The Sunday Mail
Business Reporter
The recently launched Zimbabwe Mercantile Exchange (ZMX) is currently focused on the storage and securitisation of commodities for them to become instruments that can be accepted in the financial services sector.
Speaking during Business Weekly’s live programme, State of the Market, Mr Collen Tapfumaneyi, chief executive officer at Escrow Group, which is running the ZMX trading platform, said even though banks are interested in funding agriculture, there is a funding gap that exists.
He said banks are worried about how they can secure their interests.
Lack of collateral by local farmers has been the major Achilles heel for the agriculture sector, with banks claiming the risk of financing farmers is too high since land cannot be collateralised due to tenure issues.
Efforts to use 99-year leases as collateral have continuously faced challenges with banks.
The new platform will, however, become the centre piece of private sector funding into agriculture, Mr Tapfumaneyi said.
“This (ZMX) is the intermediation, the infrastructure that will enhance funding into agriculture.”
He added that the new platform is centred on a very strong legal framework that supports everything done on ZMX.
“The warehouse receipt system is now anchored on very strong legislation of both the Warehouse Receipt Act (Chapter 18:25) as well as the Warehouse Receipt (General) Regulations.”
It is also believed the legal instruments give confidence to the financial services sector to participate in financing agriculture.
“On top of that, we managed to have the warehouse receipts declared as security in terms of the Securities Act and that enables investors and fund managers to also diversify their portfolios by investing in agriculture by having this security in their books.”
A warehouse receipt system enables farmers to deposit storable goods (usually grains) in exchange for a warehouse receipt (WR).
A WR is a document issued by warehouse operators as evidence that specified commodities of stated quantity and quality have been deposited at a particular location.
Farmers can then use the WRs to access funding from various financiers.
In future, the platform will introduce derivative instruments such as futures and options which will enable fuller participation in the commodity markets by the financial services sector.
The derivatives framework has already been approved by the Securities and Exchange Commission of Zimbabwe.
“There is already a framework in place and very soon we will be rolling out awareness and capacity-building campaigns to ensure that our markets and the beneficiaries of derivatives are ready to participate.
“So the opportunities are vast to make the model viable,” Mr Tapfumaneyi said, adding there are plans to introduce livestock and horticulture onto the platform.
The ZMX initiative is a partnership between Government and the private sector led by Financial and Securities Exchange Limited (FINSEC), TSL Limited and CBZ Holdings.
Further assistance in research and policy formulation was drawn from the Food and Agricultural Organisation (FAO) and Indaba Agricultural Policy Research Institute (IAPRI), who rendered technical assistance centred on how smallholder farmers can participate in the mainstream economy.
FINSEC, a subsidiary of Escrow Group, is undertaking the technical implementation work in setting up the exchange.
TSL together with the Grain Marketing Board, Origen and ETG will be responsible for warehouses infrastructure and logistics.
Timely implementation of the exchange means farmers from across the country will start benefiting from it this agriculture marketing season as they start selling crops harvested this year.
