains that as the professional body that nurtures and build the matchmakers of the real estate game, we become ready to grace and support the development.

The real estate market has its main facades as Leisure, Industrial, Office, Retail and the Residential market. It is in many peoples belief that, especially in the current situation, real estate is just a servicing sector to other sectors of the economy. People tend to overlook the potential of real estate as the main pillar of the economy. However, recent developments in the market are showing that real estate is a real investment platform that can be utilised to propagate broader economic development.

A snap survey of the market shows that the rental market has stabilised since dollarization with relatively low yields, however, there increase in arrears has remained a scourge and the prolonged legal process to deal with the defaulting tenants has done no good to the sector. Industrial redesigning for warehouse and light industrial production have shown some positive development while heavy industry remains idle or with very low capacity utilisation. Home prices have stabilized by a certain degree. This is a kick back after a rollercoaster for years. Sales are setting for records again, despite cooling efforts from the government, and people are worrying about a bubble. Home prices have doubled in the past four years. Real estate has the potential to become the driving pillar of the economy above all other sectors in the next decade.

So what’s stirring in the real estate market to produce such hints of a budding recovery? This is one of the questions that one might intuitively answer themselves by just taking a look on some of the headlines that has been on the news even without technical analysis. The market has been sending a lot of sentiments that reflect a budding recovery and great potential for growth. Number one, there are a lot of projects that the government and the private sector have lined up to initiate in the near future. Major projects that are on the cards are the proposed expansion of the CBD that will see some residential areas being incorporated into the CBD, the Mall of Zimbabwe that is due to be built in Newlands, Russia Zimbabwe deal could see new plant construction and employment creation, the construction of the multipurpose and multi-storey complex adjacent to the Joina City Mall in Harare and the recent calls by the Minister of Tourism and Hospitality to transform Victoria Falls in to Zimbabwe’s Disneyland.

Low income housing projects have also been on the increase in the bid to cover up the more than 1 million housing demand backlog the market has been facing. Here it seems investors are moving effectively to cover up the gap of which if the instance continues it provides potential growth to the market. In this context for example CABS has successfully completed construction of 1 186 low income housing units setting the ball rolling for other players to tap into the gap. The case of affordability has been the major setback in such projects since the market was illiquid and potential buyers could not afford such houses. However, the recent announcement by CABS to extend their mortgage tenure to 20 years can provide solution to that problem enhancing more potential for the market to kickback.

A group of private investors and business community leaders have been having significant success transforming downtown areas of the city into a new hub for retailers, Web-based and information technology start-ups. Several downtown properties that were in a dilapidated state for considerable time are being renovated and now house start-ups, computer services firms, clothing retailing and fast food businesses. Small wholesale shops are also being opened together with cosmetic shops. Still in the CBD of Harare some properties are going through transformation and occupancy rates are slightly on the increase. The most noted development is the increase of Meikles Stores and other wholesalers in the south eastern sections of the CBD. Pick n’ Pay is also giving some old buildings a new lease of life contributing to the growth of the sector. Chinese developments such as the Long Cheng Plaza are also a positive development and attributes confidence on the market.

These signs of activity now visible in the real estate market do suggest there are some real potentials here – and probably some serious opportunities.

