The Sunday Mail
The bulk of local youths forming the core of the informal sector are now being spooked by the stringent conditions attached to concessionary facilities from banks, with latest statistics suggesting that only half of the Meikles Horticulture Out-grower scheme has been accessed so far.
The US$200 000 facility, which is being managed by the Infrastructure Development Bank of Zimbabwe (IDBZ), a statutory body established in September 2005 to spearhead economic capacity building projects, was set up by Meikles Africa Limited in 2012 for disbursement to youths as part of its compliance with the Indigenisation and Empowerment Act.
IDBZ has now systematically tightened conditions attached to the disbursement of the funds under the second phase of the scheme after some of the beneficiaries failed to fulfil their obligations. Souring loans have forced many local financial institutions to re-evaluate their risk assessment, particularly for potential borrowers.
As at December 2013, non-performing loans stood at 15,9 percent, way above the 5 percent international benchmark, signalling the worrying extent of loan defaults within the economy.
Market watchers attribute the high rate of loan defaults to low demand for goods and services in the country due to crippling cash shortages and a generally underperforming economy.
Last week, IDBZ chief executive officer Mr Charles Chikaura informed The Sunday Mail Business that the bank has 189 applications that are at various stages of processing but indicated beneficiaries should provide surety-ship guarantees from guarantors in formal employment.
“Some of the projects are already at disbursement stage (once the applicants meet the set pre-disbursement requirements they will access the loans), the other lot is still awaiting approval and quite a good number are at the appraisal stage. “The beneficiaries of Phase 2 of the Meikles Fund are required to provide surety-ship guarantees from guarantors in formal employment with proof of monthly incomes and this is in addition to principal borrowers signing negative pledges over business assets for the ventures financed by the loan.
“The introduction of an additional requirement for surety-ship guarantors has in a way slowed the rate of disbursements and, in a way, uptake for the loans as in most cases the youths are struggling to get people willing to stand in as their guarantors, but it is the only way at the moment to help us enforce repayments and ensure the fund continues to be a sustainable revolving resource to be accessed by other beneficiaries in the future,” said Mr Chikaura.
He said the new measures are a precaution to avert widespread non-payment of loans in future given that repayments have been generally “satisfactory” under Phase One of the scheme.
“The repayment trends have been satisfactory. We are aware of some of the challenges the youth encounter in their projects that hinder viability and adversely affect efficient repayment of the loans.
“We have considered these issues closely and have agreed repayment plans on loans which factor in such considerations in setting overall repayment timelines to be adhered to by the beneficiaries,” explained Mr Chikaura.
It is believed that some youths have failed to meet their obligations due to “genuine challenges”.
Some crops financed under the Meikles Fund were severely affected by frost as most of the funds were disbursed towards the winter season of 2012, whilst other beneficiaries are currently making small repayments. Mr Chikaura added that the other remaining group comprises borrowers who exhibit capacity to pay but simply lack the willingness and commitment to do so. Bad loans have become a sector-wide disease, particularly in the financial services sector.
The US$11 million Kurera/Ukondla Youth Development Fund launched in 2011 has also been hit by 70 percent loan defaults.
About US$5,6 million has been disbursed through the facility, which is presently being disbursed by the Central African Building Society (CABS), a subsidiary of property giant Old Mutual. The maximum an individual could borrow was pegged at US$5 000.
Director in the Ministry of Youth, Indigenisation and Economic Empowerment Mr Godfrey Sigobodhla noted that some youths had decided to abscond after squandering proceeds from the fund. Recently, Barclays Bank Zimbabwe managing director Mr George Guvamatanga indicated that the lender, which is set to access US$100 million in lines of credit this month, will be forced to overlook individuals and oth er small enterprises in order to avoid rising defaults.
