Empowerment is not about starting banks

Nick Mangwana View from the Diaspora
Zimbabwe has experienced a high share of bank failure in Sadc but the strange thing is that more continue to be opened.

In the current climate depositors are shunning banks that the Government has to actually force them to put their moneys in the bank and yet people continue opening new banks.

If it were private investors or cooperatives pooling resources together and starting a bank that would be understandable even though ill-advised in this climate.

But no, it appears Government ministries have found it en vogue to start their own banks to fund their programmes and drive their policies.

We know, for example, that the Women’s Bank is on the way. In fact, there have just been delays but it’s a done deal.

Now we hear that the Empowerment Bank is on the way as well. If it was some party at Baal Peor we would say the more the merrier. But these are banks we are talking about.

Now don’t get me wrong, this columnist is a big supporter of empowerment programmes. Marginalised groups should be supported so as to militate against the disadvantage of their former status.

But is the opening of these banks the way to go about it?

There is a vulnerability to “movements” in Zimbabwe. Someone starts a political party; many will mushroom in emulation.

Someone else tells a few fibs and calls themselves a “prophet” and makes themselves a heap of money; there will be a movement of prophets on the landscape.

Someone takes selfies and starts some kind of anti-establishment movement; just watch and see how many “cyber warriors” are going to start their own.

It is how we are hardwired and how our software is programmed as well.

But it’s all good, Zimbabwe is a free country. Sometimes though, we have to know when to stop.

When someone starts a bank and it collapses, they are getting away with fraud, recklessness endangerment of the economy or both.

If there are no consequence to themselves this causes all and sundry to start toying with the idea of “why not?”.

Banks are not tuckshops; the collapse of a single one has serious consequences on confidence in the financial sector and any unnecessary shocks in the financial sector have serious consequences for the economy.

This is why some are wondering why we are starting banks, instead of innovatively supporting financial products targeted at empowering these vulnerable groups?

Now that the Women’s Bank is coming, and the Empowerbank is on the horizon, are we going to also see the “Disabled Bank”?

In Zimbabwe’s current financial climate where people are avoiding depositing money in the bank because if they do they will struggle to get it out, is it the wisest time to start new banks?

How likely is it that these banks will inspire enough confidence in depositors that they will entrust them with their moneys?

Is an initial capitalisation of $2,5 million or even $10 million enough to run a bank even in the hope that other investors will come through?

Everyone knows that bank executives in Zimbabwe have ridiculous perks and out-of-this-world remuneration, come the end of the year, how much of this money would have been used to empower and how much would have been used for recurrent expenditure?

Zimbabwe is currently experiencing an unbelievable debt default rate. How likely is it that these banks will collapse soon after all the money is earned in perquisites and whatever remains is corruptly disbursed to the connected who don’t pay back?

An honest answer to each and every question above is not inspiring to either a potential investor in the bank or a potential depositor. But it is the same questions they will ask themselves before making their decisions.

As indicated earlier the failure or collapse of a bank is not an end in itself. It has a contagion effect on the whole financial system of a country and the whole economy. An objective approach is needed in these matters.

Every bank has a lot more stakeholders outside that bank than in it. The undesirable consequences of on an ill-thought bank launch will result in further financial distress to the whole system.

Is there any doubt that these banks are going to give facilities to a lot of people who are a serious credit risk?

We have Parliament trying to find out what actually happened to the $40 million from the last empowerment programme.

This money was disbursed by longstanding financial institutions with a lot of experience in both our economy and political context.

They dismally failed both their due diligence and prudence or succumbed to political pressure. Now we are not going to ask them to do the disbursements. Instead we are going to open more undercapitalised banks which in turn are going to doll out non-performing loans.

These will be written down and erode the bank’s capital. If loans comprise a big proportion of most banks’ assets, what will remain?

Surely, why are we doing this to our own economy?

Government has no business running banks. The only bank the Government should run is the Reserve Bank of Zimbabwe as a registrar and regulator of banks.

The reason why the Government should not run commercial banks is quite simple, banks are there to create money by lending it out.

The economic dividend of lending money is only realised when that money is paid back. So regardless of all the best intentions, lending done by Government-owned banks will be on political lines.

Any lending done on political lines is not a commercial decision therefore these loans are very unlikely to be repaid.

When there is no pressure to repay, there surely is no pressure for the borrowing business or politically powerful groups to deliver so they can repay. There is no manager under the sun who can sustain this political pressure.

During the global financial crisis, the British government bought stakes in some banks as a way of rescuing them and buffering the effect of the crisis on the economy. But in less than 10 years it has disinvested in all of them.

This is because of the said realisation that it is not their business to run banks. There are some who have even said that the Government has no business being in business. But that is for another day

The intention to empower our youths and women is a noble one indeed. We have to find a way to approach this.

Government has already shown that it can creatively empower important groups by using existing institutions and infrastructure.

Command Agriculture is an example of an empowerment programme that has been in the main a success. Zimbabwean farmers were suffering from the lack of working capital.

The input schemes addressed that and there was substantial success. This was an empowerment financial instrument to the farmers.

The State didn’t need to open another “Agribank”. It worked with the institutions that are already in place and just put prudent safeguards in place.

Empowerment interventions do not take place in a vacuum. In our very defaulting and financially distressed context there is a need to look at what we are trying to achieve.

There is nothing to be ashamed of in saying one of the things that should be achieved is a political dividend for the incumbent Government.

Every government is measured by its past performance and these cannot be separated from the overall national economic performance.

The idea is not to have a transient success coinciding with an election season. It is to intervene with an empowerment programme or project that has sustainable success.

The Government has to just put enablers in place. This is why focus on both women and the youth should be in skills training first.

After that then our ministries should design products that bring inclusivity to both the youths and the women. Opening a bank should not be part of it for now.

These groups are crying for skills and access to productive resources. Money can be thrown around like confetti, but without skilling up these groups it surely will be money down the drain.

The Government of Zimbabwe already has stake in established banks on the market. If the institutional environment is restrictive or discriminatory to these groups, then it is the role of Government as an enabler to legislate or regulate in a way that mediates those impediments, instead of the seemingly knee-jerk reaction, “why not just open a bank?”

Groups that are marginalised are in that position because of social and cultural factors which need to be addressed.

You can’t just doll out money without addressing the constraints that hinder these groups from flourishing and achieving their potential.

Simply focusing on these groups without addressing the circumstances responsible for the marginalisation is in itself ill-advised.

Let us also do that which helps create jobs and open up opportunities. We cannot foist entrepreneurship on everyone.

Opening up banks is now licensing heists. We should start arresting whoever runs a bank that collapses for bank robbery and for reckless endangerment of the economy. Now that’s the business of Government, not running the banks.