REIZ Research Department

Restore our pride: Made in Zimbabwe

When you wear those tennis shoes or that suit or drive that car that says “Made in Zimbabwe” on the label. Stand proud. U have arrived!
Zimbabwe’s economy is battling, bleeding, reeling and going down on its knees. Why? Because we allow things ourselves to go that way. We all have committed a crime of some sort to ourselves and also for the generation to come. We all know what has to be done to correct the past and to create a better future, but today we still stand in denial of our own transgressions and to make matters worse we believe pointing fingers is going to solve the problem. We point out fingers on the white people, we point out fingers on the Asians, we point out fingers on the Latinos, we point out fingers on the Muslims, we point out fingers on the Arabs, we point out fingers on our politicians, we point out fingers on our neighbours, we point out fingers on our brothers and sisters, and we make ourselves cry-babies. The truth be told, we should and must be pointing out fingers on ourselves and take some time to think what we have to do as a country to achieve the best we want for ourselves. Unless you are proudly buying Zimbabwean made products, you are killing yourself, your neighbour and the generation to come. We therefore need to find lasting solutions to the problem especially by stemming up the root. It’s on us as Zimbabweans that we do and support those who do things in a way that can only restore our pride as a nation.
If you ever believed that anyone besides yourself is there to help you achieve your dreams then you are still dreaming. We are living in a jungle where everyone else is wrestling to better their lives. Think, how many inferior products are trickling from China every second, war-torn clothes coming through Mozambique every day and how many used cars from japan every month and obsolete industrial machinery from the west each year. We pay for all these products in our own senses and to make matters worse we call it inferior whatever bears the sticker Made in Zimbabwe. Where is our pride as a country, If that is not going to be restored then we will die vain because no pride no identity. Have we been incapacitated to that extent let alone liking the status quo as evidenced by our own inaction? The economy might be tough and we might be suffering and that’s what change does, it hurts and we are hurting. But the price is worth it. Let’s keep on our feet and fight until the last drop.
To help restore the economy, plight, dignity and an identity for Zimbabwe we will touch on the most important areas that needs to be addressed in a series of articles and projects to come. However, we encourage you also give us your views in this platform.

Francis Chinjekure
Francis Chinjekure (born 1990) the founder of the Young Entrepreneur's Society of Zimbabwe,is serving as the Director of the Society since its inception in May 2012. Francis Chinjekure grew up in Manicaland, some 200 km east of Harare. He went to Buhera High school. He studied a B Tech Honours in Financial Engineering at Harare Institute of Technology. He is also a Director with the MMTAAZ (Mobile Money Transfer Agents Association of Zimbabwe)an association for mobile money transfer agents for all MNO's operating in Zimbabwe. Francis once worked as a financial analyst at GMRI and later on moved to REIM where he worked for the rest of 2013 as a property analyst. He has gained vast experience in structured finance spanning across the financial sector and the property sector. At the moment he is the Research person and analyst at the Real Estate Institute of Zimbabwe. While at University he has been named among the most enterprising student after exuding eloquent entrepreneurial skills by first fronting the formation of the Young Entrepreneurs Society of Zimbabwe which is determined to offer incubation to aspiring entrepreneurs. While at University, he worked with his business counterpart Thomas Muserepwa at RedSpot Communications to launch a college bank that was operating at the School in a partnership between their company and the school department. The bank was using Ecocash as a platform of trading of which they where offering Ecocash at the school using their Hostel room as their office. Realising the need to see their business growing they later on engaged other Ecocash Agents into forming a robust association today known as Mobile Money Transfer Agents Association of Zimbabwe which is an association aimed to see Agents getting support for growth and also educational support. MMTAAZ's dedication to the at work welfare of the Agents is second to none since the Directors including Francis Chinjekure and Thomas Muserepwa are driven by passion to see their business and also for all other agents growing.

