Willowvale plans face financing obstacle

Darlington Musarurwa
CALLS for Government to help capacitate Willowvale Mazda Motor Industries are unlikely to bear fruit unless there are wide-ranging interventions to create sustainable financing models.
Even if Willowvale did manage to assemble vehicles most consumers would be unable to access affordable credit facilities with local financial institutions charging excessive interest rates.

In regional economies such as South Africa, there are mainly two vehicle loan financing options: hire purchase, where there is a contract between the bank and the borrower linked to prime interest rates and fixed term; and residual purchase through which a percentage of the loan has to be repaid at the end of the term as a “balloon payment”.

The policy is markedly different in Zimbabwe as banks are increasingly cautious because of the high default rates.
At more than 13 percent of total loans and advances, non-performing loans (NPLs) in the local banking sector are considered to be the highest in sub-Saharan Africa.

It is possible that the high default rate is linked to excessively high interest rates prevailing in the market which have seen borrowers unable to keep up with payments.

Naturally, local banks prefer to give salary-based loans as the risk is perceived to be minimal.
These loans are often offered by banks where a salary is already deposited.

More than 90 percent of the deposits in the local banking sector are short-term, a development that has made interest rates on loans with a long tenure punitive.

The situation is made worse by the high bank service charges.
Usually, car loans stretching for a period of two years attract a monthly interest rate of 6 percent on the principal loan sum.

A snap survey conducted last week revealed that when applying for a car loan of US$7 000 in a local commercial bank, an applicant is likely receive a payment of $6 500, less administration charges, if at all the loan is approved.

Monthly payments of US$400 will have to be paid.
In an economy where the bulk of civil servants — more than 200 000  – are earning between US$300 and US$700, few will be able to afford such a facility.

So, a car loan valued at US$10 000 will attract loan repayments of between US$500 and US$600 per month, depending on the interest rates of the bank concerned.

At the end of payments, the total cost would be up to US$14 400.
Regional averages for used car loans for a period of two to three years are pegged at about 2,8 percent per annum; five-year loans for a new car are pegged at not more than 3 percent.

Paying an interest rate of 14 percent per annum to finance a R260 000 car loan is considered unreasonable in South Africa.
Before January 2014, the Bankers’ Association of Zimbabwe (BAZ) and the Reserve Bank of Zimbabwe had signed a memorandum of understanding, which put a 12,5 percent ceiling on lending rates.

Under the current dispensation, however, banks can charge flexible interest rates depending on their internal cost structure.
Some banks are charging interest rates in excess of 20 percent.

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