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Martin Kadzere

Senior Business Reporter 

The Reserve Bank of Zimbabwe on Wednesday issued guidelines for the disbursement of $500 million medium term loan facility to micro, small to medium enterprises (MSMEs) to help them recover from the coronavirus pandemic.

Last month, the Reserve Bank’s Monetary Policy Committee approved a medium term accommodation facility to enable MSMEs to access affordable funding boost their operations. 

The facility will be made available through lending institutions including banks, building societies, POSB, micro-finance banks as well as micro-finance institutions through arrangements with the Zimbabwe Microfinance Fund (ZMF).

The facility will be used for on-lending to MSMEs, in both rural and urban areas and diversion of the funds by lending institutions will result in termination of the facility which become immediately payable once the Reserve Bank becomes aware of the abuse, according to the guidelines issued to the banks. 

Lending institutions will process and approve loan applications, in line with the usual credit approval process without the need to submit individual loan applications to the central bank.

The institutions are also expected to carry out their normal credit risk assessment, before submitting draw-down requests to the bank for disbursements.

The facility is available for up to 12 months for working capital 36 months for capital expenditure.

According to the RBZ, beneficiaries, individuals, groups or companies are not permitted to access multiple loans through different lending institutions.

As such, it has advised lending institutions to make use of the Credit Registry System and declarations by potential beneficiaries to guard against multiple access and default. Lending institutions will access funding from the Reserve Bank at an interest rate of 30 percent per annum and will charge an all-inclusive maximum margin not exceeding 10 percentage-points above the rate at which funds are accessed from the central bank.

Credit-only micro-finance institutions will charge an all-inclusive interest rate not exceeding 3 percent per month.

Lending institutions are not permitted to deduct interest upfront. They may, however, collect interest accruing to them monthly, commencing after a grace period. 

Interest rates on the facility will remain fixed for the tenor of the facility to allow for proper planning. 

Banks, deposit-taking micro-finance institutions, and the Zimbabwe Microfinance Fund will be required to provide collateral as required by the Reserve Bank to access funding under this facility.

This collateral shall include Government and central bank paper, which should cover 110 percent of the amount borrowed.

However, the RBZ, at its discretion may accept other forms of collateral including  properties which are in the name of the lending institution or ceded from the borrowers. 

Where the collateral is ceded from the borrowers, a duly signed cession agreement will be required as a condition precedent. 

Other forms of collateral, which include guarantees from institutions like the Export Credit Guarantee Company or Credsure can be negotiated with the RBZ.

In calling for collateral, lending institutions should be considering the financial inclusion thrust of the facility, which seeks to avail affordable funding to MSMEs that have been negatively impacted by the Covid-19 pandemic. 

As such, lending institutions have been urged to consider the use of alternative forms of collateral such as movable assets or group guarantees. 

Applications for funding which lack appropriate collateral are also eligible for guarantees under the Credit Guarantee Scheme administered by the Export Credit Guarantee Company. – www.ebusinessweekly.co.zw.