Financial engineering tips
Gilbert Muponda and Francis Chinjekure
Financial engineering is a sophisticated and mathematically based modern finance, which seeks to provide synthetic products designed to mimic an underlying financial instrument so as to eliminate a
credit risk associated with the original asset/financial instrument whilst creating a predictable cash flow.
Financial engineers create derivative financial products aimed at enhancing a business’s performance while reducing or managing risk. Current difficult business environments globally and in Zimbabwe call for financial innovation which allows companies not only to survive but to grow and expand using underutilised assets which they may have such as real estate.
This strategy partly relies on similar awareness and collaboration between fund managers of institutions such as NSSA, Old Mutual, First Mutual, Pearl, Dawn, etc and business leaders from the  industrial sector collaborating to create new financial products and transactions that create mutually beneficial outcomes. Other financial intermediaries have a crucial role to support the success of this effort to unlock liquidity and value.
Portfolio optimisation finds an investment strategy that best fits a fund manager’s financial goals and preferences. Derivative securities, such as property/stock options, REITs and commodities futures, have pay-offs that are related to the value of an underlying asset, such as a property, stock or a commodity.
Financial engineering helps to find the relationship between the derivative security’s price and that of the underlying asset. These include equity, fixed income such as bonds, commodities such as oil or gold, as well as derivatives, swaps, futures, forwards, options, and embedded options
Considering the current liquidity constraints on the Zimbabwe capital markets most industrial and manufacturing companies should consider sale and lease back structures backed by options. “Sale-and-leaseback” is a financial transaction where one company sells an asset (property for example) and leases it back for the long term; therefore, the company continues to be able to use the property but no longer owns it.
The company raises capital through the sale and can reduce its borrowings and cost of funds plus create a more predictable and preferable cash flow. The transaction is generally done for fixed assets, notably real estate, planes, cars, plant and equipment.
A practical example is Air Zimbabwe which does not really need to own a plane to fly one. The national  airline can simply sell its planes and raise cash, then  lease the same planes for monthly payments.
In recent months some of Zimbabwe’s iconic firms David Whitehead and CAPS Holdings have been on the brink of collapse and closure despite owning significant real estate. Obviously, a financial engineering solution could have addressed some of the problems with management selling real estate to an institution such as NSSA thereby get cash and then rent the premises from the authority.
Such a sale and lease back structure can be backed up by writing an option which would allow CAPS/David Whitehead an option to buy back the premises should their fortunes change.
Such pre-emptive actions will ensure that the company remains viable and avoids forced sale situations whereby creditors end up obtaining court orders and seize such  property.
Specialist property firms such as Dawn Properties, Pearl and Mashonaland Holdings can play a leading role in injecting liquidity this way. The industrial firm sells its corporate real estate assets to a specialist property firm or an institutional investor, or a real estate investment trust (REIT), and then leases the property back at a rental rate and lease term that is acceptable to the new investor/landlord.
The lease term and rental rate are based on the new investor’s required rate of return costs, the seller’s credit rating and cost of funds, based on the initial cash investment, i.e. the purchase price paid  by the new investor.
Advantages for a company are varied, including:

• finance expansion and invest in new business opportunities.
• pay off debt and clean up the company’s balance sheet.
• improve the company’s business income tax position.

Additionally, the company as a tenant can deduct all rent payments as business expense on  tax computations
The advantages for an investor include:

• Acceptable return on the investment and ownership of a depreciable asset .
• Long-term asset with a guaranteed revenue.
• For tax purposes, the investor/landlord can take an expense deduction .

