There is no question that the January 2016 Monetary Policy Statement pronounced by the Governor of the Reserve Bank of Zimbabwe (RBZ) on February 4 2016 addressed a significant number of concerns raised by the banking public in Zimbabwe. Dubbed “Economic Transformation through Transparency and Accountability”, the RBZ reaffirmed its interest rate policy for banks to “abide by the interest rate guidelines requiring loan interest rates for productive lending not to exceed 15 percent per annum, with attendant default interest rates being pegged at 18 percent.
The policy now requires adequate disclosure and communication of effective lending rates and associated charges to the borrowers to enhance consumer awareness. It is engaging micro-finance institutions and moneylenders, on interest rates to charged to their customers to prevent usurious rates. There will no longer be administrative charge levies on basic “no frills” savings accounts, this as a step to do away with high unjustifiable bank charges .
Greater transparency, minimisation of information asymmetry between consumers and financial service providers, and effective redress mechanisms to rights abuses, will be achieved via the Consumer Protection Prudential Standards that is currently under development, and to be issued by 31 March 2016. Further the recently passed Amendments to the Banking Act and the Reserve Bank Act, now awaiting Presidential assent, provides for among other things, the establishment of the Office of Public Financial Protector to resolve disputes between financial institutions and their customers.
A financial sector oversight council and a financial sector stability committee will also be established to ensure stability in the financial sector. In this same breath the RBZ together with the Public Accountants & Auditors Board (PAAB) are taking steps for the adoption of new and revised auditing and financial reporting standards aimed at dealing with externalisation through increased transparency, accountability and ethical behaviour of auditors.
Banking institutions will be required to explore the agent banking model to enhance financial inclusion through increase of proximity of financial services products and services to clients, in rural and urban areas.
Example agents are cited in the policy statement. The RBZ will issue detailed guidelines governing the operation of this model by March 31 2016. There are a host of other measures to be implemented in first half of the year including the requirement for banking institutions to have board approved institutional ethical standards, code of conduct and customer charter by June 30 2016.
The monetary policy statement is clearly meant to regenerate public confidence among the various classes of consumers, including the low income, the middle income, the high income; in rural and urban areas. The policy statement is again clearly structured to achieve this confidence building objective through reducing the inclination by banks to clandestinely use their institutional power against consumers, and simultaneously by enhancing consumer bargaining power through disclosure requirements, redress mechanisms, the introduction of protective bodies, and overall through protective legislation.
Reducing that bank ability to clandestinely use their institutional power, increasing transparency and accountability in the way banks conduct themselves with the public is probably why the Governor dubbed this policy statement “Economic transformation through transparency and accountability”.
However, the link of the latter theme to the policy statement strategic policy measures is rather weak. The latter weakness is a consequence of the selective manner in which the statement was couched to advise the authorities (Ministry of Finance and Government), banks and those economically/financially savvy, the technical tone of the statement leaving out those it seeks to protect and include. The latter may not be aware of these measures that are meant to make them better off.
It is necessary, indeed pertinent that such a monetary policy statement speaks to those that is seeks to protect/include, and mobilise them into strategic economic activities that make them better — in the process and in aggregate driving economic growth, as the central bank desires. The latter is in fact the object of monetary policy statements, i.e. to achieve sustainable economic growth while minimising the incidence of risks such as inflation, deflation, over-appreciation of currencies, among other risks. In normal macro-economic circumstances, the monetary policy statement objectives are achieved through modulating two primary economic variables, namely, a) the interest rates at which members of the public, institutions (or economic agents in general), are willing to lend or borrow money, and b) through the amount of money circulating among economic agents (so called money supply). In these normal circumstances, Government operations to offer goods and services should then be structured to support the level at which the interest rates and money supply have been pegged by the central bank.
Granted, the latter policy measures in these normal macro-economic circumstances, are targeted to affect primarily the strategic activities of banks and other financial institutions – and not directly the actions of members of the public. Directly targeting the actions of banks and other major financial institutions makes sense because these institutions, by and large, represent the financial interests of the members of the public.
Save for a few incidences from time to time, which are then put under control, banks and other financial institutions in these normal circumstances are organised to genuinely represent financial interests of members of the public, as they are geared operationally to maximise returns on products and service that they offer to their clients, herein members of the public.
Therefore banks will act in the best interests of, and on behalf of members of the public (their clients) in response to monetary policy measures. In corollary, the members of public are happy and confident that banks will act in their best interests — hence the need for that public confidence in banks.
Now the rather abnormal circumstances in which the RBZ has no direct control of the United States dollar (US$) in circulation in Zimbabwe, means that the RBZ Governor’s monetary policy statement critically depends on the co-operation of members of the public, banks, other financial institutions and of Government to place any US$ that they realise in the financial system in Zimbabwe, for Zimbabwe.
Then that US$, in aggregate, will predictably count for money supply in Zimbabwe, and monetary policy can begin to work in the ‘‘normal’’ traditional sense outlined above, as long as Government operations are structured to support the policy. This leaves not much choice for the Governor, except to ensure/enforce the cooperation, and prevent externalisation and maximise inclusion of all economic agents. This means seriously organising/mobilising the banks as he proposes in this latest monetary policy statement, not just in the spirit of transparency and accountability, but also in the spirit of fairness and responsibility to members of the public – that is in the spirit of good corporate governance overall, in zero tolerance.
But in addition to organising banks as he proposes in the policy statement, the Governor should seriously organise the low income, middle income, high income consumer classes, in rural and urban areas to use financial services as a way of life. The proposed agent model and public education are welcome in this regard, but flagging consumer rights pertaining to information on bank charges and interest rates, in national campaigns, and creating banking environments which are not intimidating/overwhelming to the public, especially taking their backgrounds and cultures must be priorities. Further the RBZ must implement the Adoption of New and Revised Auditing and Financial Reporting Standards sooner than the time frames that it implies in this Statement if it is to minimise externalisation and realise a US$ money supply to implement an effective monetary policy statement. Zimbabwe cannot afford further externalisation – The project must be taken head-on, without excuses, with maximum speed.
Government on its part must ensure its operations are structured to support such monetary policies, as mooted by its very own, the RBZ.
Opinions expressed herein are those of the author and do not represent those of the organisations that the author represent