EDITORIAL COMMENT: Incentivise cash banking, protect depositors

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EDITORIAL COMMENT: Incentivise cash banking, protect depositors

Yesterday’s edition of The Herald had a very curious story of a Harare couple that fell victim to robbers who got away with $37 000 from them. An interesting anecdote to the story is the torture used by the gun-toting criminals to force the Glen Norah C couple to give away the location of their “treasure trove”. The daring criminals used a hot pressing iron to extract details from their victims.

But how a couple in a high-density suburb is able to hoard more than $37 000 in their family home when people claim that Zimbabwe has more banks than it needs — 18 banks — is nothing short of astounding.

And this is not an isolated incident.

A maid was this week convicted by a Zvishavane magistrate of stealing $9 800 from her employer. Again curiously, the money was being kept in a wardrobe.

If such amounts can be found in households in high-density suburbs, one shudders to think of the mountain-sized cash piles that are possibly stashed away in mansions in the country’s plush neighbourhoods.

It seems we have become the authors of our own daily struggles: $37 000 can pay 740 desperate bank depositors, assuming that they are being paid $50 each.

Also, $10 000 can serve 200 bank clients.

Hypothetically, more than 1 000 depositors could have been served from cash stockpiles that were stolen from just two households. But such anomalies also speak to the aberrations of the country’s financial institutions, where it has become lucrative to trade in money rather than to trade with money.

They also speak to how difficult it is for the banks, which have literally squandered public funds and goodwill for years, to push back on the trust deficit that currently exists. The introduction of Bond notes in November 2016 as an export incentive has helped stimulate exports, but this has also spawned different exchange rates on the market.

Trading in cash has now become lucrative business and arbitrage opportunities — created by different exchange rates for hard currencies and the bond note — are also having a direct impact on the price of local commodities.

The law that was passed on September 26 last year through the promulgation of Statutory Instrument 122A of 2017 (Exchange Control (Amendment) Regulations 2017 (No 5) has not helped stop cash vending.

So Government, the Reserve Bank of Zimbabwe (RBZ) in particular, still has a lot to do to restore public trust. There are currently no incentives for potential depositors to put their money in banks.

The high service charges for maintaining a bank account and the pitiably low interest gained from savings accounts have become a huge disincentive.

Most banks know they can profitably survive through punitive service charges. The danger with this model is that such profits are made at the expense of banks’ core business, which is to promote development through financial intermediation.

This means offering incentives for potential depositors to keep their money in banks which channel the same to the productive sectors of the economy. The highest office in the land is obviously alive to this fact.

In his inauguration speech on November 24 last year, President Mnangagwa noted that there was need for financial institutions to give a fair reward to depositors.

“To this end, Government will ensure financial sector viability and stability as well as put in place measures that encourage savings through bank deposits and other appropriate financial instruments which bring fair rewards to depositors,” he said.

The onus is now on the Ministry of Finance and Economic Planning, including the RBZ, to protect depositors from being ripped off by financial institutions.

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