Since the financial engineering process utilises existing financial instruments and assets (property, bonds, shares and other financial instruments) to create a synthetic, an enhanced product with predictable risk and cash flow characteristics this means finance managers, accountants and financial advisors need to spend more time assessing what the company has and how it can be re-arranged to enhance the company’s financial position and improve share price and shareholder return.
 The new and improved product created by the financial engineer is simply a repackage of several independent but complementary products made available to ensure a company’s survival and growth.
In order to mitigate the liquidity crisis securitisation of property is another practical technique which Zimbabwean firms should pursue. Securitisation can be simplified to be “like imposing a corporate finance structure on property” Isaac (2003 p.198).
This corporate finance structure “is the conversion of an asset into tradable securities (these are certificates of ownership or right to income)”, Isaac (1998 p.257).   The objective of property securitisation is to help increase property investments, through an indirect investment approach. This serves to broaden and deepen the capital markets and mobilise financial resources for optimal distribution for competing needs.
Market overview
The property market in Zimbabwe is still going through a recovery process since 2009 after dollarisation when activity rebounded from a decade old meltdown in market performance. Continued growth is mainly driven by the earning capacity growth in the retail and service sectors. Retail space demand is very high in the CBD of Harare with retail prime rents managing to push 60 percent up in 2012.
Housing units in newer sought after areas continues to lead the market and properties below  US$50 000 market value are selling very well above all. However, property values in comparison with the regional prices are still very low as evidenced by low prices and forced-sale values.
The market continues to gain ground in 2013 but this time at a slower pace than a leap experienced in the 2009-2011 financial years. The most notable difference in 2013 is that the market is showing signs of maturity across all facets of the sector. It has been a nightmare to sell an up market property in the previous years.
However, as the market is gaining pace some up market properties have changed hands recently with Pomona shopping centre in Borrowdale changing hands for $7.8 million and Starafricacorporation Headquarters also sold for US$3.55 million.
This indicates that the market is taking on “a semblance of normalcy” as more sales occur under conventional conditions with activity taking place across the whole market.
Statistics are showing that there is still perceived high risk in the market. Capitalisation rates in Zimbabwe averages 11 percent which is still a long way to go to achieve an optimum rate of 9 percent for the region. In South Africa the capitalisation rate is at 9.82 percent.
The state of affairs shows several new signs that the property market is well on its way to recovery from the property bust. The market is slowly drifting towards regional parity. Rentals and property prices as compared to regional proxies are still very low in Zimbabwe, below those being attained in the region.
If it is to be that the market maintains or improves its pace of healing chances are high that by 2020 the market will be performing within or above regional standards.
Property funds and Investor hubs are the way to go. The emergency of Ascendant Property Fund is set to give light to other investors on the best way to go. Property funds are a good counter for the current liquidity challenges slowing the market. They provide a ray of opportunities to acquire quality assets at a lower price than could be acquired elsewhere in Sadc region.
Property prices in Zimbabwe are at their lowest hence first movers are going to enjoy the advantage of buying at a depressed value and in the near few years prices are expected to appreciate giving investors better returns in terms of appreciation in value.
Once one has such quality Property on the books they can deploy financial engineering techniques above to unlock both value and liquidity.
As the Zimbabwe property market continue to develop and become more significant on the financial markets investor hubs should be encouraged. These are an innovative way of investing that offers a huge purchasing power to the group of investors who form the hub and also offers advice on the best positions to take in the market.
There investment strategy is not much different from that of property funds, Its only that most of them spans across borders to members in different countries.
Disclaimer
At GMRI Capital, we pride ourselves on the quality and depth of our research and analysis. This means digging deeper than our competition for information and generating more useful reports.
This article is provided “as is” for informational purposes only, not intended for trading purposes or advice. Prior to execution of any security trade, you are advised to consult your authorised financial advisor to verify the accuracy of all information. Neither GMRI Capital nor any independent provider is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein.
Francis Chinjekure is a Financial Engineering student, Harare Institute of Technology and was attached at GMRI Capital
Contact ; 4 Dan Judson Road, Milton Park, Harare. Facebook ; http://www.facebook.com/GMRICAPITAL

Financial innovation key to reviving property sector
Francis Chinjekure
The property market in Zimbabwe is not spared from the liquidity challenges affecting the economy.
Prospective property buyers presently do not have adequate financial resources to purchase houses and upmarket properties for cash. Traditionally, people used to access funds through mortgage loans for them to buy houses or build for themselves. Nowadays, where available options for mortgages are very expensive and beyond the reach of several millions of Zimbabweans who require houses as a basic necessity for which given the chance would love to buy one or many if their incomes permit. One would be left wondering that why, with this sizeable number of would-be customers investors are still reluctant to make huge investments in that sector.
Innovation remains the answer to Zimbabwe’s liquidity crisis. New products to support mortgage product suppliers such as building societies, banks and property developers are urgently required to encourage                 further property development which will deepen and broaden Zimbabwean financial markets.
However, little is happening on the property market as some institutions reluctant to provide mortgage loans in these hard times for the sector. Very few of the institutions that are managing to provide mortgage funds are heavily reducing the mortgage period from the traditional 25 to 30 years to between five and 10 years.
The low incomes that people are currently getting are not able to sustain and service the stringent terms, conditions and requirements attached to these loans.
Poor performance in the property sector in Zimbabwe is thereby highly attributed to lack of insurance that Zimbabweans with their low incomes can be able to repay their dues if they take up mortgage loans leaving the market with very few players.
It goes without saying that with the current volatile economic conditions investors would also need insurance that a mortgage loan applicant will survive layoffs, redundancy and involuntary job losses. This makes up the employment front or else one could lose his job and no longer be able to manage his debt leading to default. Hitherto, some form of mortgage protection is needed to restore confidence in the property market.
Generally, to help improve the status quo and make the property market lucrative to available investors there is need for smart financial innovations that can help guarantee investors that their funds are in good custody under such investments. One of such innovations is credit insurance in form of job loss mortgage protection.
Credit insurance offers coverage that pays off or makes payments on a specific debt such as a mortgage or loan or specific credit card balance in the event of the policyholder’s death or disability or involuntary job loss. In other words, the contract insures the debtor for the benefit of a specific creditor. The principal types of credit insurance include:
Credit life
Credit life insurance pays off all or some of a loan or mortgage if you die. Although most credit life policies pay off the whole outstanding balance, some policies may have cap limits.
Credit disability
Mortgage disability and credit disability insurance makes your mortgage or loan payments if you become ill or injured and can’t work.
Job loss
Job loss or involuntary unemployment insurance pays your minimum loan or mortgage payment for a specified period of time if you lose your job. You must be laid off or fired from your job (unless misconduct was the cause for firing) to make a claim. “How job loss insurance can bring confidence to the property sector?”
No one should take it that things are good with the economy — they certainly aren’t. But the actual change, in real terms, is minor. A lot still needs to be done to ensure a bright future for everyone, as for now no one would ever tell what the future may be holding for Zimbabwe.
So in times like this having a safety umbrella add-on to your homeowners insurance, that covers job loss can be reassuring. Job loss insurance can help answer so many questions pertaining to the prospective mortgage loan holders which are on table for investors such as: Are there any chances of losing their jobs? Should their cost of living spiral up? What will happen? Are they going to be able to make their mortgage payments? What if there is going to be a recession? What will happen during their unemployment period?
Job loss insurance helps build a pool of funds that can be used to cater for the worst that can happen if something bad happens to the property sector. It is one solution to the problem of uncertainty during an economically turbulent time.
It generally helps borrowers in the after years after signing a mortgage loan agreement. It also assures investors that if the ship sinks, their funds will not do likewise thus they will be able to retain part of their investments if not all.

