Mistrust in banks keeps out $120m

Martin Tarusenga
One gets the sense that the banking system in Zimbabwe is absolutely of no service to the public, and pariah in nature considering the various negative reports causing public resentment of the banks and perceptions that the Reserve Bank of Zimbabwe (RBZ), the regulating authority, may be ineffective.

The negative reports include those about high usurious loan interest rates, high unjustifiable bank charges levied on bank accounts, the routine defaults by banks on money placed with them by the banking public, the routine fold-up of banks, and the apparent lax (business as usual) attitude manifesting in the RBZ in the face of these underling/background public complaints against banks.

The RBZ objective to regenerate public confidence in banks and the banking system overall, as repeatedly espoused in its monetary policy statements may be a lost cause — with the statements showing up as statements to mechanically fulfil an annual requirement.

To be sure public confidence and public trust is critical for the survival of any banking system — no one would place money in any bank, in any given jurisdiction if they suspected a high probability that the incumbent bank would default on the money, and if they suspected that the jurisdictional authorities would intervene (if at all) to let the bank get away with the default.

And to be sure, the banking system is, in proven economics dynamics, a critical component in several functions, not least in the payment of goods and services by households, in the savings of money for future consumption and transactions, in redirecting money from those with no immediate use for it to projects/investment that drive economic growth, in redirecting money to firms that produce the goods and services (agricultural produce, cars, mobile phones, building material, etc) that we consume — this among other functions.

These functions of the banking system are in fact known collectively as the mediation of funds between or among households, firms, Government, foreign countries and other entities — with other industries within the financial services sector such as the pensions/insurance industry, helping perform similar functions, but in different ways.

In the jargon, the banking system is a key component of a country’s financial system, covering the entities highlighted earlier.

Prospects for economic growth for a country with an inefficient financial system, in particular with a banking system that is not trustworthy, are dim.

In order for intermediation of funds to take root efficiently, and for prospects for economic growth to be bright, the public must see bank services as valuable and crucial, and as services that they benefit from, without which any other alternatives are inconvenient; and they must see the regulating authority, the RBZ in Zimbabwe’s case, as the protective big brother.

Now a brief survey of the views of banks in Zimbabwe by vegetable and flower vendors, by barbers and hairdressers in Harare city centre, shows that they believe banks take hard earned money away from them, and are a disservice to them — they will not bank their money, and only deal with banks when there are compelling reasons to do so.

Notwithstanding the chaotic nature of this business in Harare city centre, which the Mayor and Harare City Council must put in order sooner, the objective of the survey was to check how much money is not being banked from these business operations, as a result of negative perceptions about banks and the RBZ.

The survey, comprising the area between Kwame Nkrumah and Jason Moyo, from 4th Street to Harare Street, covered about 300 hundred dealers, roughly 50 percent of them being vegetable and flower dealers, the rest being the Barbers and Hairdressers.

Vendors in mobile phones and attendant accessories, clothing, were excluded for simplicity of survey.

From the earnings information extracted from this survey of this part of Harare city centre, these vendors, barbers and hairdressers, in aggregate, on average, do not bank about $7 000 on a daily basis – this as a result of their experiences with banks in Zimbabwe, and perceptions thereof.

This unbanked amount translates to about $40 000 on a weekly basis, to about $150 000 on monthly basis and about $2 million on an annual basis.

If the survey area covered is considered to be about half of the markets in question (vegetable/flower vending, barbers and hairdressers), in Harare city centre, then about $300 000 is not being banked monthly by vegetable and flower vendors;, barbers and hairdressers in Harare city centre – this translates to about $4 million per annum just for these business people.

But this is just Harare city centre – if vendors, barbers and hairdressers in the 40 or so suburbs of Harare constituted half the size of the city centre market size, then annually, about $45 million is not being banked by the vendors, barbers and hairdressers in Harare.

And if the main cities of Bulawayo, Masvingo, Gweru, and Mutare are taken in to consideration, each with half of Harare’s market size, then at least a total of $120 million is not being banked by vendors, barbers and hairdressers in Zimbabwe — this as a result of their experiences with banks in Zimbabwe, and perceptions thereof.

If the other markets and vendors that are not banking as a consequence of bad experiences with banks were to be considered, the amount would be staggering!

The RBZ needs to wake up to the real need to regenerate public confidence in banks and the real need to bring banks closer to the productive public.

 Martin Tarusenga is General Manager of Zimbabwe Pensions & Insurance Rights, email, [email protected]; telephone; +263 (0)4 797020; Mobile; +263 (0)772 889 716. Opinions expressed herein are those of the author and do not represent those of the organisations that the author represent.

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