• Francis Chinjekure is a Financial Engineering student at Harare Institute of Technology and a Member of Financial Engineering Society (FES). He is currently attached at GMRI Capital.

Disclaimer
At GMRI Capital, we pride ourselves on the quality and depth of our research and analysis. This means digging deeper than our competition for information and generating more useful reports.
This article is provided “as is” for informational purposes only, not intended for trading purposes or advice. Prior to execution of any security trade, you are advised to consult your authorised financial advisor to verify the accuracy of all information. Neither GMRI Capital nor any independent provider is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein.
Contact: info@gmricapital.com Facebook; http://www.facebook.com/GMRICAPITAL
Phone: 0778409875, 23 Lawson Avenue, Milton Park, Harare.

Insight into Zim's multiple currency liquidity crunch
Francis Chinjekure
IMAGINE those winding queues that used to form at most banking halls years ago, if that was a result of liquidity crunch then the current situation has to be addressed before we endure the same scenario. A liquidity crisis occurs when businesses
and individuals in the economy do not have the liquid assets (i.e. cash) necessary to meet their short-term obligations, such as repaying their loans, paying their bills and paying their employees.
A liquidity crisis is usually the symptom of underlying strategic and operational crises that must be tackled to avoid repeated cash crises.
The levers to address liquidity crises are not just operational and financial but also behavioural. The most basic way to address the crisis is to tackle the root of the crisis.
Normally, a liquidity crisis is only the last symptom of pre-existing root issues such as strategic or profitability crises (for example, misalignment of product portfolios and maybe the whole market, a company overstretching itself by entering too many markets and granting too many loans than cannot be sustained).
The current liquidity crunch which hit the economy was not by chance but was a manifestation of some of the problems associated with malfunctioning of the multi-currency system which should act as an insight to the problems expected in the economy if the adopted system is to stay.
Zimbabwe has been faced with a liquidity crisis since dollarisation when the Government ditched the local dollar in favour of the multiple-currency system mainly based on the US$ and ZAR.
The crisis has been attributed to internal problems of cash management within local banks (duration mismatch) and offshore accounts (nostro accounts) held by local banks in foreign countries.
Other problems include negative balance of payments, under the mattress banking system and the effect of foreign-owned firms, which are not banking with the local financial institutions.
Duration mismatch
Several local banks are said to have committed funds to illiquid assets as well as lending extensively to companies and individuals that are now failing to repay on time.
The deposit to loan ratios are so unsustainably high (loan to deposit ratio including offshore lines of credit for December 2011, as given by the monetary policy was said to exceed 87 percent).
Bank loans have been used to finance relatively illiquid assets, while the institutions themselves fund their loans with short-term liabilities.
Negative Balance of Payments
A Professor at the University of Zimbabwe’s Economics Department attributed the present economic problems, especially the liquidity crisis, to the poor state of balance of payments.
Balance of payments “basically refers to a statistical compilation formulated by a country of all economic transactions between residents of that nation and residents of all other nations during a stipulated period of time, usually a year”.
Zimbabwe has been experiencing negative balance of payments which could be the root of the crisis in a way.
 Under the Mattress Banking
Zimbabwe has a history of significant informal transactions outside the banking sector.
According to a recent AfDB report, the informal sector accounts for approximately 65 percent of all business transactions in the country.
The December 2011 records were suggesting that bank deposits were approximately US$3 billion.
About the same amount is also estimated to be under the mattress, largely because of an overload of policy statements which seem to suggest to the public that Zimbabwean banks are either on the brink of collapse or fundamentally unsafe.
A significant portion of the economic activities is outside the official monetary system in an increasingly informal transaction atmosphere.
Need for Micro Banking Licensing
This clearly shows the need to introduce micro banks, which are specially structured to access the informal sector cash and clientele.
Micro banks are specialised financial institutions, which have specific products and services that attract funds and cash from the informal sector.
Across Africa, most countries have established vibrant micro-banking sectors which have served to capture deposits and cash from the informal sector.
Kenya, Ghana, Uganda and Nigeria are some of the countries that have successfully introduced micro banks to cater for the informal sector.
The informal sector and the Small to Medium Scale Enterprise (SMEs) have proven to be the key employment creators yet there are no specific micro banks which support this key sector of the economy.
This failure to introduce micro banks has in turn fuelled the liquidity crunch since the traditional banks have failed to tap into the informal sector which circulates more than half of Zimbabwe’s cash resources.

• Francis Chinjekure is a student at Harare Institute of Technology studying for a B.Tech (Hons) in Financial Engineering. He is currently attached at GMRI Capital.

Disclaimer
At GMRI Capital, we pride ourselves on the quality and depth of our research and analysis. This means digging deeper than our competition for information and generating more useful reports. This article is provided “as is” for informational purposes only, not intended for trading purposes or advice.
Prior to execution of any security trade, you are advised to consult your authorised financial advisor to verify the accuracy of all information. Neither GMRI Capital nor any independent provider is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein.

• Contact: gilbert@gmricapital.com. Face -book: http://www.facebook.com/GMRICAPITAL. Telephone: 0778 409 875 Offices; 23 Lawson Avenue, Milton Park, Harare.

Econet-association-head-for-clash
 
Enia Nyakudzambara  The Herald Business Reporter
The Mobile Money Transfer Agents Association of Zimbabwe and Econet are heading for a possible clash over the latter’s recent directive that each of its agent should register at least five new customers per day as per their contract. The association, however, advised its members yesterday to disregard the directive as it had been superseded by the Reserve Bank of Zimbabwe ruling last month that there is no mobile service company that should have exclusive contracts with agents.
The Reserve Bank of Zimbabwe ruled that mobile money agencies are permitted to offer services to multiple payment system providers. Econet Zimbabwe sent messages to all its EcoCash agents informing them of the requirement.
“We would like to inform all members and concerned agents that the requirement by Econet is ill advised since mobile money business has become highly saturated for the said provider such that it is very difficult to sign on new customers.
“This is because section 3.4 of the agent contract they are referring to in the SMS broadcast is based on the exclusive basis contracts they made agents sign way back,” the association’s co-ordinator Mr Francis Chinjekure said in a statement.
He added that even registering one customer per day was now very difficult considering there were more than 8 000 agents countrywide.
Mr Chinjekure said the biggest concern is that there is no “real incentive” for agents to register new customers.
“Lack of an incentive shows that EcoCash is taking agents for granted. Such an issue should be encouraged and stimulated by a financial benefit, such that those who would want to pursue the financial benefit for new customer registrations will do so willingly,” he said.
He said Econet is keen to keep the cost of acquiring a new customer low and as such wants to reward the agents after the customer spends.
Apparently Econet has moved away from the original arrangement of paying $1 to agents for each new customer.
Instead it is now paying an agent $1 after a new customer signed by that particular agent effects a transaction of at